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https://www.investopedia.com/articles/basics/12/challenges-investing-modern-world.asp	The Challenges of Investing in a Modern World	<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 speaking about investing, people often make statements to the effect that the tried-and-true investment basics haven't changed in decades: as long as you stick to these principles, you have a good chance of being successful. While this may be true in a few instances—for example, buy low and sell high—the investing landscape has been vastly transformed in most other respects. There are many unique challenges that modern investors face. </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-incredible-volume-and-speed-of-information"></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"> Incredible Volume and Speed of Information </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Perhaps the most daunting challenge that modern investors face is the sheer speed and volume of information. In the past, solid information about publicly-traded companies was hard to come by outside of the annual and quarterly reports. The Wall Street Journal and a limited number of finance-related publications attempted to collect business news and disseminate it. But this news moved to the greater public at the speed of print (if it reached them at all). In order to be reported, a story had to be significant; even then, it had to be written up, printed, and delivered. </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 investing landscape has been vastly transformed so that there are many unique challenges that modern investors face.</li><li>Perhaps the most daunting challenge that modern investors face is the sheer speed and volume of information.</li><li>With time, many investors learn to filter out information and create a select pool of reliable sources that match their investing tastes.</li><li>Even if you have a good handle on quality information, you can still get burned when inaccurate information or basic uncertainty hits the market.</li><li>Advertising can sometimes push an investor toward an edge by hyping an investment that isn't necessarily the best fit.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Now, even obscure companies can produce a constant stream of information—from the daily price fluctuations in the stock, announcements, and posts on dedicated message boards. When there is so much information available at any given time, it can be difficult to identify what is really important. </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-finding-the-right-resource"></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"> Finding the Right Resource </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The difficulty of finding the right resource is tied to the challenge of there being too much information available. As an investor, how do you find the good resources in the crowd? To be clear, having lots of choices and easy access to free resources is an overall win for the modern investor. But research can be daunting when there are so many choices. While investing primarily deals in facts, opinion colors many areas (such as whether technicals matter more than fundamentals). </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"> With time, many investors learn to filter out information and create a select pool of reliable sources that match their investing tastes. Until then, however, it is hard to avoid being overwhelmed by the range and variety of opinions out there. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-the-reactionary-market"></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 Reactionary Market </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Even if you have a good handle on quality information, you can still get burned when inaccurate information or basic uncertainty hits the market. Inaccurate information still hits the market, even though the time to correction/exposure is often shorter. Inaccuracies can be honest mistakes, malicious rumors, or even financial fraud on the part of corporations. More importantly, the financial markets are so addicted to the constant information flow that an interruption in the flow or genuine moments of uncertainty can be worse than bad news. </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"> Market reactions have always been extreme, but the increasingly global reach of information has given investors more reasons to overreact (literally on a per hour basis). It doesn't take a great leap of imagination to see good or bad consequences with every headline that pops up in the feed. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-the-choices"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> The Choices </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> When does choice become overwhelming? There are conflicting studies about the limits of the human mind when faced with a variety of choices. Research suggests that we chunk choices into a manageable few (between three and eight, for example). This works in an ice cream shop with five types of ice creams. But the world of finance offers far more than eight types of stock investments. When faced with all these choices, we may attempt to find shortcuts to chunk our options down to a few. This is useful, but it may also lead to us discounting the better option. For example, someone looking for regular income may chunk their options down to dividend-paying utility stocks when they may have been better served by a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend-etf.asp" rel="noopener noreferrer">dividend exchange-traded fund (ETF</a>). </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-the-role-of-advertising"></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"> The Role of Advertising </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The marriage of investments and advertising has been a boon and a bane to investors. On one hand, advertising has helped familiarize investors with a wider range of investment vehicles available today.<span class="ql-inline-citation" data-cite="1"></span> The modern investor is more aware of the available investments beyond stocks, bonds, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/termdeposit.asp" rel="noopener noreferrer">term deposits</a>.<span class="ql-inline-citation" data-cite="2"></span> Most will be able to explain mutual funds, index funds, ETFs, and probably options and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp" rel="noopener noreferrer">mortgage-backed securities</a> as well. </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"> Knowledge is a great thing, but advertising can sometimes push an investor toward an edge by hyping an investment that isn't necessarily the best fit. Take mutual funds, for example. Quite often, an investor with a limited amount of capital is better off taking the lowest fee investment option (index fund or ETF) compared to higher-fee, professionally managed mutual funds.<span class="ql-inline-citation" data-cite="3"></span> Advertising, however, can change this relatively straightforward math by playing up the advantages of professional management while failing to mention fees. So, if the professional manager is not up to snuff, then advertising has cost the investors market returns—plus the management fee. </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"> It is true that some investors have been successful using traditional methods and simply shutting their doors against the modern world. This list includes famous fund managers <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 Buffet</a> and John Templeton.<span class="ql-inline-citation" data-cite="5"></span> <span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> For most of us, however, the flow of information is comforting and helps us feel more confident in our decisions. The trick is finding the right balance when taking in information and turning it into action. In fact, most investors can survive the modern information barrage with some very traditional advice–measure twice, cut once. In other words, take the time to evaluate the information in front of you before making buy or sell decisions. </p></div>	When speaking about investing, people often make statements to the effect that the tried-and-true investment basics haven't changed in decades: as long as you stick to these principles, you have a good chance of being successful. While this may be true in a few instances—for example, buy low and sell high—the investing landscape has been vastly transformed in most other respects. There are many unique challenges that modern investors face. ## Incredible Volume and Speed of Information Perhaps the most daunting challenge that modern investors face is the sheer speed and volume of information. In the past, solid information about publicly-traded companies was hard to come by outside of the annual and quarterly reports. The Wall Street Journal and a limited number of finance-related publications attempted to collect business news and disseminate it. But this news moved to the greater public at the speed of print (if it reached them at all). In order to be reported, a story had to be significant; even then, it had to be written up, printed, and delivered. ### Key Takeaways * The investing landscape has been vastly transformed so that there are many unique challenges that modern investors face. * Perhaps the most daunting challenge that modern investors face is the sheer speed and volume of information. * With time, many investors learn to filter out information and create a select pool of reliable sources that match their investing tastes. * Even if you have a good handle on quality information, you can still get burned when inaccurate information or basic uncertainty hits the market. * Advertising can sometimes push an investor toward an edge by hyping an investment that isn't necessarily the best fit. Now, even obscure companies can produce a constant stream of information—from the daily price fluctuations in the stock, announcements, and posts on dedicated message boards. When there is so much information available at any given time, it can be difficult to identify what is really important. ## Finding the Right Resource The difficulty of finding the right resource is tied to the challenge of there being too much information available. As an investor, how do you find the good resources in the crowd? To be clear, having lots of choices and easy access to free resources is an overall win for the modern investor. But research can be daunting when there are so many choices. While investing primarily deals in facts, opinion colors many areas (such as whether technicals matter more than fundamentals). With time, many investors learn to filter out information and create a select pool of reliable sources that match their investing tastes. Until then, however, it is hard to avoid being overwhelmed by the range and variety of opinions out there. ## The Reactionary Market Even if you have a good handle on quality information, you can still get burned when inaccurate information or basic uncertainty hits the market. Inaccurate information still hits the market, even though the time to correction/exposure is often shorter. Inaccuracies can be honest mistakes, malicious rumors, or even financial fraud on the part of corporations. More importantly, the financial markets are so addicted to the constant information flow that an interruption in the flow or genuine moments of uncertainty can be worse than bad news. Market reactions have always been extreme, but the increasingly global reach of information has given investors more reasons to overreact (literally on a per hour basis). It doesn't take a great leap of imagination to see good or bad consequences with every headline that pops up in the feed. ## The Choices When does choice become overwhelming? There are conflicting studies about the limits of the human mind when faced with a variety of choices. Research suggests that we chunk choices into a manageable few (between three and eight, for example). This works in an ice cream shop with five types of ice creams. But the world of finance offers far more than eight types of stock investments. When faced with all these choices, we may attempt to find shortcuts to chunk our options down to a few. This is useful, but it may also lead to us discounting the better option. For example, someone looking for regular income may chunk their options down to dividend-paying utility stocks when they may have been better served by a [dividend exchange-traded fund (ETF](https://www.investopedia.com/terms/d/dividend-etf.asp)). ## The Role of Advertising The marriage of investments and advertising has been a boon and a bane to investors. On one hand, advertising has helped familiarize investors with a wider range of investment vehicles available today. The modern investor is more aware of the available investments beyond stocks, bonds, and [term deposits](https://www.investopedia.com/terms/t/termdeposit.asp). Most will be able to explain mutual funds, index funds, ETFs, and probably options and [mortgage-backed securities](https://www.investopedia.com/terms/m/mbs.asp) as well. Knowledge is a great thing, but advertising can sometimes push an investor toward an edge by hyping an investment that isn't necessarily the best fit. Take mutual funds, for example. Quite often, an investor with a limited amount of capital is better off taking the lowest fee investment option (index fund or ETF) compared to higher-fee, professionally managed mutual funds. Advertising, however, can change this relatively straightforward math by playing up the advantages of professional management while failing to mention fees. So, if the professional manager is not up to snuff, then advertising has cost the investors market returns—plus the management fee. ## The Bottom Line It is true that some investors have been successful using traditional methods and simply shutting their doors against the modern world. This list includes famous fund managers [Warren Buffet](https://www.investopedia.com/articles/01/071801.asp) and John Templeton. For most of us, however, the flow of information is comforting and helps us feel more confident in our decisions. The trick is finding the right balance when taking in information and turning it into action. In fact, most investors can survive the modern information barrage with some very traditional advice–measure twice, cut once. In other words, take the time to evaluate the information in front of you before making buy or sell decisions.	When speaking about investing, people often make statements to the effect that the tried-and-true investment basics haven't changed in decades: as long as you stick to these principles, you have a good chance of being successful. While this may be true in a few instances—for example, buy low and sell high—the investing landscape has been vastly transformed in most other respects. There are many unique challenges that modern investors face. Incredible Volume and Speed of Information Perhaps the most daunting challenge that modern investors face is the sheer speed and volume of information. In the past, solid information about publicly-traded companies was hard to come by outside of the annual and quarterly reports. The Wall Street Journal and a limited number of finance-related publications attempted to collect business news and disseminate it. But this news moved to the greater public at the speed of print (if it reached them at all). In order to be reported, a story had to be significant; even then, it had to be written up, printed, and delivered. Key Takeaways The investing landscape has been vastly transformed so that there are many unique challenges that modern investors face.Perhaps the most daunting challenge that modern investors face is the sheer speed and volume of information.With time, many investors learn to filter out information and create a select pool of reliable sources that match their investing tastes.Even if you have a good handle on quality information, you can still get burned when inaccurate information or basic uncertainty hits the market.Advertising can sometimes push an investor toward an edge by hyping an investment that isn't necessarily the best fit. Now, even obscure companies can produce a constant stream of information—from the daily price fluctuations in the stock, announcements, and posts on dedicated message boards. When there is so much information available at any given time, it can be difficult to identify what is really important. Finding the Right Resource The difficulty of finding the right resource is tied to the challenge of there being too much information available. As an investor, how do you find the good resources in the crowd? To be clear, having lots of choices and easy access to free resources is an overall win for the modern investor. But research can be daunting when there are so many choices. While investing primarily deals in facts, opinion colors many areas (such as whether technicals matter more than fundamentals). With time, many investors learn to filter out information and create a select pool of reliable sources that match their investing tastes. Until then, however, it is hard to avoid being overwhelmed by the range and variety of opinions out there. The Reactionary Market Even if you have a good handle on quality information, you can still get burned when inaccurate information or basic uncertainty hits the market. Inaccurate information still hits the market, even though the time to correction/exposure is often shorter. Inaccuracies can be honest mistakes, malicious rumors, or even financial fraud on the part of corporations. More importantly, the financial markets are so addicted to the constant information flow that an interruption in the flow or genuine moments of uncertainty can be worse than bad news. Market reactions have always been extreme, but the increasingly global reach of information has given investors more reasons to overreact (literally on a per hour basis). It doesn't take a great leap of imagination to see good or bad consequences with every headline that pops up in the feed. The Choices When does choice become overwhelming? There are conflicting studies about the limits of the human mind when faced with a variety of choices. Research suggests that we chunk choices into a manageable few (between three and eight, for example). This works in an ice cream shop with five types of ice creams. But the world of finance offers far more than eight types of stock investments. When faced with all these choices, we may attempt to find shortcuts to chunk our options down to a few. This is useful, but it may also lead to us discounting the better option. For example, someone looking for regular income may chunk their options down to dividend-paying utility stocks when they may have been better served by a dividend exchange-traded fund (ETF). The Role of Advertising The marriage of investments and advertising has been a boon and a bane to investors. On one hand, advertising has helped familiarize investors with a wider range of investment vehicles available today. The modern investor is more aware of the available investments beyond stocks, bonds, and term deposits. Most will be able to explain mutual funds, index funds, ETFs, and probably options and mortgage-backed securities as well. Knowledge is a great thing, but advertising can sometimes push an investor toward an edge by hyping an investment that isn't necessarily the best fit. Take mutual funds, for example. Quite often, an investor with a limited amount of capital is better off taking the lowest fee investment option (index fund or ETF) compared to higher-fee, professionally managed mutual funds. Advertising, however, can change this relatively straightforward math by playing up the advantages of professional management while failing to mention fees. So, if the professional manager is not up to snuff, then advertising has cost the investors market returns—plus the management fee. The Bottom Line It is true that some investors have been successful using traditional methods and simply shutting their doors against the modern world. This list includes famous fund managers Warren Buffet and John Templeton. For most of us, however, the flow of information is comforting and helps us feel more confident in our decisions. The trick is finding the right balance when taking in information and turning it into action. In fact, most investors can survive the modern information barrage with some very traditional advice–measure twice, cut once. In other words, take the time to evaluate the information in front of you before making buy or sell decisions.	[ [ "dividend exchange-traded fund (ETF", "https://www.investopedia.com/terms/d/dividend-etf.asp" ], [ "term deposits", "https://www.investopedia.com/terms/t/termdeposit.asp" ], [ "mortgage-backed securities", "https://www.investopedia.com/terms/m/mbs.asp" ], [ "Warren Buffet", "https://www.investopedia.com/articles/01/071801.asp" ] ]
https://www.investopedia.com/the-green-investor-podcast-5215576	The Green Investor Podcast from Investopedia	<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"> So-called ‘green investing’ is one of the fastest-growing themes of the capital markets, with <em>nearly $50 trillion </em>in assets expected to flow in by 2025, according to Bloomberg Intelligence<span class="ql-inline-citation" data-cite="1"></span>. But it’s also one of the most misunderstood areas of investing. As more investors use environmental and social standards to make their investment decisions, they still have to figure out what green investing actually is, and how to make it part of their portfolios. </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"> <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-green-investor/id1592318137" rel="sponsored nofollow">Apple Podcasts</a> / <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://open.spotify.com/show/61F1GYs47N7yUVZLwdoQDf" rel="nofollow">Spotify</a> / <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5hY2FzdC5jb20vcHVibGljL3Nob3dzL3RoZS1ncmVlbi1pbnZlc3Rvcg?sa=X&ved=0CAMQ4aUDahcKEwjg7ZK-g6r1AhUAAAAAHQAAAAAQAQ&hl=en">Google Podcasts</a> / <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://player.fm/series/the-green-investor">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"> Investors' interest in green or sustainable investing has become intensified by the realities of the climate crisis on this planet. Ten of last year’s most destructive weather events cost a combined $170 billion in damages, according to a new study from Christian Aid, a U.K.-based charity<span class="ql-inline-citation" data-cite="2"></span>. The risk to global assets and investments underlying those assets is in the hundreds of trillions of dollars, yet it is rarely factored into most investment decisions by individual investors. </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"> How do investors identify the companies, products, industries, and policies that are actively working to reduce the sources of climate change, pollution, and environmental destruction, while making business more sustainable in the process? How do they invest in them? How do new policies and technologies change the marketplace? Who are the change-makers in this growing industry? </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"> That’s what this podcast will explore. We will cover how to distinguish between <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp">ESG</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sri.asp">SRI</a>, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/impact-investing.asp">Impact Investing</a>. We will learn how to use tools and research to help construct portfolios that are more aligned with sustainable investing. We will discover which companies, products, and change-makers are poised to lead the industry now, and in the future. </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"> We’ll also interview the biggest investors, executives, academics, and experts in and around green investing to learn their approach, their process, their vision, and the opportunities for investors in this growing area. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> If you are like millions of other investors who want to align their money with their environmental beliefs and principles, or you just want to learn more about the green investing theme, tune into The Green Investor, powered by Investopedia. </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-warning" 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_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>The Green Investor podcast is for informational and educational purposes only and does not constitute investment advice. We will not make recommendations to buy, sell, or hold a particular security or asset, although we may discuss financial products with our guests. Some of our guests may invest in securities mentioned on this podcast. Some of our guests may sell or market securities mentioned on this podcast, but all listeners should do their own research or consult with a financial advisor or broker before making any investment decisions.</p></div></div></div></div>	So-called ‘green investing’ is one of the fastest-growing themes of the capital markets, with nearly $50 trillion in assets expected to flow in by 2025, according to Bloomberg Intelligence. But it’s also one of the most misunderstood areas of investing. As more investors use environmental and social standards to make their investment decisions, they still have to figure out what green investing actually is, and how to make it part of their portfolios. Subscribe Now: [Apple Podcasts](https://podcasts.apple.com/us/podcast/the-green-investor/id1592318137) / [Spotify](https://open.spotify.com/show/61F1GYs47N7yUVZLwdoQDf) / [Google Podcasts](https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5hY2FzdC5jb20vcHVibGljL3Nob3dzL3RoZS1ncmVlbi1pbnZlc3Rvcg?sa=X&ved=0CAMQ4aUDahcKEwjg7ZK-g6r1AhUAAAAAHQAAAAAQAQ&hl=en) / [PlayerFM](https://player.fm/series/the-green-investor) Investors' interest in green or sustainable investing has become intensified by the realities of the climate crisis on this planet. Ten of last year’s most destructive weather events cost a combined $170 billion in damages, according to a new study from Christian Aid, a U.K.-based charity. The risk to global assets and investments underlying those assets is in the hundreds of trillions of dollars, yet it is rarely factored into most investment decisions by individual investors. How do investors identify the companies, products, industries, and policies that are actively working to reduce the sources of climate change, pollution, and environmental destruction, while making business more sustainable in the process? How do they invest in them? How do new policies and technologies change the marketplace? Who are the change-makers in this growing industry? That’s what this podcast will explore. We will cover how to distinguish between [ESG](https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp), [SRI](https://www.investopedia.com/terms/s/sri.asp), and [Impact Investing](https://www.investopedia.com/terms/i/impact-investing.asp). We will learn how to use tools and research to help construct portfolios that are more aligned with sustainable investing. We will discover which companies, products, and change-makers are poised to lead the industry now, and in the future. We’ll also interview the biggest investors, executives, academics, and experts in and around green investing to learn their approach, their process, their vision, and the opportunities for investors in this growing area. If you are like millions of other investors who want to align their money with their environmental beliefs and principles, or you just want to learn more about the green investing theme, tune into The Green Investor, powered by Investopedia. ### The Green Investor podcast is for informational and educational purposes only and does not constitute investment advice. We will not make recommendations to buy, sell, or hold a particular security or asset, although we may discuss financial products with our guests. Some of our guests may invest in securities mentioned on this podcast. Some of our guests may sell or market securities mentioned on this podcast, but all listeners should do their own research or consult with a financial advisor or broker before making any investment decisions.	So-called ‘green investing’ is one of the fastest-growing themes of the capital markets, with nearly $50 trillion in assets expected to flow in by 2025, according to Bloomberg Intelligence. But it’s also one of the most misunderstood areas of investing. As more investors use environmental and social standards to make their investment decisions, they still have to figure out what green investing actually is, and how to make it part of their portfolios. Subscribe Now: Apple Podcasts / Spotify / Google Podcasts / PlayerFM Investors' interest in green or sustainable investing has become intensified by the realities of the climate crisis on this planet. Ten of last year’s most destructive weather events cost a combined $170 billion in damages, according to a new study from Christian Aid, a U.K.-based charity. The risk to global assets and investments underlying those assets is in the hundreds of trillions of dollars, yet it is rarely factored into most investment decisions by individual investors. How do investors identify the companies, products, industries, and policies that are actively working to reduce the sources of climate change, pollution, and environmental destruction, while making business more sustainable in the process? How do they invest in them? How do new policies and technologies change the marketplace? Who are the change-makers in this growing industry? That’s what this podcast will explore. We will cover how to distinguish between ESG, SRI, and Impact Investing. We will learn how to use tools and research to help construct portfolios that are more aligned with sustainable investing. We will discover which companies, products, and change-makers are poised to lead the industry now, and in the future. We’ll also interview the biggest investors, executives, academics, and experts in and around green investing to learn their approach, their process, their vision, and the opportunities for investors in this growing area. If you are like millions of other investors who want to align their money with their environmental beliefs and principles, or you just want to learn more about the green investing theme, tune into The Green Investor, powered by Investopedia. The Green Investor podcast is for informational and educational purposes only and does not constitute investment advice. We will not make recommendations to buy, sell, or hold a particular security or asset, although we may discuss financial products with our guests. Some of our guests may invest in securities mentioned on this podcast. Some of our guests may sell or market securities mentioned on this podcast, but all listeners should do their own research or consult with a financial advisor or broker before making any investment decisions.	[ [ "Apple Podcasts", "https://podcasts.apple.com/us/podcast/the-green-investor/id1592318137" ], [ "Spotify", "https://open.spotify.com/show/61F1GYs47N7yUVZLwdoQDf" ], [ "Google Podcasts", "https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5hY2FzdC5jb20vcHVibGljL3Nob3dzL3RoZS1ncmVlbi1pbnZlc3Rvcg?sa=X&ved=0CAMQ4aUDahcKEwjg7ZK-g6r1AhUAAAAAHQAAAAAQAQ&hl=en" ], [ "PlayerFM", "https://player.fm/series/the-green-investor" ], [ "ESG", "https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp" ], [ "SRI", "https://www.investopedia.com/terms/s/sri.asp" ], [ "Impact Investing", "https://www.investopedia.com/terms/i/impact-investing.asp" ] ]
https://www.investopedia.com/terms/a/assetmanagement.asp	What Is Asset Management, and What Do Asset Managers Do?	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-asset-management"></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 Asset Management? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Asset management is the practice of increasing total wealth over time by acquiring, maintaining, and trading investments that have the potential to grow in value. </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"> Asset management professionals perform this service for others. They may also be called portfolio managers or financial advisors. Many work independently, while others work for an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentbank.asp">investment bank</a> or other type of financial institution. </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 goal of asset management is to maximize the value of an investment portfolio over time while maintaining an acceptable level of risk.</li><li>Asset management as a service is generally provided by specialized firms to individuals, government entities, corporations, and institutional investors.</li><li>Asset managers have a fiduciary responsibility to their clients to act in their best interests. They make decisions on behalf of their clients and are required to do so in good faith.</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="Asset Management" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/Lu1FA1sTbFTsA-jSzZliXpgJpD4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/assetmanagement-93468a062b964a6fa198afe0bfa543d6.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/Lu1FA1sTbFTsA-jSzZliXpgJpD4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/assetmanagement-93468a062b964a6fa198afe0bfa543d6.jpg" data-srcset="https://www.investopedia.com/thmb/yBf9TsV1lQzsK3AmCT6om3wgSxA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/assetmanagement-93468a062b964a6fa198afe0bfa543d6.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Asset Management" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/Lu1FA1sTbFTsA-jSzZliXpgJpD4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/assetmanagement-93468a062b964a6fa198afe0bfa543d6.jpg" srcset="https://www.investopedia.com/thmb/yBf9TsV1lQzsK3AmCT6om3wgSxA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/assetmanagement-93468a062b964a6fa198afe0bfa543d6.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 / Sydney Saporito</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-asset-management"></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"> Understanding Asset Management </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Asset management has a double-barreled goal: increasing value while mitigating risk. That is, the client's tolerance for risk is the first question to be posed. A retiree living on the income from a portfolio or a pension fund administrator overseeing retirement funds is (or should be) risk-averse. A young person, or any adventurous person, might want to dabble in high-risk investments. </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"> Most people are in between these two extremes, and asset managers try to identify where a client's risk tolerance lies. Thus, an asset manager's role is to determine <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/040815/what-does-asset-management-mean-regards-real-estate.asp">what investments to make or avoid</a> and to realize the client's financial goals within the client's risk tolerance limits. The investments may include stocks, bonds, real estate, commodities, alternative investments, and mutual funds, among the better-known choices. </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 asset manager is expected to conduct rigorous research using both macro and microanalytical tools. This includes statistical analysis of prevailing market trends, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/122214/what-does-end-quarter-mean-portfolio-management.asp">reviews of corporate financial documents</a>, and anything else that would aid in achieving the stated goal of client asset appreciation. </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-types-of-asset-managers"></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"> Types of Asset Managers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> There are several different types of asset managers, distinguished by the type of asset and level of service they provide. Each type of asset manager has a different level of responsibility to the client, so it is important to understand a manager's obligations before deciding to invest. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Registered Investment Advisers </span> </h3> <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/ria.asp">registered investment adviser</a> (RIA) is a firm that advises clients on securities trades or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/qpam.asp">even manages their portfolios</a>. RIAs are closely regulated and are <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/041615/how-are-asset-management-firms-regulated.asp">required to register with the SEC</a> if they manage more than $100 million in assets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> Investment Broker </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> A broker is an individual or firm that acts as an intermediary for their clients, buying stocks and securities and providing custody over customer assets. Brokers generally do not have a fiduciary duty to their clients, so it is always important to thoroughly research them before buying. </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"> Financial Advisor </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> A financial advisor is a professional who can recommend investments to their clients or buy and sell securities on their behalf. Financial advisors may or may not have a fiduciary duty to their clients, so it is always important to ask first. Many financial advisors specialize in a specific area, such as tax or estate planning. </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"> Robo-Advisor </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> The most affordable type of investment manager isn't a person at all. A robo-advisor is a computer algorithm that automatically monitors and rebalances an investor's portfolio accordingly, selling and buying investments aligned with programmed goals and risk tolerances. Because there is no person involved, robo-advisors cost much less than a personalized investment service. </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-how-much-does-asset-management-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 Asset Management Cost? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Asset managers have a variety of fee structures. The most common model charges a percentage of the assets under management, with the industry average at about 1% for up to $1 million. Larger portfolios are usually charged fewer and lower fees due to their size. Others may charge a fee for each trade they execute. Some may even receive a commission to upsell securities to their clients. </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"> Because these incentives can work against the client's interests, it is important to know if your management firm has a fiduciary duty to serve the client's interests. Otherwise, they may recommend investments or trades that do not serve the client's interests. </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-asset-management-companies-work"></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 Asset Management Companies Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Asset management companies compete to serve the investment needs of individuals and institutions. Accounts held by financial institutions often include check-writing privileges, credit cards, debit cards, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margin_loan_availability.asp">margin loans</a>, and brokerage services. </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"> When individuals deposit money into their accounts, it is typically placed into a money market fund that offers a greater return than a regular savings account. Account-holders can choose between Federal Deposit Insurance Company-backed (FDIC) and non-FDIC funds. </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-callout mntl-block" id="mntl-sc-block_41-0"><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_42-0"><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 added benefit to account holders is the same institution can meet all of their banking and investing needs.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> These types of accounts have only been possible since the passage of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/glba.asp">Gramm-Leach-Bliley Act in 1999</a>, which replaced the Glass-Steagall Act. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/03/071603.asp">Glass-Steagall Act</a> of 1933, passed during the Great Depression, forced a separation between banking and investing services. Now, they have only to maintain a "<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chinesewall.asp">Chinese wall</a>" between divisions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <span class="heading-toc" id="toc-example-of-an-asset-management-institution"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-heading__text"> Example of an Asset Management Institution </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Merrill Lynch offers a Cash Management Account (CMA) to fulfill clients' needs who wish to pursue banking and investment options with one vehicle under one roof.<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_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> The account gives investors access to a personal financial advisor. This advisor offers advice and a range of investment options that include initial public offerings (IPO) in which Merrill Lynch may participate, as well as foreign currency transactions. </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"> Interest rates for cash deposits are tiered. Deposit accounts can be linked so that all eligible funds aggregate to receive the appropriate rate. Securities held in the account fall under the protective umbrella of the<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sipc.asp"> Securities Investor Protection Corporation</a> (SIPC). SIPC does not shield investor assets from inherent risk but instead protects those assets from the financial failure of the brokerage firm itself. </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"> Along with typical check-writing services, the account offers worldwide access to Bank of America automated teller machines (ATM) without transaction fees. Bill payment services, fund transfers, and wire transfers are available. The MyMerrill app allows users to access the account and perform several basic functions via a mobile device. </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"> Accounts with more than $250,000 in eligible assets sidestep the annual $125 fee and the $25 assessment applied to each sub-account held.<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> <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-does-an-asset-management-company-differ-from-a-brokerage"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does an Asset Management Company Differ From a Brokerage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Asset management institutions 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, generally used by people with significant assets. They usually have discretionary trading authority over accounts and are legally bound to act in good faith on the client's behalf. Brokers execute and facilitate trades but do not manage clients' portfolios.<br/></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-does-an-asset-manager-do"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does an Asset Manager Do?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An asset manager is responsible for creating a client's portfolio, overseeing it from day to day, making changes to it as needed, and communicating regularly with the client about those changes.</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-are-the-top-asset-management-institutions"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Top Asset Management Institutions?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As of February 2024, the five largest asset management institutions, based on global assets under management (AUM), were BlackRock ($9.46 trillion), Vanguard Group ($7.25 trillion), Fidelity Investments ($3.88 trillion), The Capital Group ($2.5 trillion), and Amundi ($2.10 trillion).<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_61-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_62-0"><span class="heading-toc" id="toc-what-is-digital-asset-management"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Digital Asset Management?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Digital asset management, or DAM, is a process of storing media assets in a central repository where they can be accessed as necessary by all members of an organization. This is usually used for large audio or video files that need to be worked on by many teams of employees at once.</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"> Asset management firms provide the service of buying and selling assets on behalf of their clients. There are many types of asset managers, with some working for family offices and wealthy individuals and others working on behalf of major banks and institutional investors.<br/> </p></div>	## What Is Asset Management? Asset management is the practice of increasing total wealth over time by acquiring, maintaining, and trading investments that have the potential to grow in value. Asset management professionals perform this service for others. They may also be called portfolio managers or financial advisors. Many work independently, while others work for an [investment bank](https://www.investopedia.com/terms/i/investmentbank.asp) or other type of financial institution. ### Key Takeaways * The goal of asset management is to maximize the value of an investment portfolio over time while maintaining an acceptable level of risk. * Asset management as a service is generally provided by specialized firms to individuals, government entities, corporations, and institutional investors. * Asset managers have a fiduciary responsibility to their clients to act in their best interests. They make decisions on behalf of their clients and are required to do so in good faith. ![Asset Management]() ![Asset Management](https://www.investopedia.com/thmb/Lu1FA1sTbFTsA-jSzZliXpgJpD4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/assetmanagement-93468a062b964a6fa198afe0bfa543d6.jpg) Investopedia / Sydney Saporito ## Understanding Asset Management Asset management has a double-barreled goal: increasing value while mitigating risk. That is, the client's tolerance for risk is the first question to be posed. A retiree living on the income from a portfolio or a pension fund administrator overseeing retirement funds is (or should be) risk-averse. A young person, or any adventurous person, might want to dabble in high-risk investments. Most people are in between these two extremes, and asset managers try to identify where a client's risk tolerance lies. Thus, an asset manager's role is to determine [what investments to make or avoid](https://www.investopedia.com/ask/answers/040815/what-does-asset-management-mean-regards-real-estate.asp) and to realize the client's financial goals within the client's risk tolerance limits. The investments may include stocks, bonds, real estate, commodities, alternative investments, and mutual funds, among the better-known choices. The asset manager is expected to conduct rigorous research using both macro and microanalytical tools. This includes statistical analysis of prevailing market trends, [reviews of corporate financial documents](https://www.investopedia.com/ask/answers/122214/what-does-end-quarter-mean-portfolio-management.asp), and anything else that would aid in achieving the stated goal of client asset appreciation. ## Types of Asset Managers There are several different types of asset managers, distinguished by the type of asset and level of service they provide. Each type of asset manager has a different level of responsibility to the client, so it is important to understand a manager's obligations before deciding to invest. ### Registered Investment Advisers A [registered investment adviser](https://www.investopedia.com/terms/r/ria.asp) (RIA) is a firm that advises clients on securities trades or [even manages their portfolios](https://www.investopedia.com/terms/q/qpam.asp). RIAs are closely regulated and are [required to register with the SEC](https://www.investopedia.com/ask/answers/041615/how-are-asset-management-firms-regulated.asp) if they manage more than $100 million in assets. ### Investment Broker A broker is an individual or firm that acts as an intermediary for their clients, buying stocks and securities and providing custody over customer assets. Brokers generally do not have a fiduciary duty to their clients, so it is always important to thoroughly research them before buying. ### Financial Advisor A financial advisor is a professional who can recommend investments to their clients or buy and sell securities on their behalf. Financial advisors may or may not have a fiduciary duty to their clients, so it is always important to ask first. Many financial advisors specialize in a specific area, such as tax or estate planning. ### Robo-Advisor The most affordable type of investment manager isn't a person at all. A robo-advisor is a computer algorithm that automatically monitors and rebalances an investor's portfolio accordingly, selling and buying investments aligned with programmed goals and risk tolerances. Because there is no person involved, robo-advisors cost much less than a personalized investment service. ## How Much Does Asset Management Cost? Asset managers have a variety of fee structures. The most common model charges a percentage of the assets under management, with the industry average at about 1% for up to $1 million. Larger portfolios are usually charged fewer and lower fees due to their size. Others may charge a fee for each trade they execute. Some may even receive a commission to upsell securities to their clients. Because these incentives can work against the client's interests, it is important to know if your management firm has a fiduciary duty to serve the client's interests. Otherwise, they may recommend investments or trades that do not serve the client's interests. ## How Asset Management Companies Work Asset management companies compete to serve the investment needs of individuals and institutions. Accounts held by financial institutions often include check-writing privileges, credit cards, debit cards, [margin loans](https://www.investopedia.com/terms/m/margin_loan_availability.asp), and brokerage services. When individuals deposit money into their accounts, it is typically placed into a money market fund that offers a greater return than a regular savings account. Account-holders can choose between Federal Deposit Insurance Company-backed (FDIC) and non-FDIC funds. ### The added benefit to account holders is the same institution can meet all of their banking and investing needs. These types of accounts have only been possible since the passage of the [Gramm-Leach-Bliley Act in 1999](https://www.investopedia.com/terms/g/glba.asp), which replaced the Glass-Steagall Act. The [Glass-Steagall Act](https://www.investopedia.com/articles/03/071603.asp) of 1933, passed during the Great Depression, forced a separation between banking and investing services. Now, they have only to maintain a "[Chinese wall](https://www.investopedia.com/terms/c/chinesewall.asp)" between divisions. ## Example of an Asset Management Institution Merrill Lynch offers a Cash Management Account (CMA) to fulfill clients' needs who wish to pursue banking and investment options with one vehicle under one roof. The account gives investors access to a personal financial advisor. This advisor offers advice and a range of investment options that include initial public offerings (IPO) in which Merrill Lynch may participate, as well as foreign currency transactions. Interest rates for cash deposits are tiered. Deposit accounts can be linked so that all eligible funds aggregate to receive the appropriate rate. Securities held in the account fall under the protective umbrella of the [Securities Investor Protection Corporation](https://www.investopedia.com/terms/s/sipc.asp) (SIPC). SIPC does not shield investor assets from inherent risk but instead protects those assets from the financial failure of the brokerage firm itself. Along with typical check-writing services, the account offers worldwide access to Bank of America automated teller machines (ATM) without transaction fees. Bill payment services, fund transfers, and wire transfers are available. The MyMerrill app allows users to access the account and perform several basic functions via a mobile device. Accounts with more than $250,000 in eligible assets sidestep the annual $125 fee and the $25 assessment applied to each sub-account held. ## How Does an Asset Management Company Differ From a Brokerage? Asset management institutions are [fiduciary](https://www.investopedia.com/terms/f/fiduciary.asp) firms, generally used by people with significant assets. They usually have discretionary trading authority over accounts and are legally bound to act in good faith on the client's behalf. Brokers execute and facilitate trades but do not manage clients' portfolios. ## What Does an Asset Manager Do? An asset manager is responsible for creating a client's portfolio, overseeing it from day to day, making changes to it as needed, and communicating regularly with the client about those changes. ## What Are the Top Asset Management Institutions? As of February 2024, the five largest asset management institutions, based on global assets under management (AUM), were BlackRock ($9.46 trillion), Vanguard Group ($7.25 trillion), Fidelity Investments ($3.88 trillion), The Capital Group ($2.5 trillion), and Amundi ($2.10 trillion). ## What Is Digital Asset Management? Digital asset management, or DAM, is a process of storing media assets in a central repository where they can be accessed as necessary by all members of an organization. This is usually used for large audio or video files that need to be worked on by many teams of employees at once. ## The Bottom Line Asset management firms provide the service of buying and selling assets on behalf of their clients. There are many types of asset managers, with some working for family offices and wealthy individuals and others working on behalf of major banks and institutional investors.	What Is Asset Management? Asset management is the practice of increasing total wealth over time by acquiring, maintaining, and trading investments that have the potential to grow in value. Asset management professionals perform this service for others. They may also be called portfolio managers or financial advisors. Many work independently, while others work for an investment bank or other type of financial institution. Key Takeaways The goal of asset management is to maximize the value of an investment portfolio over time while maintaining an acceptable level of risk.Asset management as a service is generally provided by specialized firms to individuals, government entities, corporations, and institutional investors.Asset managers have a fiduciary responsibility to their clients to act in their best interests. They make decisions on behalf of their clients and are required to do so in good faith. Investopedia / Sydney Saporito Understanding Asset Management Asset management has a double-barreled goal: increasing value while mitigating risk. That is, the client's tolerance for risk is the first question to be posed. A retiree living on the income from a portfolio or a pension fund administrator overseeing retirement funds is (or should be) risk-averse. A young person, or any adventurous person, might want to dabble in high-risk investments. Most people are in between these two extremes, and asset managers try to identify where a client's risk tolerance lies. Thus, an asset manager's role is to determine what investments to make or avoid and to realize the client's financial goals within the client's risk tolerance limits. The investments may include stocks, bonds, real estate, commodities, alternative investments, and mutual funds, among the better-known choices. The asset manager is expected to conduct rigorous research using both macro and microanalytical tools. This includes statistical analysis of prevailing market trends, reviews of corporate financial documents, and anything else that would aid in achieving the stated goal of client asset appreciation. Types of Asset Managers There are several different types of asset managers, distinguished by the type of asset and level of service they provide. Each type of asset manager has a different level of responsibility to the client, so it is important to understand a manager's obligations before deciding to invest. Registered Investment Advisers A registered investment adviser (RIA) is a firm that advises clients on securities trades or even manages their portfolios. RIAs are closely regulated and are required to register with the SEC if they manage more than $100 million in assets. Investment Broker A broker is an individual or firm that acts as an intermediary for their clients, buying stocks and securities and providing custody over customer assets. Brokers generally do not have a fiduciary duty to their clients, so it is always important to thoroughly research them before buying. Financial Advisor A financial advisor is a professional who can recommend investments to their clients or buy and sell securities on their behalf. Financial advisors may or may not have a fiduciary duty to their clients, so it is always important to ask first. Many financial advisors specialize in a specific area, such as tax or estate planning. Robo-Advisor The most affordable type of investment manager isn't a person at all. A robo-advisor is a computer algorithm that automatically monitors and rebalances an investor's portfolio accordingly, selling and buying investments aligned with programmed goals and risk tolerances. Because there is no person involved, robo-advisors cost much less than a personalized investment service. How Much Does Asset Management Cost? Asset managers have a variety of fee structures. The most common model charges a percentage of the assets under management, with the industry average at about 1% for up to $1 million. Larger portfolios are usually charged fewer and lower fees due to their size. Others may charge a fee for each trade they execute. Some may even receive a commission to upsell securities to their clients. Because these incentives can work against the client's interests, it is important to know if your management firm has a fiduciary duty to serve the client's interests. Otherwise, they may recommend investments or trades that do not serve the client's interests. How Asset Management Companies Work Asset management companies compete to serve the investment needs of individuals and institutions. Accounts held by financial institutions often include check-writing privileges, credit cards, debit cards, margin loans, and brokerage services. When individuals deposit money into their accounts, it is typically placed into a money market fund that offers a greater return than a regular savings account. Account-holders can choose between Federal Deposit Insurance Company-backed (FDIC) and non-FDIC funds. The added benefit to account holders is the same institution can meet all of their banking and investing needs. These types of accounts have only been possible since the passage of the Gramm-Leach-Bliley Act in 1999, which replaced the Glass-Steagall Act. The Glass-Steagall Act of 1933, passed during the Great Depression, forced a separation between banking and investing services. Now, they have only to maintain a "Chinese wall" between divisions. Example of an Asset Management Institution Merrill Lynch offers a Cash Management Account (CMA) to fulfill clients' needs who wish to pursue banking and investment options with one vehicle under one roof. The account gives investors access to a personal financial advisor. This advisor offers advice and a range of investment options that include initial public offerings (IPO) in which Merrill Lynch may participate, as well as foreign currency transactions. Interest rates for cash deposits are tiered. Deposit accounts can be linked so that all eligible funds aggregate to receive the appropriate rate. Securities held in the account fall under the protective umbrella of the Securities Investor Protection Corporation (SIPC). SIPC does not shield investor assets from inherent risk but instead protects those assets from the financial failure of the brokerage firm itself. Along with typical check-writing services, the account offers worldwide access to Bank of America automated teller machines (ATM) without transaction fees. Bill payment services, fund transfers, and wire transfers are available. The MyMerrill app allows users to access the account and perform several basic functions via a mobile device. Accounts with more than $250,000 in eligible assets sidestep the annual $125 fee and the $25 assessment applied to each sub-account held. How Does an Asset Management Company Differ From a Brokerage? Asset management institutions are fiduciary firms, generally used by people with significant assets. They usually have discretionary trading authority over accounts and are legally bound to act in good faith on the client's behalf. Brokers execute and facilitate trades but do not manage clients' portfolios. What Does an Asset Manager Do? An asset manager is responsible for creating a client's portfolio, overseeing it from day to day, making changes to it as needed, and communicating regularly with the client about those changes. What Are the Top Asset Management Institutions? As of February 2024, the five largest asset management institutions, based on global assets under management (AUM), were BlackRock ($9.46 trillion), Vanguard Group ($7.25 trillion), Fidelity Investments ($3.88 trillion), The Capital Group ($2.5 trillion), and Amundi ($2.10 trillion). What Is Digital Asset Management? Digital asset management, or DAM, is a process of storing media assets in a central repository where they can be accessed as necessary by all members of an organization. This is usually used for large audio or video files that need to be worked on by many teams of employees at once. The Bottom Line Asset management firms provide the service of buying and selling assets on behalf of their clients. There are many types of asset managers, with some working for family offices and wealthy individuals and others working on behalf of major banks and institutional investors.	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https://www.investopedia.com/articles/active-trading/091114/strategies-trading-fibonacci-retracements.asp	Strategies for Trading Fibonacci Retracements	<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"> Leonardo Pisano, nicknamed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/06/fibonacci.asp">Fibonacci</a>, was an Italian mathematician born in Pisa in the year 1170. His father Guglielmo Bonaccio worked at a trading post in Bugia, now called Béjaïa, a Mediterranean port in northeastern Algeria. As a young man, Fibonacci studied mathematics in Bugia, and during his extensive travels, he learned about the advantages of the Hindu-Arabic numeral system.<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>In the Fibonacci sequence of numbers, after 0 and 1, each number is the sum of the two prior numbers.</li><li>In the context of trading, the numbers used in Fibonacci retracements are not numbers in Fibonacci's sequence; instead, they are derived from mathematical relationships between numbers in the sequence.</li><li>Fibonacci retracement levels are depicted by taking high and low points on a chart and marking the key Fibonacci ratios horizontally to produce a grid; these horizontal lines are used to identify possible price reversal points.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-golden-ratio"></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 Golden Ratio </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> In 1202, after returning to Italy, Fibonacci documented what he had learned in the "<em>Liber Abaci</em>"<em> </em>("Book of Abacus<em>"</em>). In the "<em>Liber Abaci</em>," Fibonacci described the numerical series that is now named after him. In the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fibonaccilines.asp">Fibonacci sequence of numbers</a>, after 0 and 1, each number is the sum of the two prior numbers. Hence, the sequence is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 and so on, extending to infinity. Each number is approximately 1.618 times greater than the preceding number.<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"> This value:1.618 is called <em>Phi </em>or the "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/technical/04/033104.asp">Golden Ratio</a>". The Golden Ratio mysteriously appears frequently in the natural world, architecture, fine art, and biology. For example, the ratio has been observed in the Parthenon, in Leonardo da Vinci's painting the Mona Lisa, sunflowers, rose petals, mollusk shells, tree branches, human faces, ancient Greek vases, and even the spiral galaxies of outer space. </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 with-title" id="mntl-sc-block-callout-heading_2-0">0.618</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The inverse of the golden ratio (1.618) is 0.618, which is also used extensively in Fibonacci trading.</p></div></div></div> <span class="heading-toc" id="toc-fibonacci-levels-used-in-the-financial-markets"></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"> Fibonacci Levels Used in the Financial Markets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> In the context of trading, the numbers used in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fibonacciretracement.asp">Fibonacci retracements</a> are not numbers in Fibonacci's sequence; instead, they are derived from mathematical relationships between numbers in the sequence. The basis of the "golden" Fibonacci ratio of 61.8% comes from dividing a number in the Fibonacci series by the number that follows it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> For example, 89/144 = 0.6180. The 38.2% ratio is derived from dividing a number in the Fibonacci series by the number two places to the right. For example: 89/233 = 0.3819. The 23.6% ratio is derived from dividing a number in the Fibonacci series by the number three places to the right. For example: 89/377 = 0.2360. </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"> Fibonacci <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retracement.asp">retracement</a> levels are depicted by taking high and low points on a chart and marking the key Fibonacci ratios of 23.6%, 38.2%, and 61.8% horizontally to produce a grid. These horizontal lines are used to identify possible price <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reversal.asp">reversal</a> points.<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"> The 50% retracement level is normally included in the grid of Fibonacci levels that can be drawn using charting software. While the 50% retracement level is not based on a Fibonacci number, it is widely viewed as an important potential reversal level, notably recognized in <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dowtheory.asp">Dow Theory</a> and also in the work of W.D. Gann.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-fibonacci-retracement-levels-as-trading-strategy"></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"> Fibonacci Retracement Levels as Trading Strategy </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/ask/answers/05/fibonacciretracement.asp">Fibonacci retracements</a> are often used as part of a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trendtrading.asp">trend-trading</a> strategy. In this scenario, traders observe a retracement taking place within a trend and try to make low-risk entries in the direction of the initial trend using Fibonacci levels. Traders using this strategy anticipate that a price has a high probability of bouncing from the Fibonacci levels back in the direction of the initial trend. </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 example, on the EUR/USD <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dailychart.asp">daily chart</a> below, we can see that a major <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/downtrend.asp">downtrend</a> began in May 2014 (point A). The price then bottomed in June (point B) and retraced upward to approximately the 38.2% Fibonacci retracement level of the down move (point C). </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-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_26-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:54.0%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/hzVa2kSj0dkqxp7P8NHUpR_S4qw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Strategies-for-Trading-Fibonacci-Retracements-June-2021-01-508c06e0d08c4e28a71e7778e0eae9ee.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/hzVa2kSj0dkqxp7P8NHUpR_S4qw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Strategies-for-Trading-Fibonacci-Retracements-June-2021-01-508c06e0d08c4e28a71e7778e0eae9ee.jpg" data-srcset="https://www.investopedia.com/thmb/2yL_lomhwCngbwLjk5ZF4O8g_94=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Strategies-for-Trading-Fibonacci-Retracements-June-2021-01-508c06e0d08c4e28a71e7778e0eae9ee.jpg 750w" data-tracking-container="true" height="1689" id="mntl-sc-block-image_1-0" width="3126"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="1689" sizes="750px" src="https://www.investopedia.com/thmb/hzVa2kSj0dkqxp7P8NHUpR_S4qw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Strategies-for-Trading-Fibonacci-Retracements-June-2021-01-508c06e0d08c4e28a71e7778e0eae9ee.jpg" srcset="https://www.investopedia.com/thmb/2yL_lomhwCngbwLjk5ZF4O8g_94=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Strategies-for-Trading-Fibonacci-Retracements-June-2021-01-508c06e0d08c4e28a71e7778e0eae9ee.jpg 750w" width="3126"/> </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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> In this case, the 38.2% level would have been an excellent place to enter a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/short.asp">short position</a> in order to capitalize on the continuation of the downtrend that started in May. There is no doubt that many traders were also watching the 50% retracement level and the 61.8% retracement level, but in this case, the market was not bullish enough to reach those points. Instead, EUR/USD turned lower, resuming the downtrend movement and taking out the prior low in a fairly fluid movement. </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 likelihood of a reversal increases if there is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/confluence.asp">confluence</a> of technical signals when the price reaches a Fibonacci level. Other popular technical indicators that are used in conjunction with Fibonacci levels include <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/candlestick.asp">candlestick</a> patterns, trendlines, volume, momentum oscillators, and moving averages. A greater number of confirming indicators in play equates to a more robust reversal signal. </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"> Fibonacci retracements are used on a variety of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialinstrument.asp">financial instruments</a>, including stocks, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodity.asp">commodities</a>, and foreign currency exchanges. They are also used on multiple timeframes. However, as with other technical indicators, the predictive value is proportional to the time frame used, with greater weight given to longer timeframes. For example, a 38.2% retracement on a weekly chart is a far more important technical level than a 38.2% retracement on a five-minute chart. </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-using-fibonacci-extensions"></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"> Using Fibonacci Extensions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> While Fibonacci retracement levels can be used to forecast potential areas of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading/support-and-resistance-basics/">support or resistance</a> where traders can enter the market in hopes of catching the resumption of an initial trend, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fibonacciextensions.asp">Fibonacci extensions</a> can complement this strategy by giving traders Fibonacci-based profit targets. Fibonacci extensions consist of levels drawn beyond the standard 100% level and can be used by traders to project areas that make good potential exits for their trades in the direction of the trend. The major Fibonacci extension levels are 161.8%, 261.8% and 423.6%. </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"> Let's take a look at an example here, using the same EUR/USD daily chart: </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-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_38-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:54.1%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/3uFKrkb_BlLDyFdmvE85vBNurak=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Strategies-for-Trading-Fibonacci-Retracements-June-2021-02-4d7b957202bf454aad6e2c28eb29110c.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/3uFKrkb_BlLDyFdmvE85vBNurak=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Strategies-for-Trading-Fibonacci-Retracements-June-2021-02-4d7b957202bf454aad6e2c28eb29110c.jpg" data-srcset="https://www.investopedia.com/thmb/qqNjkNtOGe_PuCdgLBgGBWLWGu4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Strategies-for-Trading-Fibonacci-Retracements-June-2021-02-4d7b957202bf454aad6e2c28eb29110c.jpg 750w" data-tracking-container="true" height="1691" id="mntl-sc-block-image_2-0" width="3124"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="1691" sizes="750px" src="https://www.investopedia.com/thmb/3uFKrkb_BlLDyFdmvE85vBNurak=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Strategies-for-Trading-Fibonacci-Retracements-June-2021-02-4d7b957202bf454aad6e2c28eb29110c.jpg" srcset="https://www.investopedia.com/thmb/qqNjkNtOGe_PuCdgLBgGBWLWGu4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Strategies-for-Trading-Fibonacci-Retracements-June-2021-02-4d7b957202bf454aad6e2c28eb29110c.jpg 750w" width="3124"/> </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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Looking at the Fibonacci extension level drawn on the EUR/USD chart above, we can see that a potential <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> for a trader holding a short position from the 38% retracement described earlier lies below at the 161.8% level, at 1.3195. </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-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"> Fibonacci retracement levels often indicate reversal points with uncanny accuracy. However, they are harder to trade than they look in retrospect. These levels are best used as a tool within a broader strategy. Ideally, this strategy is one that looks for the confluence of several indicators to identify potential reversal areas offering low-risk, high-potential-reward trade entries. </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"> Fibonacci trading tools, however, tend to suffer from the same problems as other universal trading strategies, such as the Elliott Wave theory. That said, many traders find success using Fibonacci ratios and retracements to place transactions within long-term price 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"> Fibonacci retracement can become even more powerful when used in conjunction with other indicators or technical signals. Investopedia Academy's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://academy.investopedia.com/products/technical-analysis?aca_ref=inline">Technical Analysis course</a> covers these indicators as well as how to transform patterns into actionable trading plans. </p></div>	Leonardo Pisano, nicknamed [Fibonacci](https://www.investopedia.com/articles/trading/06/fibonacci.asp), was an Italian mathematician born in Pisa in the year 1170. His father Guglielmo Bonaccio worked at a trading post in Bugia, now called Béjaïa, a Mediterranean port in northeastern Algeria. As a young man, Fibonacci studied mathematics in Bugia, and during his extensive travels, he learned about the advantages of the Hindu-Arabic numeral system. ### Key Takeaways * In the Fibonacci sequence of numbers, after 0 and 1, each number is the sum of the two prior numbers. * In the context of trading, the numbers used in Fibonacci retracements are not numbers in Fibonacci's sequence; instead, they are derived from mathematical relationships between numbers in the sequence. * Fibonacci retracement levels are depicted by taking high and low points on a chart and marking the key Fibonacci ratios horizontally to produce a grid; these horizontal lines are used to identify possible price reversal points. ## The Golden Ratio In 1202, after returning to Italy, Fibonacci documented what he had learned in the "Liber Abaci"("Book of Abacus"). In the "Liber Abaci," Fibonacci described the numerical series that is now named after him. In the [Fibonacci sequence of numbers](https://www.investopedia.com/terms/f/fibonaccilines.asp), after 0 and 1, each number is the sum of the two prior numbers. Hence, the sequence is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 and so on, extending to infinity. Each number is approximately 1.618 times greater than the preceding number. This value:1.618 is called Phi or the "[Golden Ratio](https://www.investopedia.com/articles/technical/04/033104.asp)". The Golden Ratio mysteriously appears frequently in the natural world, architecture, fine art, and biology. For example, the ratio has been observed in the Parthenon, in Leonardo da Vinci's painting the Mona Lisa, sunflowers, rose petals, mollusk shells, tree branches, human faces, ancient Greek vases, and even the spiral galaxies of outer space. ### 0.618 The inverse of the golden ratio (1.618) is 0.618, which is also used extensively in Fibonacci trading. ## Fibonacci Levels Used in the Financial Markets In the context of trading, the numbers used in [Fibonacci retracements](https://www.investopedia.com/terms/f/fibonacciretracement.asp) are not numbers in Fibonacci's sequence; instead, they are derived from mathematical relationships between numbers in the sequence. The basis of the "golden" Fibonacci ratio of 61.8% comes from dividing a number in the Fibonacci series by the number that follows it. For example, 89/144 = 0.6180. The 38.2% ratio is derived from dividing a number in the Fibonacci series by the number two places to the right. For example: 89/233 = 0.3819. The 23.6% ratio is derived from dividing a number in the Fibonacci series by the number three places to the right. For example: 89/377 = 0.2360. Fibonacci [retracement](https://www.investopedia.com/terms/r/retracement.asp) levels are depicted by taking high and low points on a chart and marking the key Fibonacci ratios of 23.6%, 38.2%, and 61.8% horizontally to produce a grid. These horizontal lines are used to identify possible price [reversal](https://www.investopedia.com/terms/r/reversal.asp) points. The 50% retracement level is normally included in the grid of Fibonacci levels that can be drawn using charting software. While the 50% retracement level is not based on a Fibonacci number, it is widely viewed as an important potential reversal level, notably recognized in [Dow Theory](https://www.investopedia.com/terms/d/dowtheory.asp) and also in the work of W.D. Gann. ## Fibonacci Retracement Levels as Trading Strategy [Fibonacci retracements](https://www.investopedia.com/ask/answers/05/fibonacciretracement.asp) are often used as part of a [trend-trading](https://www.investopedia.com/terms/t/trendtrading.asp) strategy. In this scenario, traders observe a retracement taking place within a trend and try to make low-risk entries in the direction of the initial trend using Fibonacci levels. Traders using this strategy anticipate that a price has a high probability of bouncing from the Fibonacci levels back in the direction of the initial trend. For example, on the EUR/USD [daily chart](https://www.investopedia.com/terms/d/dailychart.asp) below, we can see that a major [downtrend](https://www.investopedia.com/terms/d/downtrend.asp) began in May 2014 (point A). The price then bottomed in June (point B) and retraced upward to approximately the 38.2% Fibonacci retracement level of the down move (point C). ![Image]() ![Image](https://www.investopedia.com/thmb/hzVa2kSj0dkqxp7P8NHUpR_S4qw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Strategies-for-Trading-Fibonacci-Retracements-June-2021-01-508c06e0d08c4e28a71e7778e0eae9ee.jpg) Image by Sabrina Jiang © Investopedia 2021 In this case, the 38.2% level would have been an excellent place to enter a [short position](https://www.investopedia.com/terms/s/short.asp) in order to capitalize on the continuation of the downtrend that started in May. There is no doubt that many traders were also watching the 50% retracement level and the 61.8% retracement level, but in this case, the market was not bullish enough to reach those points. Instead, EUR/USD turned lower, resuming the downtrend movement and taking out the prior low in a fairly fluid movement. The likelihood of a reversal increases if there is a [confluence](https://www.investopedia.com/terms/c/confluence.asp) of technical signals when the price reaches a Fibonacci level. Other popular technical indicators that are used in conjunction with Fibonacci levels include [candlestick](https://www.investopedia.com/terms/c/candlestick.asp) patterns, trendlines, volume, momentum oscillators, and moving averages. A greater number of confirming indicators in play equates to a more robust reversal signal. Fibonacci retracements are used on a variety of [financial instruments](https://www.investopedia.com/terms/f/financialinstrument.asp), including stocks, [commodities](https://www.investopedia.com/terms/c/commodity.asp), and foreign currency exchanges. They are also used on multiple timeframes. However, as with other technical indicators, the predictive value is proportional to the time frame used, with greater weight given to longer timeframes. For example, a 38.2% retracement on a weekly chart is a far more important technical level than a 38.2% retracement on a five-minute chart. ## Using Fibonacci Extensions While Fibonacci retracement levels can be used to forecast potential areas of [support or resistance](https://www.investopedia.com/trading/support-and-resistance-basics/) where traders can enter the market in hopes of catching the resumption of an initial trend, [Fibonacci extensions](https://www.investopedia.com/terms/f/fibonacciextensions.asp) can complement this strategy by giving traders Fibonacci-based profit targets. Fibonacci extensions consist of levels drawn beyond the standard 100% level and can be used by traders to project areas that make good potential exits for their trades in the direction of the trend. The major Fibonacci extension levels are 161.8%, 261.8% and 423.6%. Let's take a look at an example here, using the same EUR/USD daily chart: ![Image]() ![Image](https://www.investopedia.com/thmb/3uFKrkb_BlLDyFdmvE85vBNurak=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Strategies-for-Trading-Fibonacci-Retracements-June-2021-02-4d7b957202bf454aad6e2c28eb29110c.jpg) Image by Sabrina Jiang © Investopedia 2021 Looking at the Fibonacci extension level drawn on the EUR/USD chart above, we can see that a potential [price target](https://www.investopedia.com/terms/p/pricetarget.asp) for a trader holding a short position from the 38% retracement described earlier lies below at the 161.8% level, at 1.3195. ## The Bottom Line Fibonacci retracement levels often indicate reversal points with uncanny accuracy. However, they are harder to trade than they look in retrospect. These levels are best used as a tool within a broader strategy. Ideally, this strategy is one that looks for the confluence of several indicators to identify potential reversal areas offering low-risk, high-potential-reward trade entries. Fibonacci trading tools, however, tend to suffer from the same problems as other universal trading strategies, such as the Elliott Wave theory. That said, many traders find success using Fibonacci ratios and retracements to place transactions within long-term price trends. Fibonacci retracement can become even more powerful when used in conjunction with other indicators or technical signals. Investopedia Academy's [Technical Analysis course](https://academy.investopedia.com/products/technical-analysis?aca_ref=inline) covers these indicators as well as how to transform patterns into actionable trading plans.	Leonardo Pisano, nicknamed Fibonacci, was an Italian mathematician born in Pisa in the year 1170. His father Guglielmo Bonaccio worked at a trading post in Bugia, now called Béjaïa, a Mediterranean port in northeastern Algeria. As a young man, Fibonacci studied mathematics in Bugia, and during his extensive travels, he learned about the advantages of the Hindu-Arabic numeral system. Key Takeaways In the Fibonacci sequence of numbers, after 0 and 1, each number is the sum of the two prior numbers.In the context of trading, the numbers used in Fibonacci retracements are not numbers in Fibonacci's sequence; instead, they are derived from mathematical relationships between numbers in the sequence.Fibonacci retracement levels are depicted by taking high and low points on a chart and marking the key Fibonacci ratios horizontally to produce a grid; these horizontal lines are used to identify possible price reversal points. The Golden Ratio In 1202, after returning to Italy, Fibonacci documented what he had learned in the "Liber Abaci" ("Book of Abacus"). In the "Liber Abaci," Fibonacci described the numerical series that is now named after him. In the Fibonacci sequence of numbers, after 0 and 1, each number is the sum of the two prior numbers. Hence, the sequence is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 and so on, extending to infinity. Each number is approximately 1.618 times greater than the preceding number. This value:1.618 is called Phi or the "Golden Ratio". The Golden Ratio mysteriously appears frequently in the natural world, architecture, fine art, and biology. For example, the ratio has been observed in the Parthenon, in Leonardo da Vinci's painting the Mona Lisa, sunflowers, rose petals, mollusk shells, tree branches, human faces, ancient Greek vases, and even the spiral galaxies of outer space. 0.618 The inverse of the golden ratio (1.618) is 0.618, which is also used extensively in Fibonacci trading. Fibonacci Levels Used in the Financial Markets In the context of trading, the numbers used in Fibonacci retracements are not numbers in Fibonacci's sequence; instead, they are derived from mathematical relationships between numbers in the sequence. The basis of the "golden" Fibonacci ratio of 61.8% comes from dividing a number in the Fibonacci series by the number that follows it. For example, 89/144 = 0.6180. The 38.2% ratio is derived from dividing a number in the Fibonacci series by the number two places to the right. For example: 89/233 = 0.3819. The 23.6% ratio is derived from dividing a number in the Fibonacci series by the number three places to the right. For example: 89/377 = 0.2360. Fibonacci retracement levels are depicted by taking high and low points on a chart and marking the key Fibonacci ratios of 23.6%, 38.2%, and 61.8% horizontally to produce a grid. These horizontal lines are used to identify possible price reversal points. The 50% retracement level is normally included in the grid of Fibonacci levels that can be drawn using charting software. While the 50% retracement level is not based on a Fibonacci number, it is widely viewed as an important potential reversal level, notably recognized in Dow Theory and also in the work of W.D. Gann. Fibonacci Retracement Levels as Trading Strategy Fibonacci retracements are often used as part of a trend-trading strategy. In this scenario, traders observe a retracement taking place within a trend and try to make low-risk entries in the direction of the initial trend using Fibonacci levels. Traders using this strategy anticipate that a price has a high probability of bouncing from the Fibonacci levels back in the direction of the initial trend. For example, on the EUR/USD daily chart below, we can see that a major downtrend began in May 2014 (point A). The price then bottomed in June (point B) and retraced upward to approximately the 38.2% Fibonacci retracement level of the down move (point C). Image by Sabrina Jiang © Investopedia 2021 In this case, the 38.2% level would have been an excellent place to enter a short position in order to capitalize on the continuation of the downtrend that started in May. There is no doubt that many traders were also watching the 50% retracement level and the 61.8% retracement level, but in this case, the market was not bullish enough to reach those points. Instead, EUR/USD turned lower, resuming the downtrend movement and taking out the prior low in a fairly fluid movement. The likelihood of a reversal increases if there is a confluence of technical signals when the price reaches a Fibonacci level. Other popular technical indicators that are used in conjunction with Fibonacci levels include candlestick patterns, trendlines, volume, momentum oscillators, and moving averages. A greater number of confirming indicators in play equates to a more robust reversal signal. Fibonacci retracements are used on a variety of financial instruments, including stocks, commodities, and foreign currency exchanges. They are also used on multiple timeframes. However, as with other technical indicators, the predictive value is proportional to the time frame used, with greater weight given to longer timeframes. For example, a 38.2% retracement on a weekly chart is a far more important technical level than a 38.2% retracement on a five-minute chart. Using Fibonacci Extensions While Fibonacci retracement levels can be used to forecast potential areas of support or resistance where traders can enter the market in hopes of catching the resumption of an initial trend, Fibonacci extensions can complement this strategy by giving traders Fibonacci-based profit targets. Fibonacci extensions consist of levels drawn beyond the standard 100% level and can be used by traders to project areas that make good potential exits for their trades in the direction of the trend. The major Fibonacci extension levels are 161.8%, 261.8% and 423.6%. Let's take a look at an example here, using the same EUR/USD daily chart: Image by Sabrina Jiang © Investopedia 2021 Looking at the Fibonacci extension level drawn on the EUR/USD chart above, we can see that a potential price target for a trader holding a short position from the 38% retracement described earlier lies below at the 161.8% level, at 1.3195. The Bottom Line Fibonacci retracement levels often indicate reversal points with uncanny accuracy. However, they are harder to trade than they look in retrospect. These levels are best used as a tool within a broader strategy. Ideally, this strategy is one that looks for the confluence of several indicators to identify potential reversal areas offering low-risk, high-potential-reward trade entries. Fibonacci trading tools, however, tend to suffer from the same problems as other universal trading strategies, such as the Elliott Wave theory. That said, many traders find success using Fibonacci ratios and retracements to place transactions within long-term price trends. Fibonacci retracement can become even more powerful when used in conjunction with other indicators or technical signals. Investopedia Academy's Technical Analysis course covers these indicators as well as how to transform patterns into actionable trading plans.	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https://www.investopedia.com/terms/a/authorizedparticipant.asp	What Is an Authorized Participant? Definition, Examples, 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"><span class="heading-toc" id="toc-what-is-an-authorized-participant"></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 Authorized Participant? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> An authorized participant is an organization that has the right to create and redeem shares of an exchange traded fund (<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">ETF</a>). They provide a large portion of the <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> in the ETF market by obtaining the underlying assets required to create the shares of an ETF. When there is a shortage of ETF shares in the market, authorized participants create more. Conversely, authorized participants will reduce ETF shares in circulation when the price of the ETF is lower than the price of the underlying shares. That can be done with the creation and redemption mechanism that keeps the price of an ETF aligned with its underlying net asset value (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nav.asp" rel="noopener noreferrer">NAV</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>An authorized participant is an organization that has the right to create and redeem shares of an exchange traded fund (ETF).</li><li>Traditionally, authorized participants are large banks, such as Bank of America (BAC), JPMorgan Chase (JPM), Goldman Sachs (GS), and Morgan Stanley (MS).</li><li>Authorized participants increase the transparency of markets by keeping ETF prices close to their net asset values.</li><li>Multiple authorized participants help improve the liquidity of a particular ETF.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-authorized-participants"></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 Authorized Participants </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Authorized participants are responsible for acquiring the securities that the ETF wants to hold. If that is the S&P 500 index, they will purchase all its constituents (weighted by market capitalization) and deliver them to the sponsor. In return, authorized participants receive a block of equally valued shares called a creation unit. Issuers can use the services of one or more authorized participants for a fund. Large and active funds tend to have more authorized participants. The number of participants also differs between various types of funds. Equities, on average, have more authorized participants than bonds, perhaps due to higher trading volume. </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"> Traditionally, authorized participants are large banks, such as Bank of America (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=bac" rel="noopener noreferrer">BAC</a>), JPMorgan Chase (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=jpm" rel="noopener noreferrer">JPM</a>), Goldman Sachs (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=gs" rel="noopener noreferrer">GS</a>), and Morgan Stanley (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ms" rel="noopener noreferrer">MS</a>). They do not receive compensation from a sponsor and have no legal obligation to redeem or create the ETF's shares. Instead, authorized participants are compensated through activity in the secondary market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Small investors cannot become authorized participants.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> In the end, both parties benefit from working together. The sponsor receives help in creating the fund while the participant gets a block of shares to resell for a profit. This process also works in reverse. Authorized participants receive the same value of the underlying security in the fund after selling shares. Authorized participants make most of their profits in the ETF market through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arbitrage.asp" rel="noopener noreferrer">arbitrage</a>. </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-benefits-of-authorized-participants"></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"> Benefits of Authorized Participants </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The chief benefit of authorized participants for investors is that they keep ETF prices close to the net asset values of the underlying securities. Without the authorized participants in the market, ETFs would become more like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closed-endinvestment.asp" rel="noopener noreferrer">closed-end funds</a>. In that situation, ETF prices could drift far from net asset values, particularly during large moves up or down. There are numerous examples of closed-end funds that have gone substantially above or below the value of their assets. On the other hand, ETFs generally stay very close to their net asset values. </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"> Consider the difference between the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/122715/vxus-vanguard-international-stock-etf.asp" rel="noopener noreferrer">Vanguard Total International Stock ETF</a> (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=vxus" rel="noopener noreferrer">VXUS</a>) and the Eaton Vance Tax-Managed Global Diversified Equity Income Fund (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=exg" rel="noopener noreferrer">EXG</a>), a closed-end fund. The VXUS ETF was trading at $49.78 on June 22, 2020, while its net asset value was $49.73. That means the VXUS ETF was trading <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/at-a-premium.asp" rel="noopener noreferrer">at a premium</a> of $0.05, or about 0.1% of its value. On the same day, the closed-end fund EXG traded at $7.30 per share, even though its net asset value was $8.02. The closed-end fund EXG was trading at a <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discount.asp" rel="noopener noreferrer">discount</a> of $0.72, which was about 8.98% of its net asset value. In this case, the closed-end fund EXG was hundreds of times further away from its net asset value than the VXUS ETF. </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"> Authorized participants increase the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transparency.asp" rel="noopener noreferrer">transparency</a> of markets by keeping ETF prices close to their net asset values. When most investors buy an ETF, they want to make a bet on a particular asset class. Most obviously, someone purchasing a total stock market ETF hopes that stock prices will go up. Typical investors do not want to investigate whether funds are trading above or below their net asset values. However, some long-term <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valueinvesting.asp" rel="noopener noreferrer">value investors</a> prefer closed-end funds precisely because of the occasional opportunity to find steep discounts. As a practical matter, authorized participants ensure that premiums and discounts never get too large in the ETF market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Multiple authorized participants help improve the liquidity of a particular ETF. Competition tends to keep the fund trading close to its fair value. More importantly, additional authorized participants encourage a better functioning market. When one party ceases to act as an authorized participant, others will see the ETF as a profitable opportunity and offer to create or redeem shares. At the same time, the impacted authorized participant has the option to address any internal issues and resume primary market activities. </p></div>	## What Is an Authorized Participant? An authorized participant is an organization that has the right to create and redeem shares of an exchange traded fund ([ETF](https://www.investopedia.com/terms/e/etf.asp)). They provide a large portion of the [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) in the ETF market by obtaining the underlying assets required to create the shares of an ETF. When there is a shortage of ETF shares in the market, authorized participants create more. Conversely, authorized participants will reduce ETF shares in circulation when the price of the ETF is lower than the price of the underlying shares. That can be done with the creation and redemption mechanism that keeps the price of an ETF aligned with its underlying net asset value ([NAV](https://www.investopedia.com/terms/n/nav.asp)). ### Key Takeaways * An authorized participant is an organization that has the right to create and redeem shares of an exchange traded fund (ETF). * Traditionally, authorized participants are large banks, such as Bank of America (BAC), JPMorgan Chase (JPM), Goldman Sachs (GS), and Morgan Stanley (MS). * Authorized participants increase the transparency of markets by keeping ETF prices close to their net asset values. * Multiple authorized participants help improve the liquidity of a particular ETF. ## Understanding Authorized Participants Authorized participants are responsible for acquiring the securities that the ETF wants to hold. If that is the S&P 500 index, they will purchase all its constituents (weighted by market capitalization) and deliver them to the sponsor. In return, authorized participants receive a block of equally valued shares called a creation unit. Issuers can use the services of one or more authorized participants for a fund. Large and active funds tend to have more authorized participants. The number of participants also differs between various types of funds. Equities, on average, have more authorized participants than bonds, perhaps due to higher trading volume. Traditionally, authorized participants are large banks, such as Bank of America ([BAC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=bac)), JPMorgan Chase ([JPM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=jpm)), Goldman Sachs ([GS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=gs)), and Morgan Stanley ([MS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ms)). They do not receive compensation from a sponsor and have no legal obligation to redeem or create the ETF's shares. Instead, authorized participants are compensated through activity in the secondary market. ### Small investors cannot become authorized participants. In the end, both parties benefit from working together. The sponsor receives help in creating the fund while the participant gets a block of shares to resell for a profit. This process also works in reverse. Authorized participants receive the same value of the underlying security in the fund after selling shares. Authorized participants make most of their profits in the ETF market through [arbitrage](https://www.investopedia.com/terms/a/arbitrage.asp). ## Benefits of Authorized Participants The chief benefit of authorized participants for investors is that they keep ETF prices close to the net asset values of the underlying securities. Without the authorized participants in the market, ETFs would become more like [closed-end funds](https://www.investopedia.com/terms/c/closed-endinvestment.asp). In that situation, ETF prices could drift far from net asset values, particularly during large moves up or down. There are numerous examples of closed-end funds that have gone substantially above or below the value of their assets. On the other hand, ETFs generally stay very close to their net asset values. Consider the difference between the [Vanguard Total International Stock ETF](https://www.investopedia.com/articles/investing/122715/vxus-vanguard-international-stock-etf.asp) ([VXUS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=vxus)) and the Eaton Vance Tax-Managed Global Diversified Equity Income Fund ([EXG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=exg)), a closed-end fund. The VXUS ETF was trading at $49.78 on June 22, 2020, while its net asset value was $49.73. That means the VXUS ETF was trading [at a premium](https://www.investopedia.com/terms/a/at-a-premium.asp) of $0.05, or about 0.1% of its value. On the same day, the closed-end fund EXG traded at $7.30 per share, even though its net asset value was $8.02. The closed-end fund EXG was trading at a [discount](https://www.investopedia.com/terms/d/discount.asp) of $0.72, which was about 8.98% of its net asset value. In this case, the closed-end fund EXG was hundreds of times further away from its net asset value than the VXUS ETF. Authorized participants increase the [transparency](https://www.investopedia.com/terms/t/transparency.asp) of markets by keeping ETF prices close to their net asset values. When most investors buy an ETF, they want to make a bet on a particular asset class. Most obviously, someone purchasing a total stock market ETF hopes that stock prices will go up. Typical investors do not want to investigate whether funds are trading above or below their net asset values. However, some long-term [value investors](https://www.investopedia.com/terms/v/valueinvesting.asp) prefer closed-end funds precisely because of the occasional opportunity to find steep discounts. As a practical matter, authorized participants ensure that premiums and discounts never get too large in the ETF market. Multiple authorized participants help improve the liquidity of a particular ETF. Competition tends to keep the fund trading close to its fair value. More importantly, additional authorized participants encourage a better functioning market. When one party ceases to act as an authorized participant, others will see the ETF as a profitable opportunity and offer to create or redeem shares. At the same time, the impacted authorized participant has the option to address any internal issues and resume primary market activities.	What Is an Authorized Participant? An authorized participant is an organization that has the right to create and redeem shares of an exchange traded fund (ETF). They provide a large portion of the liquidity in the ETF market by obtaining the underlying assets required to create the shares of an ETF. When there is a shortage of ETF shares in the market, authorized participants create more. Conversely, authorized participants will reduce ETF shares in circulation when the price of the ETF is lower than the price of the underlying shares. That can be done with the creation and redemption mechanism that keeps the price of an ETF aligned with its underlying net asset value (NAV). Key Takeaways An authorized participant is an organization that has the right to create and redeem shares of an exchange traded fund (ETF).Traditionally, authorized participants are large banks, such as Bank of America (BAC), JPMorgan Chase (JPM), Goldman Sachs (GS), and Morgan Stanley (MS).Authorized participants increase the transparency of markets by keeping ETF prices close to their net asset values.Multiple authorized participants help improve the liquidity of a particular ETF. Understanding Authorized Participants Authorized participants are responsible for acquiring the securities that the ETF wants to hold. If that is the S&P 500 index, they will purchase all its constituents (weighted by market capitalization) and deliver them to the sponsor. In return, authorized participants receive a block of equally valued shares called a creation unit. Issuers can use the services of one or more authorized participants for a fund. Large and active funds tend to have more authorized participants. The number of participants also differs between various types of funds. Equities, on average, have more authorized participants than bonds, perhaps due to higher trading volume. Traditionally, authorized participants are large banks, such as Bank of America (BAC), JPMorgan Chase (JPM), Goldman Sachs (GS), and Morgan Stanley (MS). They do not receive compensation from a sponsor and have no legal obligation to redeem or create the ETF's shares. Instead, authorized participants are compensated through activity in the secondary market. Small investors cannot become authorized participants. In the end, both parties benefit from working together. The sponsor receives help in creating the fund while the participant gets a block of shares to resell for a profit. This process also works in reverse. Authorized participants receive the same value of the underlying security in the fund after selling shares. Authorized participants make most of their profits in the ETF market through arbitrage. Benefits of Authorized Participants The chief benefit of authorized participants for investors is that they keep ETF prices close to the net asset values of the underlying securities. Without the authorized participants in the market, ETFs would become more like closed-end funds. In that situation, ETF prices could drift far from net asset values, particularly during large moves up or down. There are numerous examples of closed-end funds that have gone substantially above or below the value of their assets. On the other hand, ETFs generally stay very close to their net asset values. Consider the difference between the Vanguard Total International Stock ETF (VXUS) and the Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG), a closed-end fund. The VXUS ETF was trading at $49.78 on June 22, 2020, while its net asset value was $49.73. That means the VXUS ETF was trading at a premium of $0.05, or about 0.1% of its value. On the same day, the closed-end fund EXG traded at $7.30 per share, even though its net asset value was $8.02. The closed-end fund EXG was trading at a discount of $0.72, which was about 8.98% of its net asset value. In this case, the closed-end fund EXG was hundreds of times further away from its net asset value than the VXUS ETF. Authorized participants increase the transparency of markets by keeping ETF prices close to their net asset values. When most investors buy an ETF, they want to make a bet on a particular asset class. Most obviously, someone purchasing a total stock market ETF hopes that stock prices will go up. Typical investors do not want to investigate whether funds are trading above or below their net asset values. However, some long-term value investors prefer closed-end funds precisely because of the occasional opportunity to find steep discounts. As a practical matter, authorized participants ensure that premiums and discounts never get too large in the ETF market. Multiple authorized participants help improve the liquidity of a particular ETF. Competition tends to keep the fund trading close to its fair value. More importantly, additional authorized participants encourage a better functioning market. When one party ceases to act as an authorized participant, others will see the ETF as a profitable opportunity and offer to create or redeem shares. At the same time, the impacted authorized participant has the option to address any internal issues and resume primary market activities.	[ [ "ETF", "https://www.investopedia.com/terms/e/etf.asp" ], [ "liquidity", "https://www.investopedia.com/terms/l/liquidity.asp" ], [ "NAV", "https://www.investopedia.com/terms/n/nav.asp" ], [ "BAC", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=bac" ], [ "JPM", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=jpm" ], [ "GS", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=gs" ], [ "MS", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=ms" ], [ "arbitrage", "https://www.investopedia.com/terms/a/arbitrage.asp" ], [ "closed-end funds", "https://www.investopedia.com/terms/c/closed-endinvestment.asp" ], [ "Vanguard Total International Stock ETF", "https://www.investopedia.com/articles/investing/122715/vxus-vanguard-international-stock-etf.asp" ], [ "VXUS", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=vxus" ], [ "EXG", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=exg" ], [ "at a premium", "https://www.investopedia.com/terms/a/at-a-premium.asp" ], [ "discount", "https://www.investopedia.com/terms/d/discount.asp" ], [ "transparency", "https://www.investopedia.com/terms/t/transparency.asp" ], [ "value investors", "https://www.investopedia.com/terms/v/valueinvesting.asp" ] ]
https://www.investopedia.com/why-women-have-less-401k-savings-than-men-on-average-5521631	Why Women Have Less 401(k) Savings than Men 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"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> There’s a gender gap in retirement savings, including 401(k) contributions. Women have significantly less money saved for retirement than men. Reforming the retirement system, scholars say, could hasten closing the gap. </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>U.S. retirement statistics reveal that women, on average, have less saved for retirement than men.<span class="ql-inline-citation" data-cite="16"></span></li><li>Though women save more in their 401(k)s than men do when they’re both at the same income levels, they have less saved because they make less.</li><li>Marital status is relevant for the retirement savings of both men and women, and when there’s an age gap, it can increase the complexity of retirement planning.</li><li>Reforming the structure of retirement savings would help close the gap, advocates say.<span class="ql-inline-citation" data-cite="3"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-gender-gap"></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"> Gender Gap </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Most retirement saving in the United States occurs through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k) plans</a>, employer-sponsored contribution plans that often include some form of employer <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/matchingcontribution.asp">matching contribution</a>. Big differences in participation and savings rates directly impact the financial security of Americans when they quit working. </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"> Retirement savings, which rely on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wage-gaps-by-gender-5082675">factors such as income</a>, differ for men and women. Women have stashed away less for their post-work years than men. Indeed, older women report a great deal of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/building-better-retirement-strategies-for-women-8367558">anxiety over their financial security</a>, which they connect to their ability to remain independent.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <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 with-title" id="mntl-sc-block-callout-heading_2-0">26%</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>That’s how much less in retirement income women received vs. men in 2021, according to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/oecd.asp">Organisation for Economic Co-operation and Development</a>.<span class="ql-inline-citation" data-cite="4"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Fewer women have any kind of retirement savings in the U.S. About 50% of women ages 55 to 66—the decade or so before <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/normal-retirement-age-nra.asp">full retirement age</a>—have no retirement savings, according to an analysis of data from the U.S. Census Bureau’s Survey of Income and Program Participation. That’s compared with about 47% of men.<span class="ql-inline-citation" data-cite="16"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Among women who actually have retirement savings, fewer have saved a significant amount. Only about 22% of women have $100,000 or more in their personal retirement accounts. For men, that number is about 30%.<span class="ql-inline-citation" data-cite="16"></span> It’s difficult to put a specific dollar figure on how much you should save for retirement, which varies case by case, but $100,000 won’t last long as a source of retirement income. Assuming that you’re pulling out $1,000 per month (at an annual interest rate of 3%), it would be gone in less than a decade. </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"> Looking at 401(k) contributions specifically, these broad trends appear to hold true. The investment management firm Vanguard reported that in 2022, the median and average <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/definedcontributionplan.asp">defined-contribution plan</a> balances for men were about 44% higher than for women. Though women saved more than men at specific income levels, they tended to make less money and hold their jobs for a shorter amount of time, so their balances were lower.<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"> Due to lack of data identifying employees as nonbinary and transgender, there isn’t hard data for retirement savings for these populations. A study had documented challenges that nonbinary workers have getting ahead at work. This situation suggests a negative effect on both access to and amount of retirement savings.<span class="ql-inline-citation" data-cite="15"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>You can use an online retirement savings calculator to figure out how much monthly income your retirement savings will produce.<span class="ql-inline-citation" data-cite="12"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> Potential Causes </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Advocates for closing the retirement savings gap suggest that the dependence on defined-contribution programs, such as 401(k)s, may be part of the reason for the gap. Ultimately, however, it’s about <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/labor-market.asp">labor market</a> trends. The Vanguard study labeled the big factor as income disparity. Making less money means there’s less that you can save for retirement.<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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Still, there are other factors that matter. For example, the jobs that women hold also tend to be less likely to offer retirement programs. In addition, they spend less overall time in the workforce, reducing the amount of retirement savings and other worker benefits that they can accrue.<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_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"> Do 401(k)s Help Women or Hurt Them? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> About a third of American private-sector workers don’t have access to retirement plans through their employers, says a study from the Government Accountability Office (GAO), the investigative agency of the U.S. Congress. People who do have access have seen the type of plans change; since 1975, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/06/demiseofdbplan.asp">defined-contribution plans have increasingly taken the place of defined-benefit plans</a> (also known as pensions).<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_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> The switch has both helped and hurt women. The authors of <em>Wealth After Work: Innovative Reforms to Expand Retirement Security</em> argue that defined-contribution plans are usually more portable. Because women don’t stay in jobs as long and have less tenure, the change doesn’t penalize them as much.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> On the downside, defined-contribution plans tend to require a greater amount of active decision making. Unfortunately, women are less financially literate than men, making them more reluctant to take risks with retirement savings. Finally, defined-contribution plans are less likely to pay out stable income streams, which affects women more because they live longer.<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_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_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>For both men and women, being married once is associated with bumps in retirement savings, but multiple marriages reduce them.<span class="ql-inline-citation" data-cite="16"></span></p></div></div></div> <span class="heading-toc" id="toc-what-happens-when-theres-an-age-gap-between-spouses"></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"> What Happens When There’s an Age Gap Between Spouses? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Marital status also affects retirement, because couples pool their savings. A large age gap between a married couple can make retirement planning more complex. If one spouse is considerably younger, for example, they may be in their best earning years when their spouse retires. For women who might be in such a relationship, this is worth factoring into retirement considerations. </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"> To account for this, couples should carefully time their retirement. Keep in mind that one member of the couple is likely to live a lot longer. Financial advisors suggest that couples could: </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>Have the older spouse wait to tap into their Social Security benefits to let them keep vesting</li> <li>Be more aggressive with investments</li> <li>Get a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/permanentlife.asp">permanent life insurance</a> policy with a hefty death benefit<br/></li> </ul> <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-women-putting-away-as-much-for-retirement-as-men"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are women putting away as much for retirement as men?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. In the United States, women tend to have less access to retirement savings and to have saved less than men on average, according to surveys by the U.S. Census Bureau.<span class="ql-inline-citation" data-cite="16"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-how-much-does-the-average-person-have-in-their-401k"></span> <h2 class="mntl-sc-block-questionandanswer__question">How much does the average person have in their 401(k)?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Average 401(k) savings will <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/010616/whats-average-401k-balance-age.asp">vary by generation and age</a>. For those ages 65 and older, the average balance in 2021 was $279,997, according to Vanguard.<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_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-can-a-couple-combine-their-401ks"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can a couple combine their 401(k)s?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. The plans are tied to individual employment, not marital status. However, an employee can name their spouse as the plan <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beneficiary.asp">beneficiary</a>.<span class="ql-inline-citation" data-cite="19"></span><span class="ql-inline-citation" data-cite="18"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></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_49-0"> <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_50-0"> Proposals to reform the retirement system point out that the noted disparities are, in part, the result of the broader labor market. Fixing them will require systemic changes, such as a more robust social safety net. </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"> Some advocates argue that a federal paid family and medical leave program would help.<span class="ql-inline-citation" data-cite="20"></span> They also advocate for a Social Security caregiver credit that would allow caregiving to count toward Social Security benefits, as well as policies that would extend access to childcare and introduce a second-earner tax credit.<span class="ql-inline-citation" data-cite="21"></span><br> </br></p></div>	There’s a gender gap in retirement savings, including 401(k) contributions. Women have significantly less money saved for retirement than men. Reforming the retirement system, scholars say, could hasten closing the gap. ### Key Takeaways * U.S. retirement statistics reveal that women, on average, have less saved for retirement than men. * Though women save more in their 401(k)s than men do when they’re both at the same income levels, they have less saved because they make less. * Marital status is relevant for the retirement savings of both men and women, and when there’s an age gap, it can increase the complexity of retirement planning. * Reforming the structure of retirement savings would help close the gap, advocates say. ## Gender Gap Most retirement saving in the United States occurs through [401(k) plans](https://www.investopedia.com/terms/1/401kplan.asp), employer-sponsored contribution plans that often include some form of employer [matching contribution](https://www.investopedia.com/terms/m/matchingcontribution.asp). Big differences in participation and savings rates directly impact the financial security of Americans when they quit working. Retirement savings, which rely on [factors such as income](https://www.investopedia.com/wage-gaps-by-gender-5082675), differ for men and women. Women have stashed away less for their post-work years than men. Indeed, older women report a great deal of [anxiety over their financial security](https://www.investopedia.com/building-better-retirement-strategies-for-women-8367558), which they connect to their ability to remain independent. ### 26% That’s how much less in retirement income women received vs. men in 2021, according to the [Organisation for Economic Co-operation and Development](https://www.investopedia.com/terms/o/oecd.asp). Fewer women have any kind of retirement savings in the U.S. About 50% of women ages 55 to 66—the decade or so before [full retirement age](https://www.investopedia.com/terms/n/normal-retirement-age-nra.asp)—have no retirement savings, according to an analysis of data from the U.S. Census Bureau’s Survey of Income and Program Participation. That’s compared with about 47% of men. Among women who actually have retirement savings, fewer have saved a significant amount. Only about 22% of women have $100,000 or more in their personal retirement accounts. For men, that number is about 30%. It’s difficult to put a specific dollar figure on how much you should save for retirement, which varies case by case, but $100,000 won’t last long as a source of retirement income. Assuming that you’re pulling out $1,000 per month (at an annual interest rate of 3%), it would be gone in less than a decade. Looking at 401(k) contributions specifically, these broad trends appear to hold true. The investment management firm Vanguard reported that in 2022, the median and average [defined-contribution plan](https://www.investopedia.com/terms/d/definedcontributionplan.asp) balances for men were about 44% higher than for women. Though women saved more than men at specific income levels, they tended to make less money and hold their jobs for a shorter amount of time, so their balances were lower. Due to lack of data identifying employees as nonbinary and transgender, there isn’t hard data for retirement savings for these populations. A study had documented challenges that nonbinary workers have getting ahead at work. This situation suggests a negative effect on both access to and amount of retirement savings. ### You can use an online retirement savings calculator to figure out how much monthly income your retirement savings will produce. ### Potential Causes Advocates for closing the retirement savings gap suggest that the dependence on defined-contribution programs, such as 401(k)s, may be part of the reason for the gap. Ultimately, however, it’s about [labor market](https://www.investopedia.com/terms/l/labor-market.asp) trends. The Vanguard study labeled the big factor as income disparity. Making less money means there’s less that you can save for retirement. Still, there are other factors that matter. For example, the jobs that women hold also tend to be less likely to offer retirement programs. In addition, they spend less overall time in the workforce, reducing the amount of retirement savings and other worker benefits that they can accrue. ### Do 401(k)s Help Women or Hurt Them? About a third of American private-sector workers don’t have access to retirement plans through their employers, says a study from the Government Accountability Office (GAO), the investigative agency of the U.S. Congress. People who do have access have seen the type of plans change; since 1975, [defined-contribution plans have increasingly taken the place of defined-benefit plans](https://www.investopedia.com/articles/retirement/06/demiseofdbplan.asp) (also known as pensions). The switch has both helped and hurt women. The authors of Wealth After Work: Innovative Reforms to Expand Retirement Security argue that defined-contribution plans are usually more portable. Because women don’t stay in jobs as long and have less tenure, the change doesn’t penalize them as much. On the downside, defined-contribution plans tend to require a greater amount of active decision making. Unfortunately, women are less financially literate than men, making them more reluctant to take risks with retirement savings. Finally, defined-contribution plans are less likely to pay out stable income streams, which affects women more because they live longer. ### For both men and women, being married once is associated with bumps in retirement savings, but multiple marriages reduce them. ## What Happens When There’s an Age Gap Between Spouses? Marital status also affects retirement, because couples pool their savings. A large age gap between a married couple can make retirement planning more complex. If one spouse is considerably younger, for example, they may be in their best earning years when their spouse retires. For women who might be in such a relationship, this is worth factoring into retirement considerations. To account for this, couples should carefully time their retirement. Keep in mind that one member of the couple is likely to live a lot longer. Financial advisors suggest that couples could: * Have the older spouse wait to tap into their Social Security benefits to let them keep vesting * Be more aggressive with investments * Get a [permanent life insurance](https://www.investopedia.com/terms/p/permanentlife.asp) policy with a hefty death benefit ## Are women putting away as much for retirement as men? No. In the United States, women tend to have less access to retirement savings and to have saved less than men on average, according to surveys by the U.S. Census Bureau. ## How much does the average person have in their 401(k)? Average 401(k) savings will [vary by generation and age](https://www.investopedia.com/articles/personal-finance/010616/whats-average-401k-balance-age.asp). For those ages 65 and older, the average balance in 2021 was $279,997, according to Vanguard. ## Can a couple combine their 401(k)s? No. The plans are tied to individual employment, not marital status. However, an employee can name their spouse as the plan [beneficiary](https://www.investopedia.com/terms/b/beneficiary.asp). ## The Bottom Line Proposals to reform the retirement system point out that the noted disparities are, in part, the result of the broader labor market. Fixing them will require systemic changes, such as a more robust social safety net. Some advocates argue that a federal paid family and medical leave program would help. They also advocate for a Social Security caregiver credit that would allow caregiving to count toward Social Security benefits, as well as policies that would extend access to childcare and introduce a second-earner tax credit.	There’s a gender gap in retirement savings, including 401(k) contributions. Women have significantly less money saved for retirement than men. Reforming the retirement system, scholars say, could hasten closing the gap. Key Takeaways U.S. retirement statistics reveal that women, on average, have less saved for retirement than men.Though women save more in their 401(k)s than men do when they’re both at the same income levels, they have less saved because they make less.Marital status is relevant for the retirement savings of both men and women, and when there’s an age gap, it can increase the complexity of retirement planning.Reforming the structure of retirement savings would help close the gap, advocates say. Gender Gap Most retirement saving in the United States occurs through 401(k) plans, employer-sponsored contribution plans that often include some form of employer matching contribution. Big differences in participation and savings rates directly impact the financial security of Americans when they quit working. Retirement savings, which rely on factors such as income, differ for men and women. Women have stashed away less for their post-work years than men. Indeed, older women report a great deal of anxiety over their financial security, which they connect to their ability to remain independent. 26% That’s how much less in retirement income women received vs. men in 2021, according to the Organisation for Economic Co-operation and Development. Fewer women have any kind of retirement savings in the U.S. About 50% of women ages 55 to 66—the decade or so before full retirement age—have no retirement savings, according to an analysis of data from the U.S. Census Bureau’s Survey of Income and Program Participation. That’s compared with about 47% of men. Among women who actually have retirement savings, fewer have saved a significant amount. Only about 22% of women have $100,000 or more in their personal retirement accounts. For men, that number is about 30%. It’s difficult to put a specific dollar figure on how much you should save for retirement, which varies case by case, but $100,000 won’t last long as a source of retirement income. Assuming that you’re pulling out $1,000 per month (at an annual interest rate of 3%), it would be gone in less than a decade. Looking at 401(k) contributions specifically, these broad trends appear to hold true. The investment management firm Vanguard reported that in 2022, the median and average defined-contribution plan balances for men were about 44% higher than for women. Though women saved more than men at specific income levels, they tended to make less money and hold their jobs for a shorter amount of time, so their balances were lower. Due to lack of data identifying employees as nonbinary and transgender, there isn’t hard data for retirement savings for these populations. A study had documented challenges that nonbinary workers have getting ahead at work. This situation suggests a negative effect on both access to and amount of retirement savings. You can use an online retirement savings calculator to figure out how much monthly income your retirement savings will produce. Potential Causes Advocates for closing the retirement savings gap suggest that the dependence on defined-contribution programs, such as 401(k)s, may be part of the reason for the gap. Ultimately, however, it’s about labor market trends. The Vanguard study labeled the big factor as income disparity. Making less money means there’s less that you can save for retirement. Still, there are other factors that matter. For example, the jobs that women hold also tend to be less likely to offer retirement programs. In addition, they spend less overall time in the workforce, reducing the amount of retirement savings and other worker benefits that they can accrue. Do 401(k)s Help Women or Hurt Them? About a third of American private-sector workers don’t have access to retirement plans through their employers, says a study from the Government Accountability Office (GAO), the investigative agency of the U.S. Congress. People who do have access have seen the type of plans change; since 1975, defined-contribution plans have increasingly taken the place of defined-benefit plans (also known as pensions). The switch has both helped and hurt women. The authors of Wealth After Work: Innovative Reforms to Expand Retirement Security argue that defined-contribution plans are usually more portable. Because women don’t stay in jobs as long and have less tenure, the change doesn’t penalize them as much. On the downside, defined-contribution plans tend to require a greater amount of active decision making. Unfortunately, women are less financially literate than men, making them more reluctant to take risks with retirement savings. Finally, defined-contribution plans are less likely to pay out stable income streams, which affects women more because they live longer. For both men and women, being married once is associated with bumps in retirement savings, but multiple marriages reduce them. What Happens When There’s an Age Gap Between Spouses? Marital status also affects retirement, because couples pool their savings. A large age gap between a married couple can make retirement planning more complex. If one spouse is considerably younger, for example, they may be in their best earning years when their spouse retires. For women who might be in such a relationship, this is worth factoring into retirement considerations. To account for this, couples should carefully time their retirement. Keep in mind that one member of the couple is likely to live a lot longer. Financial advisors suggest that couples could: Have the older spouse wait to tap into their Social Security benefits to let them keep vesting Be more aggressive with investments Get a permanent life insurance policy with a hefty death benefit Are women putting away as much for retirement as men? No. In the United States, women tend to have less access to retirement savings and to have saved less than men on average, according to surveys by the U.S. Census Bureau. How much does the average person have in their 401(k)? Average 401(k) savings will vary by generation and age. For those ages 65 and older, the average balance in 2021 was $279,997, according to Vanguard. Can a couple combine their 401(k)s? No. The plans are tied to individual employment, not marital status. However, an employee can name their spouse as the plan beneficiary. The Bottom Line Proposals to reform the retirement system point out that the noted disparities are, in part, the result of the broader labor market. Fixing them will require systemic changes, such as a more robust social safety net. Some advocates argue that a federal paid family and medical leave program would help. They also advocate for a Social Security caregiver credit that would allow caregiving to count toward Social Security benefits, as well as policies that would extend access to childcare and introduce a second-earner tax credit.	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https://www.investopedia.com/best-marijuana-etfs-5077586	Top Cannabis ETFs	<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"> Three outperforming cannabis ETFs offer investors exposure to equities that have rebounded 15% in recent months as President Biden moved to pardon federal cannabis offenses, New York State issued its first recreational dispensary licenses and voters in Missouri and Maryland brought to 21 the number of states where weed is legal.<span class="ql-inline-citation" data-cite="49"></span><span class="ql-inline-citation" data-cite="48"></span><span class="ql-inline-citation" data-cite="47"></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"> ETFMG Alternative Harvest ETF, AdvisorShares Pure US Cannabis ETF, and ETFMG U.S. Alternative Harvest provide exposure to companies that cultivate, distribute, and sell cannabis and related products. The ETFs have beaten the Global Cannabis Stock Index, which lost more than two-thirds of its value in the past year, though they lag the 14% drop in the S&P 500 Index as of Nov. 18, 2022.<span class="ql-inline-citation" data-cite="33"></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_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>ETFMG Alternative Harvest ETF, AdvisorShares Pure US Cannabis ETF, and ETFMG U.S. Alternative Harvest ETF are the top-performing cannabis ETFs based on one-year trailing total returns.</li><li>Cannabis stocks as a group have underperformed the U.S. equity market over the past year, though they have rebounded 15% since Sept. 30.</li><li>The biggest holdings of the top funds are the ETFMG U.S. Alternative Harvest ETF, Green Thumb Industries Inc., and Innovative Industrial Properties Inc., respectively.</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"> Five cannabis ETFs trade in the United States, excluding inverse and leveraged ETFs as well as funds with less than $50 million in <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 (AUM)</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"> While prohibited as an illegal substance in many parts of the world, cannabis is gaining wider acceptance for both medicinal and recreational purposes. Support for legalization is growing, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/important-terminology-related-to-the-cannabis-industry-4590098">cannabis is now a multibillion-dollar industry</a>. The global legal cannabis market is expected to expand at a healthy <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/compound-annual-growth-rate-what-you-should-know/">compound annual growth rate (CAGR)</a> of 25.5% through 2030.<span class="ql-inline-citation" data-cite="37"></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"> We examine the three top cannabis ETFs below based on their stock performance over the past year.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-etfmg-alternative-harvest-etf-mj"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=mj" rel="nocaes">ETFMG Alternative Harvest ETF (MJ)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> <li>Performance Over One Year: -58.0%</li> <li><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>: 0.75%</li> <li>Annual <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividendyield.asp">Dividend Yield</a>: 1.56%</li> <li>Three-Month Average Daily <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volume.asp">Volume</a>: 1,227,992</li> <li>Assets Under Management: $416.7 million</li> <li>Inception Date: Dec. 3, 2015<span class="ql-inline-citation" data-cite="40"></span></li> <li>Issuer: ETFMG</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"> ETFMG Alternative Harvest ETF is the first exchange traded fund to focus on the global cannabis industry and tracks the Prime Alternative Harvest Index, which is comprised of companies that grow, market, and sell cannabis products for medicinal and recreational use. The fund is dominated by Canadian cannabis companies.<span class="ql-inline-citation" data-cite="38"></span><span class="ql-inline-citation" data-cite="40"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Its top holdings include the ETFMG U.S. Alternative Harvest ETF (MJUS), which owns cannabis stocks; SNDL Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SNDL">SNDL</a>), a Canadian company that distributes and sells cannabis products; and Canopy Growth Corp. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WEED">WEED</a>), a Canadian company that sells recreational and medicinal products. The holdings data are as of Nov. 19.<span class="ql-inline-citation" data-cite="43"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-advisorshares-pure-us-cannabis-etf-msos"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=msos" rel="nocaes">AdvisorShares Pure US Cannabis ETF (MSOS)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <li>Performance Over One Year: -58.7%</li><li>Expense Ratio: 0.80%</li><li>Annual Dividend Yield: N/A</li><li>Three-Month Average Daily Volume: 2,072,595</li><li>Assets Under Management: $780.6 million</li><li>Inception Date: Sept. 1, 2020</li><li>Issuer: AdvisorShares</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> AdvisorShares Pure US Cannabis ETF is an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/activemanagement.asp">actively managed fund</a> that focuses U.S. cannabis and cannabis-related companies, including multi-state operators (MSOs) involved in diverse parts of the industry. The fund seeks long-term <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalappreciation.asp">capital appreciation</a> and its investments may include <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reit.asp">real estate investment trusts (REITs),</a> healthcare, hydroponics, and pharmaceuticals.<span class="ql-inline-citation" data-cite="46"></span><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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The ETF's top three holdings are Green Thumb Industries Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GTBIF">GBTIF</a>), which supplies cannabis products to retail stores; Curaleaf Holdings Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CURLF">CURLF</a>), which sells cannabis products and offers professional services such as property leasing; and Trulieve Cannabis Corp. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TCNNF">TCNNF</a>), which is a vertically integrated producer and retailer of products. The holdings data are as of Nov. 18.<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_26-0"></div> <span class="heading-toc" id="toc-etfmg-us-alternative-harvest-etf-mjus"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MJUS" rel="nocaes">ETFMG U.S. Alternative Harvest ETF (MJUS)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <li>Performance Over One-Year: -59.5%</li><li>Expense Ratio: 0.75%</li><li>Annual Dividend Yield: N/A</li><li>Three-Month Average Daily Volume: 589,302</li><li>Assets Under Management: $117.1 million</li><li>Inception Date: May 12, 2021</li><li>Issuer: ETFMG</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"> ETFMG U.S. Alternative Harvest ETF is an actively managed fund that provides exposure to companies directly involved in the production of cannabis-related products in the U.S. Companies selected for the fund must get at least 50% of their net revenue from the cannabis business.<span class="ql-inline-citation" data-cite="44"></span><span class="ql-inline-citation" data-cite="41"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The top three holdings are Innovative Industrial Properties Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=IIPR">IIPR</a>), a REIT focused on the cannabis industry, as well as Curaleaf Holdings Inc. and Green Thumb Industries Inc. These data are as of as of Nov. 19.<span class="ql-inline-citation" data-cite="41"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> <em>The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.</em> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	Three outperforming cannabis ETFs offer investors exposure to equities that have rebounded 15% in recent months as President Biden moved to pardon federal cannabis offenses, New York State issued its first recreational dispensary licenses and voters in Missouri and Maryland brought to 21 the number of states where weed is legal. ETFMG Alternative Harvest ETF, AdvisorShares Pure US Cannabis ETF, and ETFMG U.S. Alternative Harvest provide exposure to companies that cultivate, distribute, and sell cannabis and related products. The ETFs have beaten the Global Cannabis Stock Index, which lost more than two-thirds of its value in the past year, though they lag the 14% drop in the S&P 500 Index as of Nov. 18, 2022. ### Key Takeaways * ETFMG Alternative Harvest ETF, AdvisorShares Pure US Cannabis ETF, and ETFMG U.S. Alternative Harvest ETF are the top-performing cannabis ETFs based on one-year trailing total returns. * Cannabis stocks as a group have underperformed the U.S. equity market over the past year, though they have rebounded 15% since Sept. 30. * The biggest holdings of the top funds are the ETFMG U.S. Alternative Harvest ETF, Green Thumb Industries Inc., and Innovative Industrial Properties Inc., respectively. Five cannabis ETFs trade in the United States, excluding inverse and leveraged ETFs as well as funds with less than $50 million in [assets under management (AUM)](https://www.investopedia.com/terms/a/aum.asp). While prohibited as an illegal substance in many parts of the world, cannabis is gaining wider acceptance for both medicinal and recreational purposes. Support for legalization is growing, and [cannabis is now a multibillion-dollar industry](https://www.investopedia.com/important-terminology-related-to-the-cannabis-industry-4590098). The global legal cannabis market is expected to expand at a healthy [compound annual growth rate (CAGR)](https://www.investopedia.com/investing/compound-annual-growth-rate-what-you-should-know/) of 25.5% through 2030. We examine the three top cannabis ETFs below based on their stock performance over the past year. ## [ETFMG Alternative Harvest ETF (MJ)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=mj) * Performance Over One Year: -58.0% * [Expense Ratio](https://www.investopedia.com/terms/e/expenseratio.asp): 0.75% * Annual [Dividend Yield](https://www.investopedia.com/terms/d/dividendyield.asp): 1.56% * Three-Month Average Daily [Volume](https://www.investopedia.com/terms/v/volume.asp): 1,227,992 * Assets Under Management: $416.7 million * Inception Date: Dec. 3, 2015 * Issuer: ETFMG ETFMG Alternative Harvest ETF is the first exchange traded fund to focus on the global cannabis industry and tracks the Prime Alternative Harvest Index, which is comprised of companies that grow, market, and sell cannabis products for medicinal and recreational use. The fund is dominated by Canadian cannabis companies. Its top holdings include the ETFMG U.S. Alternative Harvest ETF (MJUS), which owns cannabis stocks; SNDL Inc. ([SNDL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SNDL)), a Canadian company that distributes and sells cannabis products; and Canopy Growth Corp. ([WEED](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WEED)), a Canadian company that sells recreational and medicinal products. The holdings data are as of Nov. 19. ## [AdvisorShares Pure US Cannabis ETF (MSOS)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=msos) * Performance Over One Year: -58.7% * Expense Ratio: 0.80% * Annual Dividend Yield: N/A * Three-Month Average Daily Volume: 2,072,595 * Assets Under Management: $780.6 million * Inception Date: Sept. 1, 2020 * Issuer: AdvisorShares AdvisorShares Pure US Cannabis ETF is an [actively managed fund](https://www.investopedia.com/terms/a/activemanagement.asp) that focuses U.S. cannabis and cannabis-related companies, including multi-state operators (MSOs) involved in diverse parts of the industry. The fund seeks long-term [capital appreciation](https://www.investopedia.com/terms/c/capitalappreciation.asp) and its investments may include [real estate investment trusts (REITs),](https://www.investopedia.com/terms/r/reit.asp) healthcare, hydroponics, and pharmaceuticals. The ETF's top three holdings are Green Thumb Industries Inc. ([GBTIF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GTBIF)), which supplies cannabis products to retail stores; Curaleaf Holdings Inc. ([CURLF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CURLF)), which sells cannabis products and offers professional services such as property leasing; and Trulieve Cannabis Corp. ([TCNNF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TCNNF)), which is a vertically integrated producer and retailer of products. The holdings data are as of Nov. 18. ## [ETFMG U.S. Alternative Harvest ETF (MJUS)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MJUS) * Performance Over One-Year: -59.5% * Expense Ratio: 0.75% * Annual Dividend Yield: N/A * Three-Month Average Daily Volume: 589,302 * Assets Under Management: $117.1 million * Inception Date: May 12, 2021 * Issuer: ETFMG ETFMG U.S. Alternative Harvest ETF is an actively managed fund that provides exposure to companies directly involved in the production of cannabis-related products in the U.S. Companies selected for the fund must get at least 50% of their net revenue from the cannabis business. The top three holdings are Innovative Industrial Properties Inc. ([IIPR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IIPR)), a REIT focused on the cannabis industry, as well as Curaleaf Holdings Inc. and Green Thumb Industries Inc. These data are as of as of Nov. 19. The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	Three outperforming cannabis ETFs offer investors exposure to equities that have rebounded 15% in recent months as President Biden moved to pardon federal cannabis offenses, New York State issued its first recreational dispensary licenses and voters in Missouri and Maryland brought to 21 the number of states where weed is legal. ETFMG Alternative Harvest ETF, AdvisorShares Pure US Cannabis ETF, and ETFMG U.S. Alternative Harvest provide exposure to companies that cultivate, distribute, and sell cannabis and related products. The ETFs have beaten the Global Cannabis Stock Index, which lost more than two-thirds of its value in the past year, though they lag the 14% drop in the S&P 500 Index as of Nov. 18, 2022. Key Takeaways ETFMG Alternative Harvest ETF, AdvisorShares Pure US Cannabis ETF, and ETFMG U.S. Alternative Harvest ETF are the top-performing cannabis ETFs based on one-year trailing total returns.Cannabis stocks as a group have underperformed the U.S. equity market over the past year, though they have rebounded 15% since Sept. 30.The biggest holdings of the top funds are the ETFMG U.S. Alternative Harvest ETF, Green Thumb Industries Inc., and Innovative Industrial Properties Inc., respectively. Five cannabis ETFs trade in the United States, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). While prohibited as an illegal substance in many parts of the world, cannabis is gaining wider acceptance for both medicinal and recreational purposes. Support for legalization is growing, and cannabis is now a multibillion-dollar industry. The global legal cannabis market is expected to expand at a healthy compound annual growth rate (CAGR) of 25.5% through 2030. We examine the three top cannabis ETFs below based on their stock performance over the past year. ETFMG Alternative Harvest ETF (MJ) Performance Over One Year: -58.0% Expense Ratio: 0.75% Annual Dividend Yield: 1.56% Three-Month Average Daily Volume: 1,227,992 Assets Under Management: $416.7 million Inception Date: Dec. 3, 2015 Issuer: ETFMG ETFMG Alternative Harvest ETF is the first exchange traded fund to focus on the global cannabis industry and tracks the Prime Alternative Harvest Index, which is comprised of companies that grow, market, and sell cannabis products for medicinal and recreational use. The fund is dominated by Canadian cannabis companies. Its top holdings include the ETFMG U.S. Alternative Harvest ETF (MJUS), which owns cannabis stocks; SNDL Inc. (SNDL), a Canadian company that distributes and sells cannabis products; and Canopy Growth Corp. (WEED), a Canadian company that sells recreational and medicinal products. The holdings data are as of Nov. 19. AdvisorShares Pure US Cannabis ETF (MSOS) Performance Over One Year: -58.7%Expense Ratio: 0.80%Annual Dividend Yield: N/AThree-Month Average Daily Volume: 2,072,595Assets Under Management: $780.6 millionInception Date: Sept. 1, 2020Issuer: AdvisorShares AdvisorShares Pure US Cannabis ETF is an actively managed fund that focuses U.S. cannabis and cannabis-related companies, including multi-state operators (MSOs) involved in diverse parts of the industry. The fund seeks long-term capital appreciation and its investments may include real estate investment trusts (REITs), healthcare, hydroponics, and pharmaceuticals. The ETF's top three holdings are Green Thumb Industries Inc. (GBTIF), which supplies cannabis products to retail stores; Curaleaf Holdings Inc. (CURLF), which sells cannabis products and offers professional services such as property leasing; and Trulieve Cannabis Corp. (TCNNF), which is a vertically integrated producer and retailer of products. The holdings data are as of Nov. 18. ETFMG U.S. Alternative Harvest ETF (MJUS) Performance Over One-Year: -59.5%Expense Ratio: 0.75%Annual Dividend Yield: N/AThree-Month Average Daily Volume: 589,302Assets Under Management: $117.1 millionInception Date: May 12, 2021Issuer: ETFMG ETFMG U.S. Alternative Harvest ETF is an actively managed fund that provides exposure to companies directly involved in the production of cannabis-related products in the U.S. Companies selected for the fund must get at least 50% of their net revenue from the cannabis business. The top three holdings are Innovative Industrial Properties Inc. (IIPR), a REIT focused on the cannabis industry, as well as Curaleaf Holdings Inc. and Green Thumb Industries Inc. These data are as of as of Nov. 19. The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy. Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "assets under management (AUM)", "https://www.investopedia.com/terms/a/aum.asp" ], [ "cannabis is now a multibillion-dollar industry", "https://www.investopedia.com/important-terminology-related-to-the-cannabis-industry-4590098" ], [ "compound annual growth rate (CAGR)", "https://www.investopedia.com/investing/compound-annual-growth-rate-what-you-should-know/" ], [ "ETFMG Alternative Harvest ETF (MJ)", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=mj" ], [ "Expense Ratio", "https://www.investopedia.com/terms/e/expenseratio.asp" ], [ "Dividend Yield", "https://www.investopedia.com/terms/d/dividendyield.asp" ], [ "Volume", "https://www.investopedia.com/terms/v/volume.asp" ], [ "SNDL", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=SNDL" ], [ "WEED", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=WEED" ], [ "AdvisorShares Pure US Cannabis ETF (MSOS)", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=msos" ], [ "actively managed fund", "https://www.investopedia.com/terms/a/activemanagement.asp" ], [ "capital appreciation", "https://www.investopedia.com/terms/c/capitalappreciation.asp" ], [ "real estate investment trusts (REITs),", "https://www.investopedia.com/terms/r/reit.asp" ], [ "GBTIF", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=GTBIF" ], [ "CURLF", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=CURLF" ], [ "TCNNF", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=TCNNF" ], [ "ETFMG U.S. Alternative Harvest ETF (MJUS)", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=MJUS" ], [ "IIPR", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=IIPR" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/financial-influencers-to-know-5217608	Personal Finance Influencers You Should Know	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Turning to personal finance influencers is one way to increase your financial knowledge. Not all are alike, so it pays to know which ones are worth your time. </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 Takeways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Personal finance influencers share tips and strategies on managing money, typically through social media platforms and/or a blog or website.</li><li>Personal finance influencers may or may not have professional certifications or backgrounds in money management.</li><li>Some financial influencers teach others about money based on their own experiences.</li><li>Before following a personal finance influencer, consider their qualifications and background.</li><li>Money tips shared by personal finance influencers are not a substitute for advice from a professional financial advisor.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-a-personal-finance-influencer"></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 Personal Finance Influencer? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A personal finance influencer, or "finfluencer," is a social media influencer who specializes in sharing tips about finances and money. A social media influencer is someone who has established credibility in a specific industry or niche and uses social media to promote themselves. They build a devoted audience and following by sharing content through social media channels such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/10-tiktok-influencers-you-should-know-5224412">TikTok</a>, YouTube, Instagram, and Facebook. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/top-10-personal-finance-podcasts-5088034">They may also have a podcast</a> or blog. </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 rise of the personal finance influencer can be partly attributed to the growing use of social media to access money advice. For example, here’s where Gen Z and millennial investors look for money tips, according to Morning Consult:<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> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <li>Facebook—33%</li><li>Instagram—32%</li><li>Reddit—29%</li><li>X platform (formerly Twitter)—27%<br/></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"> Personal finance influencers can earn money by sharing their financial knowledge in several ways, including monetizing a YouTube channel, sharing sponsored posts, selling digital products or courses, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/affiliate-marketing.asp">affiliate marketing</a>.<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-callout mntl-block" id="mntl-sc-block_14-0"><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_15-0"><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 <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> requires social media influencers and affiliate marketers to disclose affiliate relationships or sponsorships in which they may be paid to recommend a specific brand or product.<span class="ql-inline-citation" data-cite="41"></span></p></div></div></div> <span class="heading-toc" id="toc-how-to-vet-personal-finance-influencers"></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 to Vet Personal Finance Influencers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Not all personal finance influencers provide high-quality content. When you are choosing a personal finance influencer to follow, you'll want to ensure they are reputable and trustworthy. It's important to vet the influencers giving you financial advice. </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"> You can check whether a financial influencer has specific certifications that make them more qualified to provide financial advice—for example, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfp.asp">Certified Financial Planner</a> (CFP) has been through a rigorous process and is certified by a well-known institution. </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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Licensed professionals are regulated by an agency like the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA).</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Look for red flags that a financial influencer may have ulterior motives besides helping you with your finances. For example, they may give advice that sounds very risky or promise to make you rich quickly.<br> </br></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-top-10-personal-finance-influencers-to-follow"></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"> Top 10 Personal Finance Influencers to Follow </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Getting financial advice online via social media can be risky as<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/043015/top-financial-advisor-scams-and-how-avoid-them.asp"> scammers are among the professionals.</a> So which personal finance influencers are legitimate and worth following? Here are 10 noteworthy names: </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"> Humphrey Yang, @HumphreyTalks </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <li>Follow on—TikTok, YouTube, and Instagram</li><li>Tips on—Investing, taxes, and money basics</li> </ul> <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"> Humphrey Yang is a former <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> turned content creator and personal finance influencer. He has 3.3 million followers on TikTok, and one of his most popular videos, with more than seven million views, breaks down the difference between short- and long-term <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital_gains_tax.asp">capital gains tax</a> rates.<span class="ql-inline-citation" data-cite="40"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Delyanne Barros, @DelyanneTheMoneyCoach </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> <li>Follow on—Instagram, TikTok, and X</li><li>Tips on—Investing</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"> Delyanne Barros is a personal finance influencer who writes a blog called Delyanne the Money Coach. Previously an attorney, she’s now a self-made millionaire and her content focuses on teaching everyday investors how to master the stock market.<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_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"> Dasha Kennedy, @TheBrokeBlackGirl </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <li>Follow on—Instagram, Facebook, and X</li><li>Tips on—Debt, building wealth, and financial independence</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"> Dasha Kennedy is a personal finance influencer and activist on a mission to help women become financially empowered.<span class="ql-inline-citation" data-cite="42"></span> She leverages her own experiences with money to provide advice that’s practical, useful, and realistic.<br/> </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"> Nick Loper, @nloper </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> <li>Follow on—X and Instagram</li><li>Tips on—Side hustles, creating passive income, and financial independence</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"> Nick Loper used to work a nine-to-five job, but then he learned the secret to making money without one. He shares his best tips for creating additional income streams through side hustles and online businesses via social media, a blog called Side Hustle Nation, and “The Side Hustle Show” podcast.<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_47-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-subheading__text"> Tiffany Aliche, @thebudgetnista </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> <li>Follow on—Instagram, X, YouTube, and Facebook</li> <li>Tips on—Budgeting and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymanagement.asp">money management</a></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"> Tiffany Aliche is the founder of The Budgetnista blog and author of the book "Get Good with Money." She also co-hosts “The Brown Ambition” podcast with Mandi Woodruff-Santos. Aliche focuses on women and money and has helped more than 1 million women worldwide to expand their financial know-how.<span class="ql-inline-citation" data-cite="43"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></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"> Chelsea Fagan, @thefinancialdiet </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> <li>Follow on—Instagram, X, and YouTube</li><li>Tips on—Spending, saving, debt, budgeting, and money management</li> </ul> <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"> Chelsea Fagan founded The Financial Diet blog in 2014 as a personal finance blog. She has since grown it into a company dedicated to helping women feel more confident in managing their finances.<span class="ql-inline-citation" data-cite="44"></span> Her Instagram account has close to 1 million followers and offers plenty of practical tips for improving your financial life.<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_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"> Jeremy Schneider, @PersonalFinanceClub </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> <li>Follow on—Instagram and TikTok</li><li>Tips on—Investing</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"> Jeremy Schneider offers his followers a crash course in investing basics. His approach to content is largely visual.<span class="ql-inline-citation" data-cite="46"></span> He explains complex investing topics with easy-to-read infographics. This could be a great place to start if you’re new to investing and need some help building a solid foundation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-subheading__text"> Daniella Flores, @iliketodabble </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> <li>Follow on—Instagram, X, Facebook, and YouTube</li><li>Tips on—Side hustles, making money, saving money, and budgeting</li> </ul> <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"> Daniella Flores started the I Like to Dabble blog in 2017 to document their experiments with various side hustles and ways of making money on the side. Daniella and Alexandra (Daniella's spouse) were able to pay off $40,000, and Daniella is now an active voice in promoting financial health and independence for members of the LGBTQ+ community.<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_67-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-subheading__text"> Anthony O’Neal, @anthonyoneal </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> <li>Follow on—Instagram, X, and YouTube</li><li>Tips on—Debt and money management</li> </ul> <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"> Anthony O’Neal is a best-selling author and speaker, and he’s also garnered a sizable YouTube following by sharing financial advice for students. One of his main focuses is teaching you to get out of debt so that you can live your best life financially. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_73-0"> <span class="mntl-sc-block-subheading__text"> Anjie and RJ Muhammad, @richbyintention </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> <li>Follow on—Instagram and website/podcast</li><li>Tips on—Managing money and building wealth as a couple</li> </ul> <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"> Anjie and RJ Muhammad are a married couple who understand how important it is to be able to manage money as a team, especially when building wealth is the goal. They’ve paid off more than $100,000 in student loan debt together and use their experiences to help other couples manage money with fewer arguments.<span class="ql-inline-citation" data-cite="47"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_78-0"><span class="heading-toc" id="toc-who-are-personal-finance-influencers"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Are Personal Finance Influencers?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Personal finance influencers are people who use social media platforms and websites to offer tips about money. In terms of success, they’re typically gauged by the size of their following and the visibility of their brand. Some of the top influencers have audiences that number in the millions.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_80-0"><span class="heading-toc" id="toc-how-do-you-become-a-personal-finance-influencer"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Become a Personal Finance Influencer?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Becoming a personal finance influencer starts with identifying a target audience and understanding which problems they might need help solving. From there, you can create a content plan that speaks to those needs and build your following across different social media platforms.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_82-0"><span class="heading-toc" id="toc-are-personal-finance-influencers-legit"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Personal Finance Influencers Legit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Many are legitimate in that they’re drawing on their own experiences or relying on their professional expertise to share money tips. There are, however, some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-influencer-red-flags-5217694">who lack credibility and authority</a>, so it’s important to do your research when deciding whom to follow.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_84-0"><span class="heading-toc" id="toc-is-it-legal-to-give-financial-advice-on-social-media"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is It Legal to Give Financial Advice on Social Media?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Anyone can share financial advice on social media, but it’s important to understand how that can potentially create legal issues. For example, if you’re an influencer who recommends a specific banking product for which you are also an affiliate, you have to disclose that relationship to your audience. Otherwise, you could land in hot water with the Federal Trade Commission (FTC).</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></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_86-0"> <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_87-0"> Following personal finance influencers can be a useful way to get money advice, but it’s important to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/12/challenges-investing-modern-world.asp">consider the source</a>. Many influencers specifically note that their tips should not be considered a substitute for professional financial advice. If you’re struggling with how to make a budget or need some insight into how to develop a retirement strategy, you may want to consider meeting with a certified credit counselor or a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/managing-wealth/when-should-you-hire-financial-advisor/">financial advisor</a>. </p></div>	Turning to personal finance influencers is one way to increase your financial knowledge. Not all are alike, so it pays to know which ones are worth your time. ### Key Takeways * Personal finance influencers share tips and strategies on managing money, typically through social media platforms and/or a blog or website. * Personal finance influencers may or may not have professional certifications or backgrounds in money management. * Some financial influencers teach others about money based on their own experiences. * Before following a personal finance influencer, consider their qualifications and background. * Money tips shared by personal finance influencers are not a substitute for advice from a professional financial advisor. ## What Is a Personal Finance Influencer? A personal finance influencer, or "finfluencer," is a social media influencer who specializes in sharing tips about finances and money. A social media influencer is someone who has established credibility in a specific industry or niche and uses social media to promote themselves. They build a devoted audience and following by sharing content through social media channels such as [TikTok](https://www.investopedia.com/10-tiktok-influencers-you-should-know-5224412), YouTube, Instagram, and Facebook. [They may also have a podcast](https://www.investopedia.com/top-10-personal-finance-podcasts-5088034) or blog. The rise of the personal finance influencer can be partly attributed to the growing use of social media to access money advice. For example, here’s where Gen Z and millennial investors look for money tips, according to Morning Consult: * Facebook—33% * Instagram—32% * Reddit—29% * X platform (formerly Twitter)—27% Personal finance influencers can earn money by sharing their financial knowledge in several ways, including monetizing a YouTube channel, sharing sponsored posts, selling digital products or courses, and [affiliate marketing](https://www.investopedia.com/terms/a/affiliate-marketing.asp). ### The [Federal Trade Commission (FTC)](https://www.investopedia.com/terms/f/ftc.asp) requires social media influencers and affiliate marketers to disclose affiliate relationships or sponsorships in which they may be paid to recommend a specific brand or product. ## How to Vet Personal Finance Influencers Not all personal finance influencers provide high-quality content. When you are choosing a personal finance influencer to follow, you'll want to ensure they are reputable and trustworthy. It's important to vet the influencers giving you financial advice. You can check whether a financial influencer has specific certifications that make them more qualified to provide financial advice—for example, a [Certified Financial Planner](https://www.investopedia.com/terms/c/cfp.asp) (CFP) has been through a rigorous process and is certified by a well-known institution. ### Licensed professionals are regulated by an agency like the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA). Look for red flags that a financial influencer may have ulterior motives besides helping you with your finances. For example, they may give advice that sounds very risky or promise to make you rich quickly. ## Top 10 Personal Finance Influencers to Follow Getting financial advice online via social media can be risky as [scammers are among the professionals.](https://www.investopedia.com/articles/personal-finance/043015/top-financial-advisor-scams-and-how-avoid-them.asp) So which personal finance influencers are legitimate and worth following? Here are 10 noteworthy names: ### Humphrey Yang, @HumphreyTalks * Follow on—TikTok, YouTube, and Instagram * Tips on—Investing, taxes, and money basics Humphrey Yang is a former [financial advisor](https://www.investopedia.com/terms/f/financial-advisor.asp) turned content creator and personal finance influencer. He has 3.3 million followers on TikTok, and one of his most popular videos, with more than seven million views, breaks down the difference between short- and long-term [capital gains tax](https://www.investopedia.com/terms/c/capital_gains_tax.asp) rates. ### Delyanne Barros, @DelyanneTheMoneyCoach * Follow on—Instagram, TikTok, and X * Tips on—Investing Delyanne Barros is a personal finance influencer who writes a blog called Delyanne the Money Coach. Previously an attorney, she’s now a self-made millionaire and her content focuses on teaching everyday investors how to master the stock market. ### Dasha Kennedy, @TheBrokeBlackGirl * Follow on—Instagram, Facebook, and X * Tips on—Debt, building wealth, and financial independence Dasha Kennedy is a personal finance influencer and activist on a mission to help women become financially empowered. She leverages her own experiences with money to provide advice that’s practical, useful, and realistic. ### Nick Loper, @nloper * Follow on—X and Instagram * Tips on—Side hustles, creating passive income, and financial independence Nick Loper used to work a nine-to-five job, but then he learned the secret to making money without one. He shares his best tips for creating additional income streams through side hustles and online businesses via social media, a blog called Side Hustle Nation, and “The Side Hustle Show” podcast. ### Tiffany Aliche, @thebudgetnista * Follow on—Instagram, X, YouTube, and Facebook * Tips on—Budgeting and [money management](https://www.investopedia.com/terms/m/moneymanagement.asp) Tiffany Aliche is the founder of The Budgetnista blog and author of the book "Get Good with Money." She also co-hosts “The Brown Ambition” podcast with Mandi Woodruff-Santos. Aliche focuses on women and money and has helped more than 1 million women worldwide to expand their financial know-how. ### Chelsea Fagan, @thefinancialdiet * Follow on—Instagram, X, and YouTube * Tips on—Spending, saving, debt, budgeting, and money management Chelsea Fagan founded The Financial Diet blog in 2014 as a personal finance blog. She has since grown it into a company dedicated to helping women feel more confident in managing their finances. Her Instagram account has close to 1 million followers and offers plenty of practical tips for improving your financial life. ### Jeremy Schneider, @PersonalFinanceClub * Follow on—Instagram and TikTok * Tips on—Investing Jeremy Schneider offers his followers a crash course in investing basics. His approach to content is largely visual. He explains complex investing topics with easy-to-read infographics. This could be a great place to start if you’re new to investing and need some help building a solid foundation. ### Daniella Flores, @iliketodabble * Follow on—Instagram, X, Facebook, and YouTube * Tips on—Side hustles, making money, saving money, and budgeting Daniella Flores started the I Like to Dabble blog in 2017 to document their experiments with various side hustles and ways of making money on the side. Daniella and Alexandra (Daniella's spouse) were able to pay off $40,000, and Daniella is now an active voice in promoting financial health and independence for members of the LGBTQ+ community. ### Anthony O’Neal, @anthonyoneal * Follow on—Instagram, X, and YouTube * Tips on—Debt and money management Anthony O’Neal is a best-selling author and speaker, and he’s also garnered a sizable YouTube following by sharing financial advice for students. One of his main focuses is teaching you to get out of debt so that you can live your best life financially. ### Anjie and RJ Muhammad, @richbyintention * Follow on—Instagram and website/podcast * Tips on—Managing money and building wealth as a couple Anjie and RJ Muhammad are a married couple who understand how important it is to be able to manage money as a team, especially when building wealth is the goal. They’ve paid off more than $100,000 in student loan debt together and use their experiences to help other couples manage money with fewer arguments. ## Who Are Personal Finance Influencers? Personal finance influencers are people who use social media platforms and websites to offer tips about money. In terms of success, they’re typically gauged by the size of their following and the visibility of their brand. Some of the top influencers have audiences that number in the millions. ## How Do You Become a Personal Finance Influencer? Becoming a personal finance influencer starts with identifying a target audience and understanding which problems they might need help solving. From there, you can create a content plan that speaks to those needs and build your following across different social media platforms. ## Are Personal Finance Influencers Legit? Many are legitimate in that they’re drawing on their own experiences or relying on their professional expertise to share money tips. There are, however, some [who lack credibility and authority](https://www.investopedia.com/financial-influencer-red-flags-5217694), so it’s important to do your research when deciding whom to follow. ## Is It Legal to Give Financial Advice on Social Media? Anyone can share financial advice on social media, but it’s important to understand how that can potentially create legal issues. For example, if you’re an influencer who recommends a specific banking product for which you are also an affiliate, you have to disclose that relationship to your audience. Otherwise, you could land in hot water with the Federal Trade Commission (FTC). ## The Bottom Line Following personal finance influencers can be a useful way to get money advice, but it’s important to [consider the source](https://www.investopedia.com/articles/basics/12/challenges-investing-modern-world.asp). Many influencers specifically note that their tips should not be considered a substitute for professional financial advice. If you’re struggling with how to make a budget or need some insight into how to develop a retirement strategy, you may want to consider meeting with a certified credit counselor or a [financial advisor](https://www.investopedia.com/managing-wealth/when-should-you-hire-financial-advisor/).	Turning to personal finance influencers is one way to increase your financial knowledge. Not all are alike, so it pays to know which ones are worth your time. Key Takeways Personal finance influencers share tips and strategies on managing money, typically through social media platforms and/or a blog or website.Personal finance influencers may or may not have professional certifications or backgrounds in money management.Some financial influencers teach others about money based on their own experiences.Before following a personal finance influencer, consider their qualifications and background.Money tips shared by personal finance influencers are not a substitute for advice from a professional financial advisor. What Is a Personal Finance Influencer? A personal finance influencer, or "finfluencer," is a social media influencer who specializes in sharing tips about finances and money. A social media influencer is someone who has established credibility in a specific industry or niche and uses social media to promote themselves. They build a devoted audience and following by sharing content through social media channels such as TikTok, YouTube, Instagram, and Facebook. They may also have a podcast or blog. The rise of the personal finance influencer can be partly attributed to the growing use of social media to access money advice. For example, here’s where Gen Z and millennial investors look for money tips, according to Morning Consult: Facebook—33%Instagram—32%Reddit—29%X platform (formerly Twitter)—27% Personal finance influencers can earn money by sharing their financial knowledge in several ways, including monetizing a YouTube channel, sharing sponsored posts, selling digital products or courses, and affiliate marketing. The Federal Trade Commission (FTC) requires social media influencers and affiliate marketers to disclose affiliate relationships or sponsorships in which they may be paid to recommend a specific brand or product. How to Vet Personal Finance Influencers Not all personal finance influencers provide high-quality content. When you are choosing a personal finance influencer to follow, you'll want to ensure they are reputable and trustworthy. It's important to vet the influencers giving you financial advice. You can check whether a financial influencer has specific certifications that make them more qualified to provide financial advice—for example, a Certified Financial Planner (CFP) has been through a rigorous process and is certified by a well-known institution. Licensed professionals are regulated by an agency like the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA). Look for red flags that a financial influencer may have ulterior motives besides helping you with your finances. For example, they may give advice that sounds very risky or promise to make you rich quickly. Top 10 Personal Finance Influencers to Follow Getting financial advice online via social media can be risky as scammers are among the professionals. So which personal finance influencers are legitimate and worth following? Here are 10 noteworthy names: Humphrey Yang, @HumphreyTalks Follow on—TikTok, YouTube, and InstagramTips on—Investing, taxes, and money basics Humphrey Yang is a former financial advisor turned content creator and personal finance influencer. He has 3.3 million followers on TikTok, and one of his most popular videos, with more than seven million views, breaks down the difference between short- and long-term capital gains tax rates. Delyanne Barros, @DelyanneTheMoneyCoach Follow on—Instagram, TikTok, and XTips on—Investing Delyanne Barros is a personal finance influencer who writes a blog called Delyanne the Money Coach. Previously an attorney, she’s now a self-made millionaire and her content focuses on teaching everyday investors how to master the stock market. Dasha Kennedy, @TheBrokeBlackGirl Follow on—Instagram, Facebook, and XTips on—Debt, building wealth, and financial independence Dasha Kennedy is a personal finance influencer and activist on a mission to help women become financially empowered. She leverages her own experiences with money to provide advice that’s practical, useful, and realistic. Nick Loper, @nloper Follow on—X and InstagramTips on—Side hustles, creating passive income, and financial independence Nick Loper used to work a nine-to-five job, but then he learned the secret to making money without one. He shares his best tips for creating additional income streams through side hustles and online businesses via social media, a blog called Side Hustle Nation, and “The Side Hustle Show” podcast. Tiffany Aliche, @thebudgetnista Follow on—Instagram, X, YouTube, and Facebook Tips on—Budgeting and money management Tiffany Aliche is the founder of The Budgetnista blog and author of the book "Get Good with Money." She also co-hosts “The Brown Ambition” podcast with Mandi Woodruff-Santos. Aliche focuses on women and money and has helped more than 1 million women worldwide to expand their financial know-how. Chelsea Fagan, @thefinancialdiet Follow on—Instagram, X, and YouTubeTips on—Spending, saving, debt, budgeting, and money management Chelsea Fagan founded The Financial Diet blog in 2014 as a personal finance blog. She has since grown it into a company dedicated to helping women feel more confident in managing their finances. Her Instagram account has close to 1 million followers and offers plenty of practical tips for improving your financial life. Jeremy Schneider, @PersonalFinanceClub Follow on—Instagram and TikTokTips on—Investing Jeremy Schneider offers his followers a crash course in investing basics. His approach to content is largely visual. He explains complex investing topics with easy-to-read infographics. This could be a great place to start if you’re new to investing and need some help building a solid foundation. Daniella Flores, @iliketodabble Follow on—Instagram, X, Facebook, and YouTubeTips on—Side hustles, making money, saving money, and budgeting Daniella Flores started the I Like to Dabble blog in 2017 to document their experiments with various side hustles and ways of making money on the side. Daniella and Alexandra (Daniella's spouse) were able to pay off $40,000, and Daniella is now an active voice in promoting financial health and independence for members of the LGBTQ+ community. Anthony O’Neal, @anthonyoneal Follow on—Instagram, X, and YouTubeTips on—Debt and money management Anthony O’Neal is a best-selling author and speaker, and he’s also garnered a sizable YouTube following by sharing financial advice for students. One of his main focuses is teaching you to get out of debt so that you can live your best life financially. Anjie and RJ Muhammad, @richbyintention Follow on—Instagram and website/podcastTips on—Managing money and building wealth as a couple Anjie and RJ Muhammad are a married couple who understand how important it is to be able to manage money as a team, especially when building wealth is the goal. They’ve paid off more than $100,000 in student loan debt together and use their experiences to help other couples manage money with fewer arguments. Who Are Personal Finance Influencers? Personal finance influencers are people who use social media platforms and websites to offer tips about money. In terms of success, they’re typically gauged by the size of their following and the visibility of their brand. Some of the top influencers have audiences that number in the millions. How Do You Become a Personal Finance Influencer? Becoming a personal finance influencer starts with identifying a target audience and understanding which problems they might need help solving. From there, you can create a content plan that speaks to those needs and build your following across different social media platforms. Are Personal Finance Influencers Legit? Many are legitimate in that they’re drawing on their own experiences or relying on their professional expertise to share money tips. There are, however, some who lack credibility and authority, so it’s important to do your research when deciding whom to follow. Is It Legal to Give Financial Advice on Social Media? Anyone can share financial advice on social media, but it’s important to understand how that can potentially create legal issues. For example, if you’re an influencer who recommends a specific banking product for which you are also an affiliate, you have to disclose that relationship to your audience. Otherwise, you could land in hot water with the Federal Trade Commission (FTC). The Bottom Line Following personal finance influencers can be a useful way to get money advice, but it’s important to consider the source. Many influencers specifically note that their tips should not be considered a substitute for professional financial advice. If you’re struggling with how to make a budget or need some insight into how to develop a retirement strategy, you may want to consider meeting with a certified credit counselor or a financial advisor.	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https://www.investopedia.com/ask/answers/06/marketstoinvest.asp	Financial Markets for Investors	<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 variety of factors must be considered when choosing the best time to rent an apartment. Ideally, to get the best options, a potential renter should have sufficient<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp"> cash flow</a> and savings. But by being savvy, renters can get great deals by waiting to rent at a time when rental rates are lowest. </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-inventory-is-highest-in-the-summer"></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"> Inventory is Highest in the Summer </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The busiest rental-moving period is between the months of May and September because a number of life changes tend to occur in these months. For example, many high school graduates are leaving home, and college graduates are seeking<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/realestate.asp"> real estate</a> close to where they will start their careers. Also, warmer weather makes for more convenient loading and unloading of furniture. </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"> These life and weather changes during the summer season mean a much higher<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/turnover.asp"> turnover</a> rate. Thus, finding an apartment is easier, and there is a wider selection of apartments to choose from. However, precisely because the summer season sees the highest levels of rental activity, demand for rental space is extremely high. This boosts the cost of rental fees, sometimes up to double what might be negotiated during the off-peak seasons of winter and fall. Also, with the additional demand, the quest for the perfect apartment leads to higher-than-normal competition for the same space and forces individuals to act fast to lock in an apartment. </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-winter-is-best-for-savings"></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"> Winter is Best for Savings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The lowest rental rates are found during the winter season, particularly right after the Christmas-New Year's holiday season. Demand is typically at its lowest at this time of the year, when fewer renters are interested in moving. Individuals renting between the months of January and March typically find the best rental bargains. However, low levels of moving activity and turnover typically means that it is more difficult to find exactly the type of apartment you would like at this time. </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-how-to-apartment-hunt"></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"> How to Apartment Hunt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Once a target moving season has been determined, narrow the choice down to a specific month. For example, consider that the target move month is August. The ideal time to begin the search for an appropriate apartment is at the end of the month prior to the target move month; so, in this example, begin the apartment hunt during the last two weeks of July. </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"> While this tactic may seem somewhat last minute, it is optimal because the majority of renters have leases that expire at the end of a month or within the first few days of the next month. Renters that are about to leave vacancies will have given, or will be giving, their 30-day notices during this time, and individuals are apt to get first choice of available space if they begin their apartment search within that time frame. </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"> Individuals willing to take a gamble or who have the flexibility to move on a moment’s notice could employ a different apartment-hunting approach. Waiting until the second week of the month to move can prove lucrative as landlords trying to fill vacancies become more eager to secure new renters. </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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> The best time to rent depends largely on an individual's circumstances with respect to desired housing, price and moving flexibility. Individuals most concerned about having the best options in apartment living should target May through September while individuals focused primarily on price should target October through April. </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"> --- </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"> There are a wide variety of markets in which one can invest money. The main markets are stocks (equities), bonds, forex (currency),<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp"> options and derivatives</a>, and physical assets. Furthermore, within each of these types of markets, there can be even more specialty markets. </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-stocks"></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"> Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The market that is most familiar to the average investor is 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>. This market allows investors to buy and sell shares of ownership in publicly traded companies. Money is made in this market in two main ways. </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 first is through<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>, in which the value of each share increases in value. The second is through<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp"> dividends</a>, in which companies pass on income to investors. </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-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"> Bonds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> The debt market is used by governments, companies, and financial intermediaries to issue<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtinstrument.asp"> debt instruments</a> to raise capital. The debt issuers then make regular payments to debt holders in the form of<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon.asp"> coupon</a> payments and, once the debt matures, pay back the principal on the debt. </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 most common type of financial instruments issued in this market are bonds, bills, notes, and certificates of deposit. There are also more exotic types of debt including<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp"> mortgage-backed securities</a> (MBS) and<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cdo.asp"> collateralized debt obligations</a> (CDO). </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-foreign-exchange-forex"></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"> Foreign Exchange (Forex) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/f/forex-market.asp"> forex market</a> allows investors to speculate on changes in the<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchangerate.asp"> exchange rates</a> between currencies. Investors will purchase one currency by selling another in the hope that the currency they purchased goes up in value compared to the one they sold. </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"> In this market, because the moves between currencies are generally small and investments are shorter term, a lot of<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp"> leverage</a> is used. Some<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/c/currency-trading-forex-brokers.asp"> forex brokers</a> allow leverage as high as 500:1, which means that you can control $500 for every $1 you invest. </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-physical-assets"></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"> Physical Assets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The investment in<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/physicalasset.asp"> physical assets</a> is essentially the purchase of assets such as metals, jewelry, real estate, cattle, and much more. In this market, investors hope that the price for which they can sell an asset is more than what they paid for it. The risks and costs associated with this type of investment will differ with each type of physical asset. For example, there can be holding fees on gold, and if you own cattle, the cost of caring for them is considerable. </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-derivatives"></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"> Derivatives </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> The last major type of investment is an expansion of all of the above types of markets. Derivatives are securities that derive their value from an underlying asset such as a stock, interest rate, currency, or physical asset. </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"> Investors in these types of securities can go long or short on the<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underlying-asset.asp"> underlying asset</a> and can purchase either the right or obligation to purchase or sell it. As the value of the underlying asset changes, the value of the derivative changes as well. The major types of derivatives are options, futures, or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forwardmarket.asp">forwards</a>. </p></div>	A variety of factors must be considered when choosing the best time to rent an apartment. Ideally, to get the best options, a potential renter should have sufficient [cash flow](https://www.investopedia.com/terms/c/cashflow.asp) and savings. But by being savvy, renters can get great deals by waiting to rent at a time when rental rates are lowest. ## Inventory is Highest in the Summer The busiest rental-moving period is between the months of May and September because a number of life changes tend to occur in these months. For example, many high school graduates are leaving home, and college graduates are seeking [real estate](https://www.investopedia.com/terms/r/realestate.asp) close to where they will start their careers. Also, warmer weather makes for more convenient loading and unloading of furniture. These life and weather changes during the summer season mean a much higher [turnover](https://www.investopedia.com/terms/t/turnover.asp) rate. Thus, finding an apartment is easier, and there is a wider selection of apartments to choose from. However, precisely because the summer season sees the highest levels of rental activity, demand for rental space is extremely high. This boosts the cost of rental fees, sometimes up to double what might be negotiated during the off-peak seasons of winter and fall. Also, with the additional demand, the quest for the perfect apartment leads to higher-than-normal competition for the same space and forces individuals to act fast to lock in an apartment. ## Winter is Best for Savings The lowest rental rates are found during the winter season, particularly right after the Christmas-New Year's holiday season. Demand is typically at its lowest at this time of the year, when fewer renters are interested in moving. Individuals renting between the months of January and March typically find the best rental bargains. However, low levels of moving activity and turnover typically means that it is more difficult to find exactly the type of apartment you would like at this time. ## How to Apartment Hunt Once a target moving season has been determined, narrow the choice down to a specific month. For example, consider that the target move month is August. The ideal time to begin the search for an appropriate apartment is at the end of the month prior to the target move month; so, in this example, begin the apartment hunt during the last two weeks of July. While this tactic may seem somewhat last minute, it is optimal because the majority of renters have leases that expire at the end of a month or within the first few days of the next month. Renters that are about to leave vacancies will have given, or will be giving, their 30-day notices during this time, and individuals are apt to get first choice of available space if they begin their apartment search within that time frame. Individuals willing to take a gamble or who have the flexibility to move on a moment’s notice could employ a different apartment-hunting approach. Waiting until the second week of the month to move can prove lucrative as landlords trying to fill vacancies become more eager to secure new renters. ## The Bottom Line The best time to rent depends largely on an individual's circumstances with respect to desired housing, price and moving flexibility. Individuals most concerned about having the best options in apartment living should target May through September while individuals focused primarily on price should target October through April. --- There are a wide variety of markets in which one can invest money. The main markets are stocks (equities), bonds, forex (currency), [options and derivatives](https://www.investopedia.com/terms/d/derivative.asp), and physical assets. Furthermore, within each of these types of markets, there can be even more specialty markets. ## Stocks The market that is most familiar to the average investor is the [stock market](https://www.investopedia.com/terms/s/stockmarket.asp). This market allows investors to buy and sell shares of ownership in publicly traded companies. Money is made in this market in two main ways. The first is through [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp), in which the value of each share increases in value. The second is through [dividends](https://www.investopedia.com/terms/d/dividend.asp), in which companies pass on income to investors. ## Bonds The debt market is used by governments, companies, and financial intermediaries to issue [debt instruments](https://www.investopedia.com/terms/d/debtinstrument.asp) to raise capital. The debt issuers then make regular payments to debt holders in the form of [coupon](https://www.investopedia.com/terms/c/coupon.asp) payments and, once the debt matures, pay back the principal on the debt. The most common type of financial instruments issued in this market are bonds, bills, notes, and certificates of deposit. There are also more exotic types of debt including [mortgage-backed securities](https://www.investopedia.com/terms/m/mbs.asp) (MBS) and [collateralized debt obligations](https://www.investopedia.com/terms/c/cdo.asp) (CDO). ## Foreign Exchange (Forex) The [forex market](https://www.investopedia.com/terms/forex/f/forex-market.asp) allows investors to speculate on changes in the [exchange rates](https://www.investopedia.com/terms/e/exchangerate.asp) between currencies. Investors will purchase one currency by selling another in the hope that the currency they purchased goes up in value compared to the one they sold. In this market, because the moves between currencies are generally small and investments are shorter term, a lot of [leverage](https://www.investopedia.com/terms/l/leverage.asp) is used. Some [forex brokers](https://www.investopedia.com/terms/forex/c/currency-trading-forex-brokers.asp) allow leverage as high as 500:1, which means that you can control $500 for every $1 you invest. ## Physical Assets The investment in [physical assets](https://www.investopedia.com/terms/p/physicalasset.asp) is essentially the purchase of assets such as metals, jewelry, real estate, cattle, and much more. In this market, investors hope that the price for which they can sell an asset is more than what they paid for it. The risks and costs associated with this type of investment will differ with each type of physical asset. For example, there can be holding fees on gold, and if you own cattle, the cost of caring for them is considerable. ## Derivatives The last major type of investment is an expansion of all of the above types of markets. Derivatives are securities that derive their value from an underlying asset such as a stock, interest rate, currency, or physical asset. Investors in these types of securities can go long or short on the [underlying asset](https://www.investopedia.com/terms/u/underlying-asset.asp) and can purchase either the right or obligation to purchase or sell it. As the value of the underlying asset changes, the value of the derivative changes as well. The major types of derivatives are options, futures, or [forwards](https://www.investopedia.com/terms/f/forwardmarket.asp).	A variety of factors must be considered when choosing the best time to rent an apartment. Ideally, to get the best options, a potential renter should have sufficient cash flow and savings. But by being savvy, renters can get great deals by waiting to rent at a time when rental rates are lowest. Inventory is Highest in the Summer The busiest rental-moving period is between the months of May and September because a number of life changes tend to occur in these months. For example, many high school graduates are leaving home, and college graduates are seeking real estate close to where they will start their careers. Also, warmer weather makes for more convenient loading and unloading of furniture. These life and weather changes during the summer season mean a much higher turnover rate. Thus, finding an apartment is easier, and there is a wider selection of apartments to choose from. However, precisely because the summer season sees the highest levels of rental activity, demand for rental space is extremely high. This boosts the cost of rental fees, sometimes up to double what might be negotiated during the off-peak seasons of winter and fall. Also, with the additional demand, the quest for the perfect apartment leads to higher-than-normal competition for the same space and forces individuals to act fast to lock in an apartment. Winter is Best for Savings The lowest rental rates are found during the winter season, particularly right after the Christmas-New Year's holiday season. Demand is typically at its lowest at this time of the year, when fewer renters are interested in moving. Individuals renting between the months of January and March typically find the best rental bargains. However, low levels of moving activity and turnover typically means that it is more difficult to find exactly the type of apartment you would like at this time. How to Apartment Hunt Once a target moving season has been determined, narrow the choice down to a specific month. For example, consider that the target move month is August. The ideal time to begin the search for an appropriate apartment is at the end of the month prior to the target move month; so, in this example, begin the apartment hunt during the last two weeks of July. While this tactic may seem somewhat last minute, it is optimal because the majority of renters have leases that expire at the end of a month or within the first few days of the next month. Renters that are about to leave vacancies will have given, or will be giving, their 30-day notices during this time, and individuals are apt to get first choice of available space if they begin their apartment search within that time frame. Individuals willing to take a gamble or who have the flexibility to move on a moment’s notice could employ a different apartment-hunting approach. Waiting until the second week of the month to move can prove lucrative as landlords trying to fill vacancies become more eager to secure new renters. The Bottom Line The best time to rent depends largely on an individual's circumstances with respect to desired housing, price and moving flexibility. Individuals most concerned about having the best options in apartment living should target May through September while individuals focused primarily on price should target October through April. --- There are a wide variety of markets in which one can invest money. The main markets are stocks (equities), bonds, forex (currency), options and derivatives, and physical assets. Furthermore, within each of these types of markets, there can be even more specialty markets. Stocks The market that is most familiar to the average investor is the stock market. This market allows investors to buy and sell shares of ownership in publicly traded companies. Money is made in this market in two main ways. The first is through capital gains, in which the value of each share increases in value. The second is through dividends, in which companies pass on income to investors. Bonds The debt market is used by governments, companies, and financial intermediaries to issue debt instruments to raise capital. The debt issuers then make regular payments to debt holders in the form of coupon payments and, once the debt matures, pay back the principal on the debt. The most common type of financial instruments issued in this market are bonds, bills, notes, and certificates of deposit. There are also more exotic types of debt including mortgage-backed securities (MBS) and collateralized debt obligations (CDO). Foreign Exchange (Forex) The forex market allows investors to speculate on changes in the exchange rates between currencies. Investors will purchase one currency by selling another in the hope that the currency they purchased goes up in value compared to the one they sold. In this market, because the moves between currencies are generally small and investments are shorter term, a lot of leverage is used. Some forex brokers allow leverage as high as 500:1, which means that you can control $500 for every $1 you invest. Physical Assets The investment in physical assets is essentially the purchase of assets such as metals, jewelry, real estate, cattle, and much more. In this market, investors hope that the price for which they can sell an asset is more than what they paid for it. The risks and costs associated with this type of investment will differ with each type of physical asset. For example, there can be holding fees on gold, and if you own cattle, the cost of caring for them is considerable. Derivatives The last major type of investment is an expansion of all of the above types of markets. Derivatives are securities that derive their value from an underlying asset such as a stock, interest rate, currency, or physical asset. Investors in these types of securities can go long or short on the underlying asset and can purchase either the right or obligation to purchase or sell it. As the value of the underlying asset changes, the value of the derivative changes as well. The major types of derivatives are options, futures, or forwards.	[ [ "cash flow", "https://www.investopedia.com/terms/c/cashflow.asp" ], [ "real estate", "https://www.investopedia.com/terms/r/realestate.asp" ], [ "turnover", "https://www.investopedia.com/terms/t/turnover.asp" ], [ "options and derivatives", "https://www.investopedia.com/terms/d/derivative.asp" ], [ "stock market", "https://www.investopedia.com/terms/s/stockmarket.asp" ], [ "capital gains", "https://www.investopedia.com/terms/c/capitalgain.asp" ], [ "dividends", "https://www.investopedia.com/terms/d/dividend.asp" ], [ "debt instruments", "https://www.investopedia.com/terms/d/debtinstrument.asp" ], [ "coupon", "https://www.investopedia.com/terms/c/coupon.asp" ], [ "mortgage-backed securities", "https://www.investopedia.com/terms/m/mbs.asp" ], [ "collateralized debt obligations", "https://www.investopedia.com/terms/c/cdo.asp" ], [ "forex market", "https://www.investopedia.com/terms/forex/f/forex-market.asp" ], [ "exchange rates", "https://www.investopedia.com/terms/e/exchangerate.asp" ], [ "leverage", "https://www.investopedia.com/terms/l/leverage.asp" ], [ "forex brokers", "https://www.investopedia.com/terms/forex/c/currency-trading-forex-brokers.asp" ], [ "physical assets", "https://www.investopedia.com/terms/p/physicalasset.asp" ], [ "underlying asset", "https://www.investopedia.com/terms/u/underlying-asset.asp" ], [ "forwards", "https://www.investopedia.com/terms/f/forwardmarket.asp" ] ]
https://www.investopedia.com/financial-edge/0610/top-5-benefits-of-a-summer-job---besides-pay.aspx	Top 5 Benefits of a Summer Job—Besides Pay	<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"> "Why do you want the job?" Anyone who's made it through an interview for an uneventful part-time job has squirmed through this infamous interview question. For most people, the first thing that springs to mind is "I need money," but many quickly learn that that answer will likely not land them the job. </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"> No matter how boring or backbreaking your part-time job may be, the benefits go beyond your wallet. Don't believe it? Here we take a look at some of the perks you can enjoy. You may be surprised to learn that you will reap the rewards long after your paycheck is spent. </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>Getting a summer job can boost many skills and habits beneficial to a career.</li><li>Securing a summer job may boost a teen's confidence, as it can give them an opportunity to feel success through the application, training, and working process.</li><li>Skills that working a summer job may help build include time management skills and an ability to build a network.</li><li>For teens who already have an idea of the future career they may want to pursue, applying for summer jobs that relate to that field can help build familiarity with and contacts in that sector.</li><li>An expanded social and professional network can provide new learning experiences and open the door to new opportunities.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-are-the-top-5-benefits-of-a-summer-job-besides-pay"></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 the Top 5 Benefits of a Summer Job Besides Pay? </span> </h2> <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"> Confidence </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> According to the author Jeylan T. Mortimer, high school <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0909/14-unconventional-ways-for-students-to-make-money.aspx">students who work</a>, even as much as part-time, are better off in many ways than students who sit out of the workforce longer, and one of the key areas where working students excel is in their confidence.<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"> After all, confidence, by definition, means an ability to rely on yourself. To build confidence, you must put yourself into unfamiliar territory and learn how to survive and thrive there. And no matter how simple your summer job may seem, rest assured there will be confidence-boosting challenges to overcome, whether it's learning a new skill, surviving a stressful work environment, or learning to deal with a hard-driving boss or a nasty coworker. </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"> Time Management </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Hanging around the house all summer may be a great way to relax, but it won't help your time-management skills. Working will, though, and this skill will help you both in college and as an adult. Just look at the self-help department of any bookstore; the number of books on time management is a sign that you don't want to enter adulthood without acquiring this skill. </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"> Time management means deciding what should be accomplished in a day and learning how to juggle those things to make it happen. This means prioritizing, planning, and deciding how much you can realistically accomplish. The best way to develop this skill is through practice; if you have loads of free time, you'll likely not have to flex your time-management muscles. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-subheading__text"> A Leg Up </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> While a part-time job at a burger joint may not give you a ton of relevant experience for your resume, it will give you the experience to document. Historically, teenage employment rates increase in June and decline in August.<span class="ql-inline-citation" data-cite="4"></span> The summer months away from school provide an opportunity to secure employment and gain working experience. </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-note" 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 with-title" id="mntl-sc-block-callout-heading_2-0">12.5%</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/b/bls.asp">Bureau of Labor Statistics</a> seasonally adjusted unemployment rate for teens (ages 16-19) as of February 2024.<span class="ql-inline-citation" data-cite="2"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> When it's time to apply for other jobs, you don't want to be the one with an empty resume. And if part-time jobs are scarce or if you can't land one, you can still work on padding your resume by volunteering. </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"> Getting to Know You </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Not sure about your future career? Don't worry; most change their minds many times before settling on their long-term career. Getting out into the workforce as a barista at your local coffee shop may not help you see what it will be like as a doctor, but you will find out whether you like to work with people and whether you can work quickly and efficiently under pressure. You also might discover new things about yourself. For instance, you may find that you like working with numbers. </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"> Reading about the skills you will need to get a future job is not the same as testing your mettle in the real world. If you're wondering what skills you have, working a couple of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0912/best-part-time-jobs-for-college-students.aspx">part-time summer jobs</a> should help you zero in on your likes and dislikes, evaluate your strengths, and resolve your weaknesses. </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"> Broaden Your Circle </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Chances are, your social circle is comprised of people in your age group. However, in a job, you are likely to work with a diverse group of people, from all backgrounds and of all ages. Not only can you learn from the varying perspectives and experiences of others, but you can also forge friendships, learn about new opportunities, acquire desirable skills, and increase your visibility. </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 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>It is estimated that approximately 80% of jobs are filled through networking.<span class="ql-inline-citation" data-cite="3"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> In addition, you will need references throughout your career; so, it's a good idea to connect with the people you meet along the way as they will be able to convey your professional strengths to prospective employers. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-does-a-summer-job-help-with-college"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does a Summer Job Help With College?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Prior to entering college, students may work summer jobs to earn money to pay for college expenses or desirables. However, summer jobs offer more than income; they are also great for resumes as they showcase the student's maturity, work ethic, and ability to balance priorities.</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-should-i-put-a-summer-job-on-my-resume"></span> <h2 class="mntl-sc-block-questionandanswer__question">Should I Put a Summer Job on My Resume?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Summer jobs, even low-skilled ones, can provide hard and soft skills valuable in professional and academic spaces. Therefore, it is helpful to list summer jobs under your resume's work experience category, highlighting desirable and transferable skills and accomplishments.</p></div> </div> <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-it-worth-it-to-work-on-summer"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is It Worth It to Work on Summer?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The benefits of having a summer job vary for each working person. Generally, summer jobs offer additional income, professional and social skills, knowledge, and more. For people applying to college, a summer job is an attractive addition to the application. For college students, it can provide an extra source of income to enjoy life outside of the dorm or pay for college expenses, such as books, tuition, and fees.</p></div> </div> <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"> If you haven't started looking for a summer job, be mindful that your job search is about more than earning some extra cash. It could give you the competitive edge you need to get more and better jobs in the future. And once you've worked for minimum wage, you'll be ready to appreciate just how much a better job is worth. </p></div>	"Why do you want the job?" Anyone who's made it through an interview for an uneventful part-time job has squirmed through this infamous interview question. For most people, the first thing that springs to mind is "I need money," but many quickly learn that that answer will likely not land them the job. No matter how boring or backbreaking your part-time job may be, the benefits go beyond your wallet. Don't believe it? Here we take a look at some of the perks you can enjoy. You may be surprised to learn that you will reap the rewards long after your paycheck is spent. ### Key Takeaways * Getting a summer job can boost many skills and habits beneficial to a career. * Securing a summer job may boost a teen's confidence, as it can give them an opportunity to feel success through the application, training, and working process. * Skills that working a summer job may help build include time management skills and an ability to build a network. * For teens who already have an idea of the future career they may want to pursue, applying for summer jobs that relate to that field can help build familiarity with and contacts in that sector. * An expanded social and professional network can provide new learning experiences and open the door to new opportunities. ## What Are the Top 5 Benefits of a Summer Job Besides Pay? ### Confidence According to the author Jeylan T. Mortimer, high school [students who work](https://www.investopedia.com/financial-edge/0909/14-unconventional-ways-for-students-to-make-money.aspx), even as much as part-time, are better off in many ways than students who sit out of the workforce longer, and one of the key areas where working students excel is in their confidence. After all, confidence, by definition, means an ability to rely on yourself. To build confidence, you must put yourself into unfamiliar territory and learn how to survive and thrive there. And no matter how simple your summer job may seem, rest assured there will be confidence-boosting challenges to overcome, whether it's learning a new skill, surviving a stressful work environment, or learning to deal with a hard-driving boss or a nasty coworker. ### Time Management Hanging around the house all summer may be a great way to relax, but it won't help your time-management skills. Working will, though, and this skill will help you both in college and as an adult. Just look at the self-help department of any bookstore; the number of books on time management is a sign that you don't want to enter adulthood without acquiring this skill. Time management means deciding what should be accomplished in a day and learning how to juggle those things to make it happen. This means prioritizing, planning, and deciding how much you can realistically accomplish. The best way to develop this skill is through practice; if you have loads of free time, you'll likely not have to flex your time-management muscles. ### A Leg Up While a part-time job at a burger joint may not give you a ton of relevant experience for your resume, it will give you the experience to document. Historically, teenage employment rates increase in June and decline in August. The summer months away from school provide an opportunity to secure employment and gain working experience. ### 12.5% The [Bureau of Labor Statistics](https://www.investopedia.com/terms/b/bls.asp) seasonally adjusted unemployment rate for teens (ages 16-19) as of February 2024. When it's time to apply for other jobs, you don't want to be the one with an empty resume. And if part-time jobs are scarce or if you can't land one, you can still work on padding your resume by volunteering. ### Getting to Know You Not sure about your future career? Don't worry; most change their minds many times before settling on their long-term career. Getting out into the workforce as a barista at your local coffee shop may not help you see what it will be like as a doctor, but you will find out whether you like to work with people and whether you can work quickly and efficiently under pressure. You also might discover new things about yourself. For instance, you may find that you like working with numbers. Reading about the skills you will need to get a future job is not the same as testing your mettle in the real world. If you're wondering what skills you have, working a couple of [part-time summer jobs](https://www.investopedia.com/financial-edge/0912/best-part-time-jobs-for-college-students.aspx) should help you zero in on your likes and dislikes, evaluate your strengths, and resolve your weaknesses. ### Broaden Your Circle Chances are, your social circle is comprised of people in your age group. However, in a job, you are likely to work with a diverse group of people, from all backgrounds and of all ages. Not only can you learn from the varying perspectives and experiences of others, but you can also forge friendships, learn about new opportunities, acquire desirable skills, and increase your visibility. ### It is estimated that approximately 80% of jobs are filled through networking. In addition, you will need references throughout your career; so, it's a good idea to connect with the people you meet along the way as they will be able to convey your professional strengths to prospective employers. ## Does a Summer Job Help With College? Prior to entering college, students may work summer jobs to earn money to pay for college expenses or desirables. However, summer jobs offer more than income; they are also great for resumes as they showcase the student's maturity, work ethic, and ability to balance priorities. ## Should I Put a Summer Job on My Resume? Summer jobs, even low-skilled ones, can provide hard and soft skills valuable in professional and academic spaces. Therefore, it is helpful to list summer jobs under your resume's work experience category, highlighting desirable and transferable skills and accomplishments. ## Is It Worth It to Work on Summer? The benefits of having a summer job vary for each working person. Generally, summer jobs offer additional income, professional and social skills, knowledge, and more. For people applying to college, a summer job is an attractive addition to the application. For college students, it can provide an extra source of income to enjoy life outside of the dorm or pay for college expenses, such as books, tuition, and fees. ## The Bottom Line If you haven't started looking for a summer job, be mindful that your job search is about more than earning some extra cash. It could give you the competitive edge you need to get more and better jobs in the future. And once you've worked for minimum wage, you'll be ready to appreciate just how much a better job is worth.	"Why do you want the job?" Anyone who's made it through an interview for an uneventful part-time job has squirmed through this infamous interview question. For most people, the first thing that springs to mind is "I need money," but many quickly learn that that answer will likely not land them the job. No matter how boring or backbreaking your part-time job may be, the benefits go beyond your wallet. Don't believe it? Here we take a look at some of the perks you can enjoy. You may be surprised to learn that you will reap the rewards long after your paycheck is spent. Key Takeaways Getting a summer job can boost many skills and habits beneficial to a career.Securing a summer job may boost a teen's confidence, as it can give them an opportunity to feel success through the application, training, and working process.Skills that working a summer job may help build include time management skills and an ability to build a network.For teens who already have an idea of the future career they may want to pursue, applying for summer jobs that relate to that field can help build familiarity with and contacts in that sector.An expanded social and professional network can provide new learning experiences and open the door to new opportunities. What Are the Top 5 Benefits of a Summer Job Besides Pay? Confidence According to the author Jeylan T. Mortimer, high school students who work, even as much as part-time, are better off in many ways than students who sit out of the workforce longer, and one of the key areas where working students excel is in their confidence. After all, confidence, by definition, means an ability to rely on yourself. To build confidence, you must put yourself into unfamiliar territory and learn how to survive and thrive there. And no matter how simple your summer job may seem, rest assured there will be confidence-boosting challenges to overcome, whether it's learning a new skill, surviving a stressful work environment, or learning to deal with a hard-driving boss or a nasty coworker. Time Management Hanging around the house all summer may be a great way to relax, but it won't help your time-management skills. Working will, though, and this skill will help you both in college and as an adult. Just look at the self-help department of any bookstore; the number of books on time management is a sign that you don't want to enter adulthood without acquiring this skill. Time management means deciding what should be accomplished in a day and learning how to juggle those things to make it happen. This means prioritizing, planning, and deciding how much you can realistically accomplish. The best way to develop this skill is through practice; if you have loads of free time, you'll likely not have to flex your time-management muscles. A Leg Up While a part-time job at a burger joint may not give you a ton of relevant experience for your resume, it will give you the experience to document. Historically, teenage employment rates increase in June and decline in August. The summer months away from school provide an opportunity to secure employment and gain working experience. 12.5% The Bureau of Labor Statistics seasonally adjusted unemployment rate for teens (ages 16-19) as of February 2024. When it's time to apply for other jobs, you don't want to be the one with an empty resume. And if part-time jobs are scarce or if you can't land one, you can still work on padding your resume by volunteering. Getting to Know You Not sure about your future career? Don't worry; most change their minds many times before settling on their long-term career. Getting out into the workforce as a barista at your local coffee shop may not help you see what it will be like as a doctor, but you will find out whether you like to work with people and whether you can work quickly and efficiently under pressure. You also might discover new things about yourself. For instance, you may find that you like working with numbers. Reading about the skills you will need to get a future job is not the same as testing your mettle in the real world. If you're wondering what skills you have, working a couple of part-time summer jobs should help you zero in on your likes and dislikes, evaluate your strengths, and resolve your weaknesses. Broaden Your Circle Chances are, your social circle is comprised of people in your age group. However, in a job, you are likely to work with a diverse group of people, from all backgrounds and of all ages. Not only can you learn from the varying perspectives and experiences of others, but you can also forge friendships, learn about new opportunities, acquire desirable skills, and increase your visibility. It is estimated that approximately 80% of jobs are filled through networking. In addition, you will need references throughout your career; so, it's a good idea to connect with the people you meet along the way as they will be able to convey your professional strengths to prospective employers. Does a Summer Job Help With College? Prior to entering college, students may work summer jobs to earn money to pay for college expenses or desirables. However, summer jobs offer more than income; they are also great for resumes as they showcase the student's maturity, work ethic, and ability to balance priorities. Should I Put a Summer Job on My Resume? Summer jobs, even low-skilled ones, can provide hard and soft skills valuable in professional and academic spaces. Therefore, it is helpful to list summer jobs under your resume's work experience category, highlighting desirable and transferable skills and accomplishments. Is It Worth It to Work on Summer? The benefits of having a summer job vary for each working person. Generally, summer jobs offer additional income, professional and social skills, knowledge, and more. For people applying to college, a summer job is an attractive addition to the application. For college students, it can provide an extra source of income to enjoy life outside of the dorm or pay for college expenses, such as books, tuition, and fees. The Bottom Line If you haven't started looking for a summer job, be mindful that your job search is about more than earning some extra cash. It could give you the competitive edge you need to get more and better jobs in the future. And once you've worked for minimum wage, you'll be ready to appreciate just how much a better job is worth.	[ [ "students who work", "https://www.investopedia.com/financial-edge/0909/14-unconventional-ways-for-students-to-make-money.aspx" ], [ "Bureau of Labor Statistics", "https://www.investopedia.com/terms/b/bls.asp" ], [ "part-time summer jobs", "https://www.investopedia.com/financial-edge/0912/best-part-time-jobs-for-college-students.aspx" ] ]
https://www.investopedia.com/jetblue-shares-rise-after-activist-investor-carl-icahn-discloses-almost-10-stake-in-carrier-8576597	JetBlue Stock Jumps After Activist Investor Carl Icahn Discloses Almost 10% Stake	<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>Activist investor Carl Icahn disclosed a 9.91% stake in JetBlue Airways, noting in a filing that he believed the shares to be undervalued.</li><li>JetBlue swung to a loss last quarter, and the airline's proposed merger with Spirit Airlines was blocked by a judge last month.</li><li>Shares in the airline were more than 18% higher Tuesday afternoon.<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"> Shares of JetBlue Airways (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=JBLU">JBLU</a>) soared more than 18% Tuesday following news that activist investor <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/08/carl-icahn-lift.asp">Carl Icahn</a> had acquired a 9.91% stake in the carrier. </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"> Icahn said in a regulatory filing late Monday that he bought the shares "in the belief that they were undervalued and represented an attractive investment opportunity."<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 billionaire said he is also in talks with the carrier’s management about the possibility of board representation. </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"> Icahn's stake—valued at $204 million based on JetBlue's Monday close—makes Icahn the airline's third-largest shareholder behind BlackRock and Vanguard Group, according to data compiled by Bloomberg. </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"> “We are always open to constructive dialogue with our investors as we continue to execute our plan to enhance value for all of our shareholders and stakeholders,” JetBlue reportedly said in a statement after Icahn’s stake was disclosed.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The Icahn filing came the same day Joanna Geraghty, previously the company’s president and chief operating officer, took over as the airline's chief executive officer. Her new role was announced last month.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The airline's attempts to expand have faced pushback from federal courts, and dragged its shares down over the past 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"> Last month, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/spirit-airlines-stock-nosedives-after-judge-blocks-jetblue-merger-8426915">a judge blocked JetBlue's $3.8 billion acquisition of discount airline Spirit</a> (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SAVE">SAVE</a>), a deal that would have helped the carrier scale up to compete with larger rivals such as United Airlines (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=UAL">UAL</a>) and Delta (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DAL">DAL</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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/jetblue-exits-american-airlines-partnership-to-salvage-spirit-acquisition-7557356">JetBlue had ended its Northeast Alliance (NEA) partnership with American Airlines</a> (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAL">AAL</a>) last year after a court ruled the merger would have limited options for budget-conscious travellers. </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"> JetBlue last month announced it swung to a fourth-quarter loss and said it sees its current-quarter revenues falling between 5% and 9% as capacity falls.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> JetBlue shares were up 18.6% at $7.20 at around 2:15 p.m. ET, after moving as high as $7.34 during the session.<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:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	### KEY TAKEAWAYS * Activist investor Carl Icahn disclosed a 9.91% stake in JetBlue Airways, noting in a filing that he believed the shares to be undervalued. * JetBlue swung to a loss last quarter, and the airline's proposed merger with Spirit Airlines was blocked by a judge last month. * Shares in the airline were more than 18% higher Tuesday afternoon. Shares of JetBlue Airways ([JBLU](https://www.investopedia.com/markets/quote?tvwidgetsymbol=JBLU)) soared more than 18% Tuesday following news that activist investor [Carl Icahn](https://www.investopedia.com/articles/financial-theory/08/carl-icahn-lift.asp) had acquired a 9.91% stake in the carrier. Icahn said in a regulatory filing late Monday that he bought the shares "in the belief that they were undervalued and represented an attractive investment opportunity." The billionaire said he is also in talks with the carrier’s management about the possibility of board representation. Icahn's stake—valued at $204 million based on JetBlue's Monday close—makes Icahn the airline's third-largest shareholder behind BlackRock and Vanguard Group, according to data compiled by Bloomberg. “We are always open to constructive dialogue with our investors as we continue to execute our plan to enhance value for all of our shareholders and stakeholders,” JetBlue reportedly said in a statement after Icahn’s stake was disclosed. The Icahn filing came the same day Joanna Geraghty, previously the company’s president and chief operating officer, took over as the airline's chief executive officer. Her new role was announced last month. The airline's attempts to expand have faced pushback from federal courts, and dragged its shares down over the past year. Last month, [a judge blocked JetBlue's $3.8 billion acquisition of discount airline Spirit](https://www.investopedia.com/spirit-airlines-stock-nosedives-after-judge-blocks-jetblue-merger-8426915) ([SAVE](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SAVE)), a deal that would have helped the carrier scale up to compete with larger rivals such as United Airlines ([UAL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=UAL)) and Delta ([DAL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DAL)). [JetBlue had ended its Northeast Alliance (NEA) partnership with American Airlines](https://www.investopedia.com/jetblue-exits-american-airlines-partnership-to-salvage-spirit-acquisition-7557356) ([AAL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAL)) last year after a court ruled the merger would have limited options for budget-conscious travellers. JetBlue last month announced it swung to a fourth-quarter loss and said it sees its current-quarter revenues falling between 5% and 9% as capacity falls. JetBlue shares were up 18.6% at $7.20 at around 2:15 p.m. ET, after moving as high as $7.34 during the session. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	KEY TAKEAWAYS Activist investor Carl Icahn disclosed a 9.91% stake in JetBlue Airways, noting in a filing that he believed the shares to be undervalued.JetBlue swung to a loss last quarter, and the airline's proposed merger with Spirit Airlines was blocked by a judge last month.Shares in the airline were more than 18% higher Tuesday afternoon. Shares of JetBlue Airways (JBLU) soared more than 18% Tuesday following news that activist investor Carl Icahn had acquired a 9.91% stake in the carrier. Icahn said in a regulatory filing late Monday that he bought the shares "in the belief that they were undervalued and represented an attractive investment opportunity." The billionaire said he is also in talks with the carrier’s management about the possibility of board representation. Icahn's stake—valued at $204 million based on JetBlue's Monday close—makes Icahn the airline's third-largest shareholder behind BlackRock and Vanguard Group, according to data compiled by Bloomberg. “We are always open to constructive dialogue with our investors as we continue to execute our plan to enhance value for all of our shareholders and stakeholders,” JetBlue reportedly said in a statement after Icahn’s stake was disclosed. The Icahn filing came the same day Joanna Geraghty, previously the company’s president and chief operating officer, took over as the airline's chief executive officer. Her new role was announced last month. The airline's attempts to expand have faced pushback from federal courts, and dragged its shares down over the past year. Last month, a judge blocked JetBlue's $3.8 billion acquisition of discount airline Spirit (SAVE), a deal that would have helped the carrier scale up to compete with larger rivals such as United Airlines (UAL) and Delta (DAL). JetBlue had ended its Northeast Alliance (NEA) partnership with American Airlines (AAL) last year after a court ruled the merger would have limited options for budget-conscious travellers. JetBlue last month announced it swung to a fourth-quarter loss and said it sees its current-quarter revenues falling between 5% and 9% as capacity falls. JetBlue shares were up 18.6% at $7.20 at around 2:15 p.m. ET, after moving as high as $7.34 during the session. Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "JBLU", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=JBLU" ], [ "Carl Icahn", "https://www.investopedia.com/articles/financial-theory/08/carl-icahn-lift.asp" ], [ "a judge blocked JetBlue's $3.8 billion acquisition of discount airline Spirit", "https://www.investopedia.com/spirit-airlines-stock-nosedives-after-judge-blocks-jetblue-merger-8426915" ], [ "SAVE", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=SAVE" ], [ "UAL", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=UAL" ], [ "DAL", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=DAL" ], [ "JetBlue had ended its Northeast Alliance (NEA) partnership with American Airlines", "https://www.investopedia.com/jetblue-exits-american-airlines-partnership-to-salvage-spirit-acquisition-7557356" ], [ "AAL", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAL" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/chase-launches-new-air-canada-credit-card-5211721	Chase Launches New Air Canada 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"> Chase has launched a new co-branded credit card, partnering with Air Canada. The Dec. 1 move comes almost a year after the card issuer first <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/chase-to-add-air-canada-as-a-transfer-partner-launch-new-credit-card-5093016">announced the card</a> and added Air Canada Aeroplan as a transfer partner for the Ultimate Rewards program. </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 new Chase Aeroplan World Elite Mastercard Credit Card can be a good option for those who regularly travel to Canada or fly with one of the airline's partners in the Star Alliance network. It offers a massive sign-up bonus, bonus rewards on everyday spending categories, and a suite of perks with the airline. </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>Air Canada and Chase have partnered to launch a new co-branded airline credit card.</li><li>The card is packed with benefits and solid rewards for everyday spending.</li><li>Even cardholders who don't regularly travel to Canada could benefit, as the airline partners with more than 45 others around the world.</li></ul></div></div></div> <span class="heading-toc" id="toc-about-the-new-chase-aeroplan-credit-card"></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"> About the New Chase Aeroplan Credit Card </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The Chase Aeroplan World Elite Mastercard Credit Card is loaded with bonus rewards and benefits for regular Air Canada flyers. Those include:<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-subheading__text"> Rewards and Spending Bonuses </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> When you first open the card account, you'll earn 50,000 points after you spend $3,000 on purchases in the first three months your account is open. </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"> New cardholders will also get automatic Aeroplan 25K Elite Status for the remainder of the first calendar year in which they open the account, as well as for the following calendar year. Benefits include priority airport services and upgrades to premium cabins on flights operated by Air Canada. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> For ongoing rewards, cardholders will earn: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <li>3 points per dollar spent directly with Air Canada</li><li>3 points per dollar on dining, takeout, and eligible delivery services</li><li>3 points per dollar at grocery stores</li><li>1 point per dollar on all other purchases</li> </ul> <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"> Additionally, for each $2,000 you spend in a calendar month, you'll earn 500 bonus points, up to a maximum of 1,500 points monthly. That gives you a minimum rewards rate of 1.25 points per dollar on the first $6,000 you spend each month. </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"> After your second calendar year with the card, you can maintain your 25K Elite Status by spending at least $15,000 in a calendar year. And if you spend $50,000 in a calendar year, you'll get a boost to 35K Elite Status, which offers 50% discounts on preferred seats, complimentary access to Maple Leaf lounges, and more. </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"> Finally, cardholders who spend $100,000 in a calendar year will unlock 50%-off Priority Rewards award flights, companion benefits, and more. </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 addition to redeeming rewards for flights and other options, cardholders will soon be able to use Chase's Pay Yourself Back feature. This will allow them to use points to get statement credits toward travel purchases on any airline, as well as hotels, car rentals, and more, at a rate of 1.25 cents per point, up to 50,000 points per year.<br/> </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"> Airline and Other Travel Perks </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> As with many other credit cards, the Chase Aeroplan World Elite Mastercard Credit Card offers cardholders certain perks when they fly with the airline. Those include: </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>Free first checked bag for you and up to eight other travelers on the same itinerary</li><li>Access to preferred pricing on award flights</li><li>No award ticket restrictions</li><li>An application fee credit for TSA PreCheck, Global Entry, or NEXUS</li><li>No foreign transaction fees</li><li>Trip cancellation and interruption insurance</li><li>Baggage delay insurance</li><li>Trip delay reimbursement</li><li>Auto rental collision damage waiver</li><li>Roadside assistance</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"> Also, each time you use rewards to book flights operated by Air Canada, Air Canada Express, or Air Canada Rouge, Aeroplan will purchase carbon offsets to reduce the impact of greenhouse gas emissions associated with your flight (and that includes your travel companions). </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 card's annual fee is $95.<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-is-the-card-right-for-you"></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"> Is the Card Right for You? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> There's a lot to take in with the new Air Canada credit card. If you travel to Canada once or twice a year at least, it could be a no-brainer. One of the standout perks the card offers is automatic elite status, plus the chance to maintain that same status or even move to a higher level. Most airline cards don't offer such an easy path to elite status. </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"> It's especially beneficial if you're a big spender and can take advantage of the higher elite status perks. </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"> Also, because Air Canada is part of the Star Alliance, which includes 26 member airlines and many more airline partners around the world,<span class="ql-inline-citation" data-cite="1"></span> you won't necessarily need to fly to and from Canada to benefit from this card. </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"> However, keep in mind that it may not be as straightforward booking partner flights through Air Canada as it is to book directly with your chosen airline. And if you regularly fly with another airline, it could be better to get their co-branded card. </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"> So take your time to consider multiple options, including one of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-ultimate-guide-to-chase-ultimate-rewards-5070944">Chase Ultimate Rewards cards</a> that allow you to transfer points to the Aeroplan program, to determine the right fit for you and your travel habits.<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:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	Chase has launched a new co-branded credit card, partnering with Air Canada. The Dec. 1 move comes almost a year after the card issuer first [announced the card](https://www.investopedia.com/chase-to-add-air-canada-as-a-transfer-partner-launch-new-credit-card-5093016) and added Air Canada Aeroplan as a transfer partner for the Ultimate Rewards program. The new Chase Aeroplan World Elite Mastercard Credit Card can be a good option for those who regularly travel to Canada or fly with one of the airline's partners in the Star Alliance network. It offers a massive sign-up bonus, bonus rewards on everyday spending categories, and a suite of perks with the airline. ### Key Takeaways * Air Canada and Chase have partnered to launch a new co-branded airline credit card. * The card is packed with benefits and solid rewards for everyday spending. * Even cardholders who don't regularly travel to Canada could benefit, as the airline partners with more than 45 others around the world. ## About the New Chase Aeroplan Credit Card The Chase Aeroplan World Elite Mastercard Credit Card is loaded with bonus rewards and benefits for regular Air Canada flyers. Those include: ### Rewards and Spending Bonuses When you first open the card account, you'll earn 50,000 points after you spend $3,000 on purchases in the first three months your account is open. New cardholders will also get automatic Aeroplan 25K Elite Status for the remainder of the first calendar year in which they open the account, as well as for the following calendar year. Benefits include priority airport services and upgrades to premium cabins on flights operated by Air Canada. For ongoing rewards, cardholders will earn: * 3 points per dollar spent directly with Air Canada * 3 points per dollar on dining, takeout, and eligible delivery services * 3 points per dollar at grocery stores * 1 point per dollar on all other purchases Additionally, for each $2,000 you spend in a calendar month, you'll earn 500 bonus points, up to a maximum of 1,500 points monthly. That gives you a minimum rewards rate of 1.25 points per dollar on the first $6,000 you spend each month. After your second calendar year with the card, you can maintain your 25K Elite Status by spending at least $15,000 in a calendar year. And if you spend $50,000 in a calendar year, you'll get a boost to 35K Elite Status, which offers 50% discounts on preferred seats, complimentary access to Maple Leaf lounges, and more. Finally, cardholders who spend $100,000 in a calendar year will unlock 50%-off Priority Rewards award flights, companion benefits, and more. In addition to redeeming rewards for flights and other options, cardholders will soon be able to use Chase's Pay Yourself Back feature. This will allow them to use points to get statement credits toward travel purchases on any airline, as well as hotels, car rentals, and more, at a rate of 1.25 cents per point, up to 50,000 points per year. ### Airline and Other Travel Perks As with many other credit cards, the Chase Aeroplan World Elite Mastercard Credit Card offers cardholders certain perks when they fly with the airline. Those include: * Free first checked bag for you and up to eight other travelers on the same itinerary * Access to preferred pricing on award flights * No award ticket restrictions * An application fee credit for TSA PreCheck, Global Entry, or NEXUS * No foreign transaction fees * Trip cancellation and interruption insurance * Baggage delay insurance * Trip delay reimbursement * Auto rental collision damage waiver * Roadside assistance Also, each time you use rewards to book flights operated by Air Canada, Air Canada Express, or Air Canada Rouge, Aeroplan will purchase carbon offsets to reduce the impact of greenhouse gas emissions associated with your flight (and that includes your travel companions). The card's annual fee is $95. ## Is the Card Right for You? There's a lot to take in with the new Air Canada credit card. If you travel to Canada once or twice a year at least, it could be a no-brainer. One of the standout perks the card offers is automatic elite status, plus the chance to maintain that same status or even move to a higher level. Most airline cards don't offer such an easy path to elite status. It's especially beneficial if you're a big spender and can take advantage of the higher elite status perks. Also, because Air Canada is part of the Star Alliance, which includes 26 member airlines and many more airline partners around the world, you won't necessarily need to fly to and from Canada to benefit from this card. However, keep in mind that it may not be as straightforward booking partner flights through Air Canada as it is to book directly with your chosen airline. And if you regularly fly with another airline, it could be better to get their co-branded card. So take your time to consider multiple options, including one of the [Chase Ultimate Rewards cards](https://www.investopedia.com/the-ultimate-guide-to-chase-ultimate-rewards-5070944) that allow you to transfer points to the Aeroplan program, to determine the right fit for you and your travel habits. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	Chase has launched a new co-branded credit card, partnering with Air Canada. The Dec. 1 move comes almost a year after the card issuer first announced the card and added Air Canada Aeroplan as a transfer partner for the Ultimate Rewards program. The new Chase Aeroplan World Elite Mastercard Credit Card can be a good option for those who regularly travel to Canada or fly with one of the airline's partners in the Star Alliance network. It offers a massive sign-up bonus, bonus rewards on everyday spending categories, and a suite of perks with the airline. Key Takeaways Air Canada and Chase have partnered to launch a new co-branded airline credit card.The card is packed with benefits and solid rewards for everyday spending.Even cardholders who don't regularly travel to Canada could benefit, as the airline partners with more than 45 others around the world. About the New Chase Aeroplan Credit Card The Chase Aeroplan World Elite Mastercard Credit Card is loaded with bonus rewards and benefits for regular Air Canada flyers. Those include: Rewards and Spending Bonuses When you first open the card account, you'll earn 50,000 points after you spend $3,000 on purchases in the first three months your account is open. New cardholders will also get automatic Aeroplan 25K Elite Status for the remainder of the first calendar year in which they open the account, as well as for the following calendar year. Benefits include priority airport services and upgrades to premium cabins on flights operated by Air Canada. For ongoing rewards, cardholders will earn: 3 points per dollar spent directly with Air Canada3 points per dollar on dining, takeout, and eligible delivery services3 points per dollar at grocery stores1 point per dollar on all other purchases Additionally, for each $2,000 you spend in a calendar month, you'll earn 500 bonus points, up to a maximum of 1,500 points monthly. That gives you a minimum rewards rate of 1.25 points per dollar on the first $6,000 you spend each month. After your second calendar year with the card, you can maintain your 25K Elite Status by spending at least $15,000 in a calendar year. And if you spend $50,000 in a calendar year, you'll get a boost to 35K Elite Status, which offers 50% discounts on preferred seats, complimentary access to Maple Leaf lounges, and more. Finally, cardholders who spend $100,000 in a calendar year will unlock 50%-off Priority Rewards award flights, companion benefits, and more. In addition to redeeming rewards for flights and other options, cardholders will soon be able to use Chase's Pay Yourself Back feature. This will allow them to use points to get statement credits toward travel purchases on any airline, as well as hotels, car rentals, and more, at a rate of 1.25 cents per point, up to 50,000 points per year. Airline and Other Travel Perks As with many other credit cards, the Chase Aeroplan World Elite Mastercard Credit Card offers cardholders certain perks when they fly with the airline. Those include: Free first checked bag for you and up to eight other travelers on the same itineraryAccess to preferred pricing on award flightsNo award ticket restrictionsAn application fee credit for TSA PreCheck, Global Entry, or NEXUSNo foreign transaction feesTrip cancellation and interruption insuranceBaggage delay insuranceTrip delay reimbursementAuto rental collision damage waiverRoadside assistance Also, each time you use rewards to book flights operated by Air Canada, Air Canada Express, or Air Canada Rouge, Aeroplan will purchase carbon offsets to reduce the impact of greenhouse gas emissions associated with your flight (and that includes your travel companions). The card's annual fee is $95. Is the Card Right for You? There's a lot to take in with the new Air Canada credit card. If you travel to Canada once or twice a year at least, it could be a no-brainer. One of the standout perks the card offers is automatic elite status, plus the chance to maintain that same status or even move to a higher level. Most airline cards don't offer such an easy path to elite status. It's especially beneficial if you're a big spender and can take advantage of the higher elite status perks. Also, because Air Canada is part of the Star Alliance, which includes 26 member airlines and many more airline partners around the world, you won't necessarily need to fly to and from Canada to benefit from this card. However, keep in mind that it may not be as straightforward booking partner flights through Air Canada as it is to book directly with your chosen airline. And if you regularly fly with another airline, it could be better to get their co-branded card. So take your time to consider multiple options, including one of the Chase Ultimate Rewards cards that allow you to transfer points to the Aeroplan program, to determine the right fit for you and your travel habits. Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "announced the card", "https://www.investopedia.com/chase-to-add-air-canada-as-a-transfer-partner-launch-new-credit-card-5093016" ], [ "Chase Ultimate Rewards cards", "https://www.investopedia.com/the-ultimate-guide-to-chase-ultimate-rewards-5070944" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/terms/n/negative-bond-yield.asp	What Is a Negative Bond Yield? How It Works in Investing	<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-negative-bond-yield"></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 Negative Bond Yield? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A negative bond yield is when an investor receives less money at the <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's</a> maturity than the original purchase price for the bond. A negative bond yield is an unusual situation in which issuers of debt are <em>paid </em>to borrow. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> In other words, the depositors, or buyers of bonds, are effectively paying the bond issuer a net amount at maturity instead of earning a return through interest income. </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 negative bond yield is when an investor receives less money at the bond's maturity than the original purchase price for the bond.</li><li>Even when factoring in the coupon rate or interest rate paid by the bond, a negative-yielding bond means the investor lost money at maturity.</li><li>Negative-yielding bonds are purchased as safe-haven assets in times of turmoil and by pension and hedge fund managers for asset allocation.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-negative-bond-yields"></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 Negative Bond Yields </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 instruments</a> typically issued by corporations and governments to raise money. Investors purchase the bonds at their <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>, which is the principal amount invested. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> In return, investors typically get paid an interest rate—called the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon-rate.asp" rel="noopener noreferrer">coupon rate</a>—for holding the bond. Each bond has a maturity date, which is when the investor gets paid back the principal amount that was initially invested or the face value of the bond. </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"> Bond Value </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Bonds that have been previously issued and sold by investors before the maturity trade on the secondary market called the bond market. Bond prices rise and fall depending on various economic and monetary conditions in an economy. </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 initial price of a bond is usually its face value, which could be $100 or $1,000 per bond. However, the bond market could price the bond differently depending on a number of factors, which could include economic conditions, the supply and demand for bonds, the length of time until expiration, and the credit quality of the issuing entity. As a result, an investor might not receive the face value of the bond when they sell it. </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"> Typically, an investor might buy a bond at a $95, for example, and receive the $100 face value at maturity. In other words, the investor would've bought the bond at a discount ($95) to the face value ($100). Negative yielding bonds would result in an investor receiving less back at maturity, meaning an investor might pay $102 for the bond and get back $100 at maturity. However, the coupon rate or interest rate paid by the bond also plays into whether the bond is negative-yielding. </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"> Bond Yield </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Bonds trading in the open market can effectively <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/06/negativeyieldbond.asp">carry a negative bond yield</a> if the price of the bond trades at a sufficient premium. Remember that a bond's price moves inversely with its yield or interest rate; the higher the price of a bond, the lower the yield. </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 reason for the inverse relationship between price and yield is due, in part, to bonds being fixed-rate investments. Investors might sell their bonds if it's expected that interest rates will rise in the coming months and opt for the higher-rate bonds later on. </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"> Conversely, bond investors might buy bonds, driving the prices higher, if they believe interest rates will fall in the future because existing fixed-rate bonds will have a higher rate or yield. In other words, when bond prices are rising, investors expect lower rates in the market, which increases demand for previously-issued fixed-rate bonds because of their higher yields. At some point, the price of a bond can increase sufficiently to imply a negative yield for the purchaser. </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-why-investors-buy-negative-yielding-bonds"></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"> Why Investors Buy Negative Yielding Bonds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Investors that are interested in buying negative-yielding bonds include central banks, insurance companies, and pension funds, as well as retail investors. However, there are various distinct reasons for the purchase of negative-yielding bonds. </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"> Asset Allocation and Pledged Assets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Many <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedgefund.asp" rel="noopener noreferrer">hedge funds</a> and investment firms that manage <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp" rel="noopener noreferrer">mutual funds</a> must meet certain requirements, including <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assetallocation.asp" rel="noopener noreferrer">asset allocation</a>. Asset allocation means that the investments within the fund must have a portion allocated to bonds to help create a diverse portfolio. </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"> Allocating a portion of a portfolio to bonds is designed to reduce or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp" rel="noopener noreferrer">hedge</a> the risk of loss from other investments, such as equities. As a result, these funds must own bonds, even if the financial return is negative. </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"> Bonds are often used to pledge as collateral for financing and as a result, need to be held regardless of their price or yield. </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"> Currency Gain and Deflation Risk </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Some investors believe they can still make money even with negative yields. For example, foreign investors might believe the currency's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchangerate.asp" rel="noopener noreferrer">exchange rate</a> will rise, which would offset the negative bond yield. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> In other words, a foreign investor would convert their investment to a country's currency when buying the government bond and convert the currency back to the investor's local currency when selling the bond. The investor would have a gain or loss merely from the currency exchange fluctuation, irrespective of the yield and price of the bond investment. </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"> Domestically, investors might expect a period of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deflation.asp" rel="noopener noreferrer">deflation</a>, or lower prices in the economy, which would allow them to make money by using their savings to buy more goods and services. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-subheading__text"> Safe Haven Assets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Investors might also be interested in negative bond yields if the loss is less than it would be with another investment. In times of economic uncertainty, many investors rush to buy bonds because they're considered <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/safe-haven.asp" rel="noopener noreferrer">safe-haven investments</a>. These purchases are called the flight-to-safety-trade in the bond market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> During such a time, investors might accept a negative-yielding bond because the negative yield might be far less of a loss than a potential double-digit percentage loss in the equity markets. For example, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/jgb.asp" rel="noopener noreferrer">Japanese Government Bonds (JGB)</a> are popular safe-haven assets for international investors and have, at times, paid a negative yield. </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-example-of-a-negative-bond-yield"></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"> Example of a Negative Bond Yield </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Below is an example of two bonds, one of which earns income while the other is negative-yielding by the time of the bond's maturity. </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"> Bond ABC has the following financial attributes: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> <li>Maturity date of four years</li><li>Face value of $100</li><li>Coupon interest rate of 5%</li><li>Bond price for $105</li> </ul> <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"> Bond ABC was purchased for a premium, meaning the price of $105 was higher than its face value of $100 to be paid at maturity. At the onset, the bond might be considered negative-yielding or a loss for the investor. However, we must include the bond's coupon rate of 5% per year or $5 to the investor. </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"> So, although the investor paid an extra $5 for the bond initially, the $20 in coupon payments ($5 per year for four years) create a $15 net profit or a positive yield. </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"> Bond XYZ has the following financial attributes: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> <li>Maturity date of four years</li><li>Face value of $100</li><li>Coupon interest rate of 0%</li><li>Bond price for $106</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"> Bond XYZ was also purchased for a premium, meaning the price of $106 was higher than its face value of $100 to be paid at maturity. However, the bond's coupon rate of 0% per year makes the bond negative-yielding. In other words, if investors hold the bond until maturity, they'll lose $6 ($106-$100). </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"> The $6 loss translates to a 6% loss in percentage terms, and when spread out over the four years, it equates to a negative-yield of -1.5% (-6% / 4 years) annually. </p></div>	## What Is a Negative Bond Yield? A negative bond yield is when an investor receives less money at the [bond's](https://www.investopedia.com/terms/b/bond.asp) maturity than the original purchase price for the bond. A negative bond yield is an unusual situation in which issuers of debt are paid to borrow. In other words, the depositors, or buyers of bonds, are effectively paying the bond issuer a net amount at maturity instead of earning a return through interest income. ### Key Takeaways * A negative bond yield is when an investor receives less money at the bond's maturity than the original purchase price for the bond. * Even when factoring in the coupon rate or interest rate paid by the bond, a negative-yielding bond means the investor lost money at maturity. * Negative-yielding bonds are purchased as safe-haven assets in times of turmoil and by pension and hedge fund managers for asset allocation. ## Understanding Negative Bond Yields Bonds are [debt instruments](https://www.investopedia.com/terms/d/debtinstrument.asp) typically issued by corporations and governments to raise money. Investors purchase the bonds at their [face value](https://www.investopedia.com/terms/f/facevalue.asp), which is the principal amount invested. In return, investors typically get paid an interest rate—called the [coupon rate](https://www.investopedia.com/terms/c/coupon-rate.asp)—for holding the bond. Each bond has a maturity date, which is when the investor gets paid back the principal amount that was initially invested or the face value of the bond. ### Bond Value Bonds that have been previously issued and sold by investors before the maturity trade on the secondary market called the bond market. Bond prices rise and fall depending on various economic and monetary conditions in an economy. The initial price of a bond is usually its face value, which could be $100 or $1,000 per bond. However, the bond market could price the bond differently depending on a number of factors, which could include economic conditions, the supply and demand for bonds, the length of time until expiration, and the credit quality of the issuing entity. As a result, an investor might not receive the face value of the bond when they sell it. Typically, an investor might buy a bond at a $95, for example, and receive the $100 face value at maturity. In other words, the investor would've bought the bond at a discount ($95) to the face value ($100). Negative yielding bonds would result in an investor receiving less back at maturity, meaning an investor might pay $102 for the bond and get back $100 at maturity. However, the coupon rate or interest rate paid by the bond also plays into whether the bond is negative-yielding. ### Bond Yield Bonds trading in the open market can effectively [carry a negative bond yield](https://www.investopedia.com/ask/answers/06/negativeyieldbond.asp) if the price of the bond trades at a sufficient premium. Remember that a bond's price moves inversely with its yield or interest rate; the higher the price of a bond, the lower the yield. The reason for the inverse relationship between price and yield is due, in part, to bonds being fixed-rate investments. Investors might sell their bonds if it's expected that interest rates will rise in the coming months and opt for the higher-rate bonds later on. Conversely, bond investors might buy bonds, driving the prices higher, if they believe interest rates will fall in the future because existing fixed-rate bonds will have a higher rate or yield. In other words, when bond prices are rising, investors expect lower rates in the market, which increases demand for previously-issued fixed-rate bonds because of their higher yields. At some point, the price of a bond can increase sufficiently to imply a negative yield for the purchaser. ## Why Investors Buy Negative Yielding Bonds Investors that are interested in buying negative-yielding bonds include central banks, insurance companies, and pension funds, as well as retail investors. However, there are various distinct reasons for the purchase of negative-yielding bonds. ### Asset Allocation and Pledged Assets Many [hedge funds](https://www.investopedia.com/terms/h/hedgefund.asp) and investment firms that manage [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) must meet certain requirements, including [asset allocation](https://www.investopedia.com/terms/a/assetallocation.asp). Asset allocation means that the investments within the fund must have a portion allocated to bonds to help create a diverse portfolio. Allocating a portion of a portfolio to bonds is designed to reduce or [hedge](https://www.investopedia.com/terms/h/hedge.asp) the risk of loss from other investments, such as equities. As a result, these funds must own bonds, even if the financial return is negative. Bonds are often used to pledge as collateral for financing and as a result, need to be held regardless of their price or yield. ### Currency Gain and Deflation Risk Some investors believe they can still make money even with negative yields. For example, foreign investors might believe the currency's [exchange rate](https://www.investopedia.com/terms/e/exchangerate.asp) will rise, which would offset the negative bond yield. In other words, a foreign investor would convert their investment to a country's currency when buying the government bond and convert the currency back to the investor's local currency when selling the bond. The investor would have a gain or loss merely from the currency exchange fluctuation, irrespective of the yield and price of the bond investment. Domestically, investors might expect a period of [deflation](https://www.investopedia.com/terms/d/deflation.asp), or lower prices in the economy, which would allow them to make money by using their savings to buy more goods and services. ### Safe Haven Assets Investors might also be interested in negative bond yields if the loss is less than it would be with another investment. In times of economic uncertainty, many investors rush to buy bonds because they're considered [safe-haven investments](https://www.investopedia.com/terms/s/safe-haven.asp). These purchases are called the flight-to-safety-trade in the bond market. During such a time, investors might accept a negative-yielding bond because the negative yield might be far less of a loss than a potential double-digit percentage loss in the equity markets. For example, [Japanese Government Bonds (JGB)](https://www.investopedia.com/terms/j/jgb.asp) are popular safe-haven assets for international investors and have, at times, paid a negative yield. ## Example of a Negative Bond Yield Below is an example of two bonds, one of which earns income while the other is negative-yielding by the time of the bond's maturity. Bond ABC has the following financial attributes: * Maturity date of four years * Face value of $100 * Coupon interest rate of 5% * Bond price for $105 Bond ABC was purchased for a premium, meaning the price of $105 was higher than its face value of $100 to be paid at maturity. At the onset, the bond might be considered negative-yielding or a loss for the investor. However, we must include the bond's coupon rate of 5% per year or $5 to the investor. So, although the investor paid an extra $5 for the bond initially, the $20 in coupon payments ($5 per year for four years) create a $15 net profit or a positive yield. Bond XYZ has the following financial attributes: * Maturity date of four years * Face value of $100 * Coupon interest rate of 0% * Bond price for $106 Bond XYZ was also purchased for a premium, meaning the price of $106 was higher than its face value of $100 to be paid at maturity. However, the bond's coupon rate of 0% per year makes the bond negative-yielding. In other words, if investors hold the bond until maturity, they'll lose $6 ($106-$100). The $6 loss translates to a 6% loss in percentage terms, and when spread out over the four years, it equates to a negative-yield of -1.5% (-6% / 4 years) annually.	What Is a Negative Bond Yield? A negative bond yield is when an investor receives less money at the bond's maturity than the original purchase price for the bond. A negative bond yield is an unusual situation in which issuers of debt are paid to borrow. In other words, the depositors, or buyers of bonds, are effectively paying the bond issuer a net amount at maturity instead of earning a return through interest income. Key Takeaways A negative bond yield is when an investor receives less money at the bond's maturity than the original purchase price for the bond.Even when factoring in the coupon rate or interest rate paid by the bond, a negative-yielding bond means the investor lost money at maturity.Negative-yielding bonds are purchased as safe-haven assets in times of turmoil and by pension and hedge fund managers for asset allocation. Understanding Negative Bond Yields Bonds are debt instruments typically issued by corporations and governments to raise money. Investors purchase the bonds at their face value, which is the principal amount invested. In return, investors typically get paid an interest rate—called the coupon rate—for holding the bond. Each bond has a maturity date, which is when the investor gets paid back the principal amount that was initially invested or the face value of the bond. Bond Value Bonds that have been previously issued and sold by investors before the maturity trade on the secondary market called the bond market. Bond prices rise and fall depending on various economic and monetary conditions in an economy. The initial price of a bond is usually its face value, which could be $100 or $1,000 per bond. However, the bond market could price the bond differently depending on a number of factors, which could include economic conditions, the supply and demand for bonds, the length of time until expiration, and the credit quality of the issuing entity. As a result, an investor might not receive the face value of the bond when they sell it. Typically, an investor might buy a bond at a $95, for example, and receive the $100 face value at maturity. In other words, the investor would've bought the bond at a discount ($95) to the face value ($100). Negative yielding bonds would result in an investor receiving less back at maturity, meaning an investor might pay $102 for the bond and get back $100 at maturity. However, the coupon rate or interest rate paid by the bond also plays into whether the bond is negative-yielding. Bond Yield Bonds trading in the open market can effectively carry a negative bond yield if the price of the bond trades at a sufficient premium. Remember that a bond's price moves inversely with its yield or interest rate; the higher the price of a bond, the lower the yield. The reason for the inverse relationship between price and yield is due, in part, to bonds being fixed-rate investments. Investors might sell their bonds if it's expected that interest rates will rise in the coming months and opt for the higher-rate bonds later on. Conversely, bond investors might buy bonds, driving the prices higher, if they believe interest rates will fall in the future because existing fixed-rate bonds will have a higher rate or yield. In other words, when bond prices are rising, investors expect lower rates in the market, which increases demand for previously-issued fixed-rate bonds because of their higher yields. At some point, the price of a bond can increase sufficiently to imply a negative yield for the purchaser. Why Investors Buy Negative Yielding Bonds Investors that are interested in buying negative-yielding bonds include central banks, insurance companies, and pension funds, as well as retail investors. However, there are various distinct reasons for the purchase of negative-yielding bonds. Asset Allocation and Pledged Assets Many hedge funds and investment firms that manage mutual funds must meet certain requirements, including asset allocation. Asset allocation means that the investments within the fund must have a portion allocated to bonds to help create a diverse portfolio. Allocating a portion of a portfolio to bonds is designed to reduce or hedge the risk of loss from other investments, such as equities. As a result, these funds must own bonds, even if the financial return is negative. Bonds are often used to pledge as collateral for financing and as a result, need to be held regardless of their price or yield. Currency Gain and Deflation Risk Some investors believe they can still make money even with negative yields. For example, foreign investors might believe the currency's exchange rate will rise, which would offset the negative bond yield. In other words, a foreign investor would convert their investment to a country's currency when buying the government bond and convert the currency back to the investor's local currency when selling the bond. The investor would have a gain or loss merely from the currency exchange fluctuation, irrespective of the yield and price of the bond investment. Domestically, investors might expect a period of deflation, or lower prices in the economy, which would allow them to make money by using their savings to buy more goods and services. Safe Haven Assets Investors might also be interested in negative bond yields if the loss is less than it would be with another investment. In times of economic uncertainty, many investors rush to buy bonds because they're considered safe-haven investments. These purchases are called the flight-to-safety-trade in the bond market. During such a time, investors might accept a negative-yielding bond because the negative yield might be far less of a loss than a potential double-digit percentage loss in the equity markets. For example, Japanese Government Bonds (JGB) are popular safe-haven assets for international investors and have, at times, paid a negative yield. Example of a Negative Bond Yield Below is an example of two bonds, one of which earns income while the other is negative-yielding by the time of the bond's maturity. Bond ABC has the following financial attributes: Maturity date of four yearsFace value of $100Coupon interest rate of 5%Bond price for $105 Bond ABC was purchased for a premium, meaning the price of $105 was higher than its face value of $100 to be paid at maturity. At the onset, the bond might be considered negative-yielding or a loss for the investor. However, we must include the bond's coupon rate of 5% per year or $5 to the investor. So, although the investor paid an extra $5 for the bond initially, the $20 in coupon payments ($5 per year for four years) create a $15 net profit or a positive yield. Bond XYZ has the following financial attributes: Maturity date of four yearsFace value of $100Coupon interest rate of 0%Bond price for $106 Bond XYZ was also purchased for a premium, meaning the price of $106 was higher than its face value of $100 to be paid at maturity. However, the bond's coupon rate of 0% per year makes the bond negative-yielding. In other words, if investors hold the bond until maturity, they'll lose $6 ($106-$100). The $6 loss translates to a 6% loss in percentage terms, and when spread out over the four years, it equates to a negative-yield of -1.5% (-6% / 4 years) annually.	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https://www.investopedia.com/articles/basics/12/portfolio-currency-exposure.asp	Managing Currency Exposure in Your Portfolio	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The value of investments is significantly impacted by changes in global currency <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchangerate.asp">exchange rates</a>. Investors should appreciate the influence that the foreign exchange market has on the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a> they own and their level of currency exposure. </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-currency-and-transaction-exposure"></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"> Currency and Transaction Exposure </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Exchange rates impact investors worldwide. For instance, investors in automaker Toyota Motor Corp. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=tm">TM</a>) have currency exposure because the company sells cars in countries outside of Japan. Toyota sells cars in the United States for U.S. dollars, in France for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/euro.asp">euros</a>, and in Britain for pounds. After receiving these foreign currencies, Toyota converts the currencies back to the domestic currency (yen).<span class="ql-inline-citation" data-cite="6"></span> Changing exchange rates influence the value of the currency that Toyota receives when it is converted back to yen. In turn, investors in Toyota are impacted by this activity. </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"> Investors also have currency exposure because of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transactionrisk.asp">transaction risk</a> faced by companies involved in international trade. This is the risk that currency exchange rates will change after financial obligations have already been settled. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge-accounting.asp">currency exposure of an asset</a>, such as stocks, is the sensitivity of that asset's return measured in the investor's domestic currency to fluctuations in exchange rates. </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 value of investments is impacted by changes in global currency exchange rates.</li><li>Investors, as owners of companies and assets, have currency exposure through exchange rate fluctuations. </li><li>Foreign exchange influences on a company's operating performance will affect its stock prices.</li><li>Three correlations exist between stock price performance and exchange rate fluctuations: zero correlation, negative correlation, and positive correlation.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-global-influence-of-forex"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> The Global Influence of Forex </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Real exchange rate movements may have a significant influence on economies and international corporations. As real exchange rates go up and down, the earnings, costs, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margin.asp">margins</a>, and operating incentives of companies 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"> As an example, consider the French tire manufacturer Michelin (MGDDF). If the euro appreciates substantially against a variety of currencies, then Michelin is affected in a variety of ways. </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"> First, the appreciation of the euro would affect the entire French economy. French goods would become more expensive because it takes more foreign currency to purchase francs. Thus, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/netexports.asp">net exports</a> outside of Europe would likely decrease.<span class="ql-inline-citation" data-cite="3"></span> Michelin, as an exporter from France, would be selling more expensive products overseas and would probably experience a decrease in total sales. If sales did indeed decrease, Michelin's profitability would be hurt, and the stock price may decline. </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"> Alternatively, if the franc were to depreciate substantially against a <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/basket.asp">basket</a> of currencies, Michelin tires would become price competitive. Sales would likely increase, and the profitability of Michelin would improve. Moreover, Michelin could lower its selling price in foreign markets without hurting margins, and there would be incentives to manufacture products in France where the production costs are lower. </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"> Investors should note the impact that the U.S. dollar exchange rate has on all assets. Many <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rawmaterials.asp">raw materials</a>, including oil, are priced in dollars.<span class="ql-inline-citation" data-cite="7"></span> U.S. dollar depreciation typically increases the price of raw materials while a dollar appreciation tends to decrease commodity prices. This unique relationship should be factored into any currency exposure analysis. </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-stock-price-performance-and-exchange-rate-fluctuations"></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"> Stock Price Performance and Exchange Rate Fluctuations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> All these forex influences on a company's operating performance will, of course, have a knock-on effect on its stock prices. Most investors are impacted by these currency changes via stocks (although other assets, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedincome.asp">fixed income</a>, commodities, and alternative assets are influenced by changes in global exchange rates). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> There are three general correlations between stock price performance and exchange rate fluctuations: zero correlation, negative correlation, and positive correlation. </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><em>Zero correlation</em> - When there is no reaction by stock price to changes in exchange rates, there is zero correlation. An example of zero correlation is if the stock price of the U.S. electronics device producer Apple Inc<strong>.</strong> (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl">AAPL</a>) does not change while the U.S. dollar falls 1% in value.</li> <li><em>Negative correlation</em> - A negative correlation exists when a stock price increases as the local currency depreciates. An example of negative correlation is if the stock price of German pharmaceutical-maker Bayer <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/ag-aktiengesellschaft.asp">AG</a> rises with a depreciation of the euro.</li> <li><em>Positive correlation</em> - A positive correlation exists when a stock price decreases while the local currency depreciates. An example of a positive correlation is if the stock price of Toyota were to decrease with a depreciation of the yen.</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"> Correlations can help investors conduct a more comprehensive evaluation of an investment. Suppose an investor forecasts that the euro will decline in value versus a basket of currencies. Weakness in the euro would be beneficial if Bayer AG has a negative correlation. As the euro declines in value, Bayer's stock price would increase. </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"> It is important to realize those correlations are purely empirical observations of the relationship between stock prices and currency exchange rates. The net impact of currency fluctuations can be more complicated. For example, if the U.S. dollar loses value and the American restaurant chain McDonald’s Corp. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=mcd">MCD</a>) has a negative correlation, the stock price may rise. However, oil and other natural resources used in the production process will, in all likelihood, become more expensive. That would have a negative effect on the company's operating performance in the future and would alter the net result of the currency impact. </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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The relationship between asset returns and exchange rate movements is critical in international asset pricing. Overall currency impact depends on the currency structure of exports, imports, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financing.asp">financing</a>. It may be necessary to conduct a more thorough analysis of companies with diverse international operations. This involves assessing the operational activities and financing of a company in each country where they do business. </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"> Using the returns of assets such as stocks and changes in exchange rates for a defined period of time, it is possible to measure currency exposure over a set period. </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"> By understanding the impact on individual companies and assets and the correlations that exchange rate fluctuations have with asset returns, investors are better able to evaluate the currency exposure of their portfolio. </p></div>	The value of investments is significantly impacted by changes in global currency [exchange rates](https://www.investopedia.com/terms/e/exchangerate.asp). Investors should appreciate the influence that the foreign exchange market has on the [assets](https://www.investopedia.com/terms/a/asset.asp) they own and their level of currency exposure. ## Currency and Transaction Exposure Exchange rates impact investors worldwide. For instance, investors in automaker Toyota Motor Corp. ([TM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=tm)) have currency exposure because the company sells cars in countries outside of Japan. Toyota sells cars in the United States for U.S. dollars, in France for [euros](https://www.investopedia.com/terms/e/euro.asp), and in Britain for pounds. After receiving these foreign currencies, Toyota converts the currencies back to the domestic currency (yen). Changing exchange rates influence the value of the currency that Toyota receives when it is converted back to yen. In turn, investors in Toyota are impacted by this activity. Investors also have currency exposure because of the [transaction risk](https://www.investopedia.com/terms/t/transactionrisk.asp) faced by companies involved in international trade. This is the risk that currency exchange rates will change after financial obligations have already been settled. The [currency exposure of an asset](https://www.investopedia.com/terms/h/hedge-accounting.asp), such as stocks, is the sensitivity of that asset's return measured in the investor's domestic currency to fluctuations in exchange rates. ### key takeaways * The value of investments is impacted by changes in global currency exchange rates. * Investors, as owners of companies and assets, have currency exposure through exchange rate fluctuations. * Foreign exchange influences on a company's operating performance will affect its stock prices. * Three correlations exist between stock price performance and exchange rate fluctuations: zero correlation, negative correlation, and positive correlation. ## The Global Influence of Forex Real exchange rate movements may have a significant influence on economies and international corporations. As real exchange rates go up and down, the earnings, costs, [margins](https://www.investopedia.com/terms/m/margin.asp), and operating incentives of companies change. As an example, consider the French tire manufacturer Michelin (MGDDF). If the euro appreciates substantially against a variety of currencies, then Michelin is affected in a variety of ways. First, the appreciation of the euro would affect the entire French economy. French goods would become more expensive because it takes more foreign currency to purchase francs. Thus, [net exports](https://www.investopedia.com/terms/n/netexports.asp) outside of Europe would likely decrease. Michelin, as an exporter from France, would be selling more expensive products overseas and would probably experience a decrease in total sales. If sales did indeed decrease, Michelin's profitability would be hurt, and the stock price may decline. Alternatively, if the franc were to depreciate substantially against a [basket](https://www.investopedia.com/terms/b/basket.asp) of currencies, Michelin tires would become price competitive. Sales would likely increase, and the profitability of Michelin would improve. Moreover, Michelin could lower its selling price in foreign markets without hurting margins, and there would be incentives to manufacture products in France where the production costs are lower. Investors should note the impact that the U.S. dollar exchange rate has on all assets. Many [raw materials](https://www.investopedia.com/terms/r/rawmaterials.asp), including oil, are priced in dollars. U.S. dollar depreciation typically increases the price of raw materials while a dollar appreciation tends to decrease commodity prices. This unique relationship should be factored into any currency exposure analysis. ## Stock Price Performance and Exchange Rate Fluctuations All these forex influences on a company's operating performance will, of course, have a knock-on effect on its stock prices. Most investors are impacted by these currency changes via stocks (although other assets, including [fixed income](https://www.investopedia.com/terms/f/fixedincome.asp), commodities, and alternative assets are influenced by changes in global exchange rates). There are three general correlations between stock price performance and exchange rate fluctuations: zero correlation, negative correlation, and positive correlation. * Zero correlation - When there is no reaction by stock price to changes in exchange rates, there is zero correlation. An example of zero correlation is if the stock price of the U.S. electronics device producer Apple Inc. ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl)) does not change while the U.S. dollar falls 1% in value. * Negative correlation - A negative correlation exists when a stock price increases as the local currency depreciates. An example of negative correlation is if the stock price of German pharmaceutical-maker Bayer [AG](https://www.investopedia.com/terms/a/ag-aktiengesellschaft.asp) rises with a depreciation of the euro. * Positive correlation - A positive correlation exists when a stock price decreases while the local currency depreciates. An example of a positive correlation is if the stock price of Toyota were to decrease with a depreciation of the yen. Correlations can help investors conduct a more comprehensive evaluation of an investment. Suppose an investor forecasts that the euro will decline in value versus a basket of currencies. Weakness in the euro would be beneficial if Bayer AG has a negative correlation. As the euro declines in value, Bayer's stock price would increase. It is important to realize those correlations are purely empirical observations of the relationship between stock prices and currency exchange rates. The net impact of currency fluctuations can be more complicated. For example, if the U.S. dollar loses value and the American restaurant chain McDonald’s Corp. ([MCD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=mcd)) has a negative correlation, the stock price may rise. However, oil and other natural resources used in the production process will, in all likelihood, become more expensive. That would have a negative effect on the company's operating performance in the future and would alter the net result of the currency impact. ## The Bottom Line The relationship between asset returns and exchange rate movements is critical in international asset pricing. Overall currency impact depends on the currency structure of exports, imports, and [financing](https://www.investopedia.com/terms/f/financing.asp). It may be necessary to conduct a more thorough analysis of companies with diverse international operations. This involves assessing the operational activities and financing of a company in each country where they do business. Using the returns of assets such as stocks and changes in exchange rates for a defined period of time, it is possible to measure currency exposure over a set period. By understanding the impact on individual companies and assets and the correlations that exchange rate fluctuations have with asset returns, investors are better able to evaluate the currency exposure of their portfolio.	The value of investments is significantly impacted by changes in global currency exchange rates. Investors should appreciate the influence that the foreign exchange market has on the assets they own and their level of currency exposure. Currency and Transaction Exposure Exchange rates impact investors worldwide. For instance, investors in automaker Toyota Motor Corp. (TM) have currency exposure because the company sells cars in countries outside of Japan. Toyota sells cars in the United States for U.S. dollars, in France for euros, and in Britain for pounds. After receiving these foreign currencies, Toyota converts the currencies back to the domestic currency (yen). Changing exchange rates influence the value of the currency that Toyota receives when it is converted back to yen. In turn, investors in Toyota are impacted by this activity. Investors also have currency exposure because of the transaction risk faced by companies involved in international trade. This is the risk that currency exchange rates will change after financial obligations have already been settled. The currency exposure of an asset, such as stocks, is the sensitivity of that asset's return measured in the investor's domestic currency to fluctuations in exchange rates. key takeaways The value of investments is impacted by changes in global currency exchange rates.Investors, as owners of companies and assets, have currency exposure through exchange rate fluctuations. Foreign exchange influences on a company's operating performance will affect its stock prices.Three correlations exist between stock price performance and exchange rate fluctuations: zero correlation, negative correlation, and positive correlation. The Global Influence of Forex Real exchange rate movements may have a significant influence on economies and international corporations. As real exchange rates go up and down, the earnings, costs, margins, and operating incentives of companies change. As an example, consider the French tire manufacturer Michelin (MGDDF). If the euro appreciates substantially against a variety of currencies, then Michelin is affected in a variety of ways. First, the appreciation of the euro would affect the entire French economy. French goods would become more expensive because it takes more foreign currency to purchase francs. Thus, net exports outside of Europe would likely decrease. Michelin, as an exporter from France, would be selling more expensive products overseas and would probably experience a decrease in total sales. If sales did indeed decrease, Michelin's profitability would be hurt, and the stock price may decline. Alternatively, if the franc were to depreciate substantially against a basket of currencies, Michelin tires would become price competitive. Sales would likely increase, and the profitability of Michelin would improve. Moreover, Michelin could lower its selling price in foreign markets without hurting margins, and there would be incentives to manufacture products in France where the production costs are lower. Investors should note the impact that the U.S. dollar exchange rate has on all assets. Many raw materials, including oil, are priced in dollars. U.S. dollar depreciation typically increases the price of raw materials while a dollar appreciation tends to decrease commodity prices. This unique relationship should be factored into any currency exposure analysis. Stock Price Performance and Exchange Rate Fluctuations All these forex influences on a company's operating performance will, of course, have a knock-on effect on its stock prices. Most investors are impacted by these currency changes via stocks (although other assets, including fixed income, commodities, and alternative assets are influenced by changes in global exchange rates). There are three general correlations between stock price performance and exchange rate fluctuations: zero correlation, negative correlation, and positive correlation. Zero correlation - When there is no reaction by stock price to changes in exchange rates, there is zero correlation. An example of zero correlation is if the stock price of the U.S. electronics device producer Apple Inc. (AAPL) does not change while the U.S. dollar falls 1% in value. Negative correlation - A negative correlation exists when a stock price increases as the local currency depreciates. An example of negative correlation is if the stock price of German pharmaceutical-maker Bayer AG rises with a depreciation of the euro. Positive correlation - A positive correlation exists when a stock price decreases while the local currency depreciates. An example of a positive correlation is if the stock price of Toyota were to decrease with a depreciation of the yen. Correlations can help investors conduct a more comprehensive evaluation of an investment. Suppose an investor forecasts that the euro will decline in value versus a basket of currencies. Weakness in the euro would be beneficial if Bayer AG has a negative correlation. As the euro declines in value, Bayer's stock price would increase. It is important to realize those correlations are purely empirical observations of the relationship between stock prices and currency exchange rates. The net impact of currency fluctuations can be more complicated. For example, if the U.S. dollar loses value and the American restaurant chain McDonald’s Corp. (MCD) has a negative correlation, the stock price may rise. However, oil and other natural resources used in the production process will, in all likelihood, become more expensive. That would have a negative effect on the company's operating performance in the future and would alter the net result of the currency impact. The Bottom Line The relationship between asset returns and exchange rate movements is critical in international asset pricing. Overall currency impact depends on the currency structure of exports, imports, and financing. It may be necessary to conduct a more thorough analysis of companies with diverse international operations. This involves assessing the operational activities and financing of a company in each country where they do business. Using the returns of assets such as stocks and changes in exchange rates for a defined period of time, it is possible to measure currency exposure over a set period. By understanding the impact on individual companies and assets and the correlations that exchange rate fluctuations have with asset returns, investors are better able to evaluate the currency exposure of their portfolio.	[ [ "exchange rates", "https://www.investopedia.com/terms/e/exchangerate.asp" ], [ "assets", "https://www.investopedia.com/terms/a/asset.asp" ], [ "TM", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=tm" ], [ "euros", "https://www.investopedia.com/terms/e/euro.asp" ], [ "transaction risk", "https://www.investopedia.com/terms/t/transactionrisk.asp" ], [ "currency exposure of an asset", "https://www.investopedia.com/terms/h/hedge-accounting.asp" ], [ "margins", "https://www.investopedia.com/terms/m/margin.asp" ], [ "net exports", "https://www.investopedia.com/terms/n/netexports.asp" ], [ "basket", "https://www.investopedia.com/terms/b/basket.asp" ], [ "raw materials", "https://www.investopedia.com/terms/r/rawmaterials.asp" ], [ "fixed income", "https://www.investopedia.com/terms/f/fixedincome.asp" ], [ "AAPL", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl" ], [ "AG", "https://www.investopedia.com/terms/a/ag-aktiengesellschaft.asp" ], [ "MCD", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=mcd" ], [ "financing", "https://www.investopedia.com/terms/f/financing.asp" ] ]
https://www.investopedia.com/ask/answers/10/mutual-funds-advantages-disadvantages.asp	Mutual Funds: Advantages and Disadvantages	<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"> Mutual funds are one of the most popular <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentvehicle.asp">investment vehicles</a> for many investors. They come with many advantages, such as advanced portfolio management, risk reduction, and dividend reinvestment; however, there are many disadvantages to consider as well, such as high expense ratios and sales charges, tax inefficiencies, and possible management abuses. Before investing in one, read on to learn more details about the advantages and disadvantages of investing in mutual funds. </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>Mutual funds are a popular investment choice in the U.S., allowing for investors to pool capital into a professionally managed investment vehicle.</li><li>Investors have to pay fees for investing in mutual funds, which cover the costs of the fund doing business and the salaries of the professionals managing it.</li><li>Mutual funds come with many advantages, such as advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing.</li><li>Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.</li></ul></div></div></div> <span class="heading-toc" id="toc-mutual-funds-an-overview"></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"> Mutual Funds: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Mutual funds <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/06/segfundsvsmutualfunds.asp">pool together investments from shareholders to invest</a> in securities, such as stocks, bonds, and other assets. There are a variety of funds covering different industries and different asset classes and they are managed by professional portfolio managers who seek to achieve capital gains for the fund's investors. Investors are charged various fees for the services that mutual funds provide. </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"> When an investor invests in a mutual fund, they are seeking exposure to a variety of assets, do not have voting rights, and may be subject to certain rules, requirements, and certainly fees. Most mutual funds are managed and offered by large investment management companies, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/etfs-mutual-funds/043016/vanguard-vs-fidelity-comparing-2-popular-balanced-mutual-funds-vgstx-fbalx.asp">such as Vanguard and Fidelity</a>. </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"> Some of the advantages of mutual funds include advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing, while disadvantages include high <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp">expense ratios</a> and sales charges, management abuses, tax inefficiency, and poor trade execution. </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-advantages-of-mutual-funds"></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"> Advantages of Mutual Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> There are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/advantages-of-mutual-funds/">many reasons</a> why investors choose to invest in mutual funds with such frequency. Let's break down the details of a few. </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"> Advanced Portfolio Management </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> When you buy a mutual fund, you pay a management fee as part of your expense ratio, which is used to hire a professional portfolio manager who buys and sells stocks, bonds, etc. This is a relatively small price to pay for getting professional help in the management of an investment portfolio.<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> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-subheading__text"> Dividend Reinvestment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> As dividends and other interest income sources are declared for the fund, they can be used to purchase additional shares in the mutual fund, therefore helping your investment grow. </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"> Risk Reduction (Safety) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Reduced portfolio risk is achieved through the use of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</a>, as most mutual funds will invest in anywhere from 50 to 200 different securities—depending on the focus. Numerous stock index mutual funds own 1,000 or more individual stock positions. </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"> Convenience and Fair Pricing </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Mutual funds are easy to buy and easy to understand. They typically have low minimum investments and they are traded only once per day at the closing net asset value (NAV). This eliminates price fluctuation throughout the day and various <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arbitrage.asp">arbitrage</a> opportunities that day traders practice.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <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>As with any type of investment, the specifics of your budget, timeline, and profit goals will dictate what the best mutual fund options are for you.</p></div></div></div> <span class="heading-toc" id="toc-disadvantages-of-mutual-funds"></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"> Disadvantages of Mutual Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> However, there are also disadvantages to being an investor in mutual funds. Here's a more detailed look at some of those concerns. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-subheading__text"> High Expense Ratios and Sales Charges </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> If you're not paying attention to mutual fund expense ratios and <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/salescharge.asp">sales charges</a>, they can get out of hand. Be very cautious when investing in funds with expense ratios higher than 1.50%, as they are considered to be on the higher cost end. Be wary of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/12b-1fees.asp">12b-1</a> advertising fees and sales charges in general. There are several good fund companies out there that have no sales charges. Fees reduce overall investment 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_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_35-0"><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_36-0"><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>Though similar to mutual funds, <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) are a different type of investment vehicle, which are traded like stocks and generally come with lower costs and are easier to invest in.</p></div></div></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"> Management Abuses </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Churning, turnover, and window dressing may happen if your manager is abusing their authority. This includes unnecessary trading, excessive replacement, and selling the losers prior to quarter-end to fix the books. </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"> Tax Inefficiency </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Like it or not, investors do not have a choice when it comes to <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> payouts in mutual funds. Due to the turnover, redemptions, gains, and losses in security holdings throughout the year, investors typically receive <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102715/do-mutual-funds-pay-dividends-or-interest.asp">distributions from the fund</a> that are an uncontrollable tax event.<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_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"> Poor Trade Execution </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> If you place your mutual fund trade anytime before the cut-off time for same-day NAV, you'll receive the same closing price NAV for your buy or sell on the mutual fund. For investors looking for faster execution times, maybe because of short investment horizons, day trading, or timing the market, mutual funds provide a weak execution strategy.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_46-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_47-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Advanced portfolio management</p></li> <li><p>Dividend reinvestment</p></li> <li><p>Risk reduction</p></li> <li><p>Convenience and fair pricing</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>High expense ratios and sales charges</p></li> <li><p>Management abuses</p></li> <li><p>Tax inefficiencies</p></li> <li><p>Poor trade execution</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <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-are-the-risks-of-mutual-funds"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Risks of Mutual Funds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No investment is risk-free and while mutual funds are generally low-risk because they invest in low-risk securities, they are not completely risk-free. The securities held in a mutual fund may lose value either due to market conditions or to the performance of a specific security, such as the stock of a company if the company performs poorly. Other risks could be difficult to predict, such as risks from the management team or a change in policy regarding dividends and fees.</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-are-certain-advantages-of-mutual-funds"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Certain Advantages of Mutual Funds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Mutual funds have plenty of advantages, including diversification, professional management, low costs, and convenience.</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-are-mutual-funds-better-than-stocks"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Mutual Funds Better Than Stocks?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Determining what is a better investment depends solely on the specific investor, their investment objectives, and their risk tolerance. Mutual funds allow for ease of access to a wide array of investments/companies, which increases diversification. They also carry lower risk because of that fact as opposed to investing in just a few stocks.</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"> Mutual funds are a great way for investors to gain exposure to a wide variety of assets without having to specifically purchase investment securities one by one. They also allow an investor to leave the investment decisions up to a professional. While they can be a great and safe investment, they do not come without their flaws and issues. </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"> Before investing, make sure to take your time researching the right mutual fund for you, being aware of the types of investments, risks, and costs associated with each particular fund you are considering and how they fit into your investment objectives. </p></div>	Mutual funds are one of the most popular [investment vehicles](https://www.investopedia.com/terms/i/investmentvehicle.asp) for many investors. They come with many advantages, such as advanced portfolio management, risk reduction, and dividend reinvestment; however, there are many disadvantages to consider as well, such as high expense ratios and sales charges, tax inefficiencies, and possible management abuses. Before investing in one, read on to learn more details about the advantages and disadvantages of investing in mutual funds. ### Key Takeaways * Mutual funds are a popular investment choice in the U.S., allowing for investors to pool capital into a professionally managed investment vehicle. * Investors have to pay fees for investing in mutual funds, which cover the costs of the fund doing business and the salaries of the professionals managing it. * Mutual funds come with many advantages, such as advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing. * Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses. ## Mutual Funds: An Overview Mutual funds [pool together investments from shareholders to invest](https://www.investopedia.com/ask/answers/06/segfundsvsmutualfunds.asp) in securities, such as stocks, bonds, and other assets. There are a variety of funds covering different industries and different asset classes and they are managed by professional portfolio managers who seek to achieve capital gains for the fund's investors. Investors are charged various fees for the services that mutual funds provide. When an investor invests in a mutual fund, they are seeking exposure to a variety of assets, do not have voting rights, and may be subject to certain rules, requirements, and certainly fees. Most mutual funds are managed and offered by large investment management companies, [such as Vanguard and Fidelity](https://www.investopedia.com/articles/etfs-mutual-funds/043016/vanguard-vs-fidelity-comparing-2-popular-balanced-mutual-funds-vgstx-fbalx.asp). Some of the advantages of mutual funds include advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing, while disadvantages include high [expense ratios](https://www.investopedia.com/terms/e/expenseratio.asp) and sales charges, management abuses, tax inefficiency, and poor trade execution. ## Advantages of Mutual Funds There are [many reasons](https://www.investopedia.com/investing/advantages-of-mutual-funds/) why investors choose to invest in mutual funds with such frequency. Let's break down the details of a few. ### Advanced Portfolio Management When you buy a mutual fund, you pay a management fee as part of your expense ratio, which is used to hire a professional portfolio manager who buys and sells stocks, bonds, etc. This is a relatively small price to pay for getting professional help in the management of an investment portfolio. ### Dividend Reinvestment As dividends and other interest income sources are declared for the fund, they can be used to purchase additional shares in the mutual fund, therefore helping your investment grow. ### Risk Reduction (Safety) Reduced portfolio risk is achieved through the use of [diversification](https://www.investopedia.com/terms/d/diversification.asp), as most mutual funds will invest in anywhere from 50 to 200 different securities—depending on the focus. Numerous stock index mutual funds own 1,000 or more individual stock positions. ### Convenience and Fair Pricing Mutual funds are easy to buy and easy to understand. They typically have low minimum investments and they are traded only once per day at the closing net asset value (NAV). This eliminates price fluctuation throughout the day and various [arbitrage](https://www.investopedia.com/terms/a/arbitrage.asp) opportunities that day traders practice. ### As with any type of investment, the specifics of your budget, timeline, and profit goals will dictate what the best mutual fund options are for you. ## Disadvantages of Mutual Funds However, there are also disadvantages to being an investor in mutual funds. Here's a more detailed look at some of those concerns. ### High Expense Ratios and Sales Charges If you're not paying attention to mutual fund expense ratios and [sales charges](https://www.investopedia.com/terms/s/salescharge.asp), they can get out of hand. Be very cautious when investing in funds with expense ratios higher than 1.50%, as they are considered to be on the higher cost end. Be wary of [12b-1](https://www.investopedia.com/terms/1/12b-1fees.asp) advertising fees and sales charges in general. There are several good fund companies out there that have no sales charges. Fees reduce overall investment returns. ### Though similar to mutual funds, [exchange-traded funds](https://www.investopedia.com/terms/e/etf.asp) (ETFs) are a different type of investment vehicle, which are traded like stocks and generally come with lower costs and are easier to invest in. ### Management Abuses Churning, turnover, and window dressing may happen if your manager is abusing their authority. This includes unnecessary trading, excessive replacement, and selling the losers prior to quarter-end to fix the books. ### Tax Inefficiency Like it or not, investors do not have a choice when it comes to [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) payouts in mutual funds. Due to the turnover, redemptions, gains, and losses in security holdings throughout the year, investors typically receive [distributions from the fund](https://www.investopedia.com/ask/answers/102715/do-mutual-funds-pay-dividends-or-interest.asp) that are an uncontrollable tax event. ### Poor Trade Execution If you place your mutual fund trade anytime before the cut-off time for same-day NAV, you'll receive the same closing price NAV for your buy or sell on the mutual fund. For investors looking for faster execution times, maybe because of short investment horizons, day trading, or timing the market, mutual funds provide a weak execution strategy. Pros * Advanced portfolio management * Dividend reinvestment * Risk reduction * Convenience and fair pricing Cons * High expense ratios and sales charges * Management abuses * Tax inefficiencies * Poor trade execution ## What Are the Risks of Mutual Funds? No investment is risk-free and while mutual funds are generally low-risk because they invest in low-risk securities, they are not completely risk-free. The securities held in a mutual fund may lose value either due to market conditions or to the performance of a specific security, such as the stock of a company if the company performs poorly. Other risks could be difficult to predict, such as risks from the management team or a change in policy regarding dividends and fees. ## What Are Certain Advantages of Mutual Funds? Mutual funds have plenty of advantages, including diversification, professional management, low costs, and convenience. ## Are Mutual Funds Better Than Stocks? Determining what is a better investment depends solely on the specific investor, their investment objectives, and their risk tolerance. Mutual funds allow for ease of access to a wide array of investments/companies, which increases diversification. They also carry lower risk because of that fact as opposed to investing in just a few stocks. ## The Bottom Line Mutual funds are a great way for investors to gain exposure to a wide variety of assets without having to specifically purchase investment securities one by one. They also allow an investor to leave the investment decisions up to a professional. While they can be a great and safe investment, they do not come without their flaws and issues. Before investing, make sure to take your time researching the right mutual fund for you, being aware of the types of investments, risks, and costs associated with each particular fund you are considering and how they fit into your investment objectives.	Mutual funds are one of the most popular investment vehicles for many investors. They come with many advantages, such as advanced portfolio management, risk reduction, and dividend reinvestment; however, there are many disadvantages to consider as well, such as high expense ratios and sales charges, tax inefficiencies, and possible management abuses. Before investing in one, read on to learn more details about the advantages and disadvantages of investing in mutual funds. Key Takeaways Mutual funds are a popular investment choice in the U.S., allowing for investors to pool capital into a professionally managed investment vehicle.Investors have to pay fees for investing in mutual funds, which cover the costs of the fund doing business and the salaries of the professionals managing it.Mutual funds come with many advantages, such as advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing.Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses. Mutual Funds: An Overview Mutual funds pool together investments from shareholders to invest in securities, such as stocks, bonds, and other assets. There are a variety of funds covering different industries and different asset classes and they are managed by professional portfolio managers who seek to achieve capital gains for the fund's investors. Investors are charged various fees for the services that mutual funds provide. When an investor invests in a mutual fund, they are seeking exposure to a variety of assets, do not have voting rights, and may be subject to certain rules, requirements, and certainly fees. Most mutual funds are managed and offered by large investment management companies, such as Vanguard and Fidelity. Some of the advantages of mutual funds include advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing, while disadvantages include high expense ratios and sales charges, management abuses, tax inefficiency, and poor trade execution. Advantages of Mutual Funds There are many reasons why investors choose to invest in mutual funds with such frequency. Let's break down the details of a few. Advanced Portfolio Management When you buy a mutual fund, you pay a management fee as part of your expense ratio, which is used to hire a professional portfolio manager who buys and sells stocks, bonds, etc. This is a relatively small price to pay for getting professional help in the management of an investment portfolio. Dividend Reinvestment As dividends and other interest income sources are declared for the fund, they can be used to purchase additional shares in the mutual fund, therefore helping your investment grow. Risk Reduction (Safety) Reduced portfolio risk is achieved through the use of diversification, as most mutual funds will invest in anywhere from 50 to 200 different securities—depending on the focus. Numerous stock index mutual funds own 1,000 or more individual stock positions. Convenience and Fair Pricing Mutual funds are easy to buy and easy to understand. They typically have low minimum investments and they are traded only once per day at the closing net asset value (NAV). This eliminates price fluctuation throughout the day and various arbitrage opportunities that day traders practice. As with any type of investment, the specifics of your budget, timeline, and profit goals will dictate what the best mutual fund options are for you. Disadvantages of Mutual Funds However, there are also disadvantages to being an investor in mutual funds. Here's a more detailed look at some of those concerns. High Expense Ratios and Sales Charges If you're not paying attention to mutual fund expense ratios and sales charges, they can get out of hand. Be very cautious when investing in funds with expense ratios higher than 1.50%, as they are considered to be on the higher cost end. Be wary of 12b-1 advertising fees and sales charges in general. There are several good fund companies out there that have no sales charges. Fees reduce overall investment returns. Though similar to mutual funds, exchange-traded funds (ETFs) are a different type of investment vehicle, which are traded like stocks and generally come with lower costs and are easier to invest in. Management Abuses Churning, turnover, and window dressing may happen if your manager is abusing their authority. This includes unnecessary trading, excessive replacement, and selling the losers prior to quarter-end to fix the books. Tax Inefficiency Like it or not, investors do not have a choice when it comes to capital gains payouts in mutual funds. Due to the turnover, redemptions, gains, and losses in security holdings throughout the year, investors typically receive distributions from the fund that are an uncontrollable tax event. Poor Trade Execution If you place your mutual fund trade anytime before the cut-off time for same-day NAV, you'll receive the same closing price NAV for your buy or sell on the mutual fund. For investors looking for faster execution times, maybe because of short investment horizons, day trading, or timing the market, mutual funds provide a weak execution strategy. Pros Advanced portfolio management Dividend reinvestment Risk reduction Convenience and fair pricing Cons High expense ratios and sales charges Management abuses Tax inefficiencies Poor trade execution What Are the Risks of Mutual Funds? No investment is risk-free and while mutual funds are generally low-risk because they invest in low-risk securities, they are not completely risk-free. The securities held in a mutual fund may lose value either due to market conditions or to the performance of a specific security, such as the stock of a company if the company performs poorly. Other risks could be difficult to predict, such as risks from the management team or a change in policy regarding dividends and fees. What Are Certain Advantages of Mutual Funds? Mutual funds have plenty of advantages, including diversification, professional management, low costs, and convenience. Are Mutual Funds Better Than Stocks? Determining what is a better investment depends solely on the specific investor, their investment objectives, and their risk tolerance. Mutual funds allow for ease of access to a wide array of investments/companies, which increases diversification. They also carry lower risk because of that fact as opposed to investing in just a few stocks. The Bottom Line Mutual funds are a great way for investors to gain exposure to a wide variety of assets without having to specifically purchase investment securities one by one. They also allow an investor to leave the investment decisions up to a professional. While they can be a great and safe investment, they do not come without their flaws and issues. Before investing, make sure to take your time researching the right mutual fund for you, being aware of the types of investments, risks, and costs associated with each particular fund you are considering and how they fit into your investment objectives.	[ [ "investment vehicles", "https://www.investopedia.com/terms/i/investmentvehicle.asp" ], [ "pool together investments from shareholders to invest", "https://www.investopedia.com/ask/answers/06/segfundsvsmutualfunds.asp" ], [ "such as Vanguard and Fidelity", "https://www.investopedia.com/articles/etfs-mutual-funds/043016/vanguard-vs-fidelity-comparing-2-popular-balanced-mutual-funds-vgstx-fbalx.asp" ], [ "expense ratios", "https://www.investopedia.com/terms/e/expenseratio.asp" ], [ "many reasons", "https://www.investopedia.com/investing/advantages-of-mutual-funds/" ], [ "diversification", "https://www.investopedia.com/terms/d/diversification.asp" ], [ "arbitrage", "https://www.investopedia.com/terms/a/arbitrage.asp" ], [ "sales charges", "https://www.investopedia.com/terms/s/salescharge.asp" ], [ "12b-1", "https://www.investopedia.com/terms/1/12b-1fees.asp" ], [ "exchange-traded funds", "https://www.investopedia.com/terms/e/etf.asp" ], [ "capital gains", "https://www.investopedia.com/terms/c/capitalgain.asp" ], [ "distributions from the fund", "https://www.investopedia.com/ask/answers/102715/do-mutual-funds-pay-dividends-or-interest.asp" ] ]
https://www.investopedia.com/terms/s/stir.asp	STIR Futures & Options: Overview and Examples of in Options	<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-stir-futures--options"></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 STIR Futures & Options? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> STIR is an acronym standing for "short-term interest rate," and options or futures contracts on these rates are referred to by institutional traders as STIR futures or STIR options.<span class="ql-inline-citation" data-cite="8"></span> The categories of STIR derivatives include futures, options, and swaps. </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>Short-term interest rate (STIR) derivatives are most often based on three-month interest rate securities.</li><li>The primary use of these is to hedge against interest rate exposure in short-term lending.</li><li>Buyers or calls or futures on STIR securities are betting interest rates will rise, buyers of puts are betting interest rates will fall.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-stir-futures--options"></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 STIR Futures & Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The underlying asset for STIR futures and options is a three-month interest rate security. The two main traded contracts are the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eurodollar.asp">Eurodollar</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/euribor.asp">Euribor</a>, which can trade over one trillion dollars and euros daily in a completely electronic marketplace. </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 category also includes other short-term benchmarks, such as the ASX 90-day bank accepted bill in Australia and other short-term floating interest rates, such as the <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 (LIBOR)</a> and its equivalents in Hong Kong (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hibor.asp">HIBOR</a>), Tokyo (TIBOR), and other financial centers.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span> Many companies and financial institutions use STIR contracts to hedge against borrowing or lending exposure.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> While speculators may find trading STIR profitable, the most common use is for hedging with options strategies such as caps, floors, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collar.asp">collars</a>. Central banks might watch STIR <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/012214/introduction-trading-eurodollar-futures.asp">futures</a> to gauge market expectations ahead of monetary policy decisions. Therefore, changes in STIR futures might be useful for those wishing to forecast that policy. </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-using-stir-futures-and-options"></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"> Using STIR Futures and Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Anyone trading in the interest rate futures market has an opinion on whether rates will rise of fall during the short-life of the futures contract. As with any futures contract, the buyer believes that they can purchase the contract now and profit from an increase in price of the underlying asset when the contract expires. These futures <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashsettlement.asp">settle in cash</a>, so the profit or loss is simply the difference between the settlement or delivery price and the purchase price. This is different from some other futures contracts, such as futures on commodities, which settle with the physical delivery of the underlying asset by the seller to the buyer. </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"> Other than specific contract sizes and minimum price fluctuations, there is very little difference between STIR futures and options and other standard futures and options.<span class="ql-inline-citation" data-cite="8"></span> STIR is the short-term equivalent of "long-dated maturities" that merely describes a portion of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yieldcurve.asp">yield curve</a>, albeit across markets (Eurodollars, LIBOR, etc.). </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"> Trading in the most active STIR futures and options provides high efficiency, liquidity, and transparency for hedgers. This saves a company from having to create hedges from complicated strategies in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/otc.asp">over-the-counter</a> (OTC) market and from taking on counterparty risk. </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-stir-contract-details"></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"> STIR Contract Details </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> While each exchange sets its own contract specifications there are a few general rules. Expiration dates generally follow the<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/imm.asp"> International Monetary Market (IMM)</a> dates of the third Wednesday of March, June, September, and December. Exceptions include Australian bills and New Zealand bills are notable exceptions.<span class="ql-inline-citation" data-cite="5"></span> The ASX also features “serial” contracts that also expire on the third Wednesday of all contract months.<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_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-tip" 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>A STIR contract price is usually quoted as 100, minus a relevant three-month interest rate,<span class="ql-inline-citation" data-cite="7"></span> so a rate of 2.5% yields a price of 97.50.</p></div></div></div></div>	## What Are STIR Futures & Options? STIR is an acronym standing for "short-term interest rate," and options or futures contracts on these rates are referred to by institutional traders as STIR futures or STIR options. The categories of STIR derivatives include futures, options, and swaps. ### Key Takeaways * Short-term interest rate (STIR) derivatives are most often based on three-month interest rate securities. * The primary use of these is to hedge against interest rate exposure in short-term lending. * Buyers or calls or futures on STIR securities are betting interest rates will rise, buyers of puts are betting interest rates will fall. ## Understanding STIR Futures & Options The underlying asset for STIR futures and options is a three-month interest rate security. The two main traded contracts are the [Eurodollar](https://www.investopedia.com/terms/e/eurodollar.asp) and [Euribor](https://www.investopedia.com/terms/e/euribor.asp), which can trade over one trillion dollars and euros daily in a completely electronic marketplace. The category also includes other short-term benchmarks, such as the ASX 90-day bank accepted bill in Australia and other short-term floating interest rates, such as the [London Interbank Offered Rate (LIBOR)](https://www.investopedia.com/terms/l/libor.asp) and its equivalents in Hong Kong ([HIBOR](https://www.investopedia.com/terms/h/hibor.asp)), Tokyo (TIBOR), and other financial centers. Many companies and financial institutions use STIR contracts to hedge against borrowing or lending exposure. While speculators may find trading STIR profitable, the most common use is for hedging with options strategies such as caps, floors, and [collars](https://www.investopedia.com/terms/c/collar.asp). Central banks might watch STIR [futures](https://www.investopedia.com/articles/active-trading/012214/introduction-trading-eurodollar-futures.asp) to gauge market expectations ahead of monetary policy decisions. Therefore, changes in STIR futures might be useful for those wishing to forecast that policy. ## Using STIR Futures and Options Anyone trading in the interest rate futures market has an opinion on whether rates will rise of fall during the short-life of the futures contract. As with any futures contract, the buyer believes that they can purchase the contract now and profit from an increase in price of the underlying asset when the contract expires. These futures [settle in cash](https://www.investopedia.com/terms/c/cashsettlement.asp), so the profit or loss is simply the difference between the settlement or delivery price and the purchase price. This is different from some other futures contracts, such as futures on commodities, which settle with the physical delivery of the underlying asset by the seller to the buyer. Other than specific contract sizes and minimum price fluctuations, there is very little difference between STIR futures and options and other standard futures and options. STIR is the short-term equivalent of "long-dated maturities" that merely describes a portion of the [yield curve](https://www.investopedia.com/terms/y/yieldcurve.asp), albeit across markets (Eurodollars, LIBOR, etc.). Trading in the most active STIR futures and options provides high efficiency, liquidity, and transparency for hedgers. This saves a company from having to create hedges from complicated strategies in the [over-the-counter](https://www.investopedia.com/terms/o/otc.asp) (OTC) market and from taking on counterparty risk. ## STIR Contract Details While each exchange sets its own contract specifications there are a few general rules. Expiration dates generally follow the [International Monetary Market (IMM)](https://www.investopedia.com/terms/i/imm.asp) dates of the third Wednesday of March, June, September, and December. Exceptions include Australian bills and New Zealand bills are notable exceptions. The ASX also features “serial” contracts that also expire on the third Wednesday of all contract months. ### A STIR contract price is usually quoted as 100, minus a relevant three-month interest rate, so a rate of 2.5% yields a price of 97.50.	What Are STIR Futures & Options? STIR is an acronym standing for "short-term interest rate," and options or futures contracts on these rates are referred to by institutional traders as STIR futures or STIR options. The categories of STIR derivatives include futures, options, and swaps. Key Takeaways Short-term interest rate (STIR) derivatives are most often based on three-month interest rate securities.The primary use of these is to hedge against interest rate exposure in short-term lending.Buyers or calls or futures on STIR securities are betting interest rates will rise, buyers of puts are betting interest rates will fall. Understanding STIR Futures & Options The underlying asset for STIR futures and options is a three-month interest rate security. The two main traded contracts are the Eurodollar and Euribor, which can trade over one trillion dollars and euros daily in a completely electronic marketplace. The category also includes other short-term benchmarks, such as the ASX 90-day bank accepted bill in Australia and other short-term floating interest rates, such as the London Interbank Offered Rate (LIBOR) and its equivalents in Hong Kong (HIBOR), Tokyo (TIBOR), and other financial centers. Many companies and financial institutions use STIR contracts to hedge against borrowing or lending exposure. While speculators may find trading STIR profitable, the most common use is for hedging with options strategies such as caps, floors, and collars. Central banks might watch STIR futures to gauge market expectations ahead of monetary policy decisions. Therefore, changes in STIR futures might be useful for those wishing to forecast that policy. Using STIR Futures and Options Anyone trading in the interest rate futures market has an opinion on whether rates will rise of fall during the short-life of the futures contract. As with any futures contract, the buyer believes that they can purchase the contract now and profit from an increase in price of the underlying asset when the contract expires. These futures settle in cash, so the profit or loss is simply the difference between the settlement or delivery price and the purchase price. This is different from some other futures contracts, such as futures on commodities, which settle with the physical delivery of the underlying asset by the seller to the buyer. Other than specific contract sizes and minimum price fluctuations, there is very little difference between STIR futures and options and other standard futures and options. STIR is the short-term equivalent of "long-dated maturities" that merely describes a portion of the yield curve, albeit across markets (Eurodollars, LIBOR, etc.). Trading in the most active STIR futures and options provides high efficiency, liquidity, and transparency for hedgers. This saves a company from having to create hedges from complicated strategies in the over-the-counter (OTC) market and from taking on counterparty risk. STIR Contract Details While each exchange sets its own contract specifications there are a few general rules. Expiration dates generally follow the International Monetary Market (IMM) dates of the third Wednesday of March, June, September, and December. Exceptions include Australian bills and New Zealand bills are notable exceptions. The ASX also features “serial” contracts that also expire on the third Wednesday of all contract months. A STIR contract price is usually quoted as 100, minus a relevant three-month interest rate, so a rate of 2.5% yields a price of 97.50.	[ [ "Eurodollar", "https://www.investopedia.com/terms/e/eurodollar.asp" ], [ "Euribor", "https://www.investopedia.com/terms/e/euribor.asp" ], [ "London Interbank Offered Rate (LIBOR)", "https://www.investopedia.com/terms/l/libor.asp" ], [ "HIBOR", "https://www.investopedia.com/terms/h/hibor.asp" ], [ "collars", "https://www.investopedia.com/terms/c/collar.asp" ], [ "futures", "https://www.investopedia.com/articles/active-trading/012214/introduction-trading-eurodollar-futures.asp" ], [ "settle in cash", "https://www.investopedia.com/terms/c/cashsettlement.asp" ], [ "yield curve", "https://www.investopedia.com/terms/y/yieldcurve.asp" ], [ "over-the-counter", "https://www.investopedia.com/terms/o/otc.asp" ], [ "International Monetary Market (IMM)", "https://www.investopedia.com/terms/i/imm.asp" ] ]
https://www.investopedia.com/how-to-get-a-student-credit-card-5191330	How to Get a Student 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"> Easier to qualify for than a traditional credit card, a student credit card can give you a useful payment option for school costs and emergency expenses. And, using your card and making all of your payments on time will help you establish good credit for the years ahead. </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>Student credit cards are designed for college students and are generally easier to get than other kinds of credit cards.</li><li>The issuer may ask for proof of enrollment and of your income.</li><li>Depending on your age and income, you may need a co-signer to qualify.</li><li>Using your card responsibly can help you build a good credit score.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-to-get-a-student-credit-card-in-6-steps"></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 to Get a Student Credit Card in 6 Steps </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Getting a student credit card is easier than you may think. You can usually apply online and be approved (or not) within minutes. </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"> To make sure the application process goes as smoothly as possible, follow these steps: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-subheading__text"> 1. Check Your Credit Report </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Before applying for a credit card, make sure to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/consumer-credit-report/">review your credit reports</a> for accuracy. If there is incorrect information, especially anything that puts you in a bad light, that can make it difficult to qualify for a credit card. The information in your credit reports is also used to calculate your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a>. </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's no need to pay for a credit report. You can view your credit reports from all three major credit bureaus—Equifax, Experian, and TransUnion—for free at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="http://www.annualcreditreport.com/">AnnualCreditReport.com</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"> If you do discover an error, you should dispute it with that credit bureau. You can find instructions for how to do that on the bureaus' websites. </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"> 2. Compare Student Credit Cards </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> There are many different student credit cards on the market. When comparing your various options, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-look-for-in-a-student-credit-card-5191392">pay particular attention to these details</a>: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li><strong>Annual Percentage Rate (APR). </strong>The APR on student cards can be quite high. If you carry a balance from month to month, the APR will affect how much interest you have to pay and how your debt grows over time. </li><li><strong>Fees. </strong>Some cards charge annual fees, setup fees, or monthly maintenance fees. There are many cards today without these fees, so search around to avoid wasting money.</li><li><strong>Rewards. </strong>Some student credit cards allow you to earn rewards on certain purchases, such as gas or groceries. Depending on the card you choose, you could earn cash back, airline miles, or points you can redeem for gift cards or merchandise. If you're interested in rewards, look for a card with a rewards program that aligns with your spending habits.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> 3. Review the Issuer's Eligibility Requirements </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Student credit card eligibility requirements can vary from issuer to issuer. But in general, you'll have to meet the following requirements: </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>You must be at least 18 years old</li><li>You must be currently enrolled in college</li><li>You must have a source of income or a co-signer</li><li>You must have a Social Security number</li> </ul> <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"> 4. Collect Documentation </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Depending on the card issuer, you may have to provide proof of income and college enrollment. To save time, collect documentation in advance. That could include your W-2 tax forms, a recent pay stub, and your college acceptance letter or transcripts. The issuer may not require you to submit the actual documents, but you can use that paperwork to fill out the application. </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"> 5. Ask a Parent or Relative to Co-Sign Your Application, if Needed </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> If you are under 21 and without sufficient income of your own, you'll need someone who has a reliable income and good credit to co-sign your credit card application. A co-signer can be a parent, relative, or even a close friend, as long as the person is over 21.<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_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Before asking someone to co-sign an application, be aware that the co-signer is responsible for making payments on your card if you fall behind, so it's not a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/082115/what-are-cosigners-liable-responsible.asp">responsibility</a> they (or you) should take lightly. </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"> 6. Submit Your Application </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> You can usually complete a student credit card application online. Once you submit it, you'll typically receive a decision within a few minutes. If your application needs further review, it can take longer to process, but if you're approved, you will find out quickly and your card will be mailed to you. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> If the card issuer rejects your application, it will send you a letter explaining why you were denied. This is formally known as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adverse-action.asp">adverse action</a> notice, and while it may be disappointing to receive, it can also point you toward what you need to do before applying next time. </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-important" 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_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitcard.asp">debit card</a> from a bank or credit union can also be convenient to have in your wallet, but it won't help you build a credit history. Debit cards don't report your transactions to the credit bureaus because no credit is involved.</p></div></div></div> <span class="heading-toc" id="toc-how-to-improve-your-odds-of-qualifying-for-a-student-credit-card"></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"> How to Improve Your Odds of Qualifying for a Student Credit Card </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 things you can do to increase your chances of being approved for a card: </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><strong>Get a part-time job. </strong>While juggling classes and work can be difficult, having a source of your own income will make you a more attractive applicant. Even a part-time job where you work just a few hours a week can help. </li> <li><strong>Make all of your payments on time.</strong> If you're responsible for paying any bills, set reminders or sign up for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/automatic-bill-payment.asp">automatic bill payment</a> so you never miss their due dates. Your payment history plays a big role in determining your credit score. </li> <li><strong>Ask a relative to add you as an authorized user.</strong> If you have a parent or relative with good credit and an active credit card, ask them to add you as an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-card-authorized-user.asp">authorized user</a>. Even if you're not given a card to use, being added to their account will let you piggyback onto their credit history, building your credit. </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 you get your student credit card, remember to practice good credit habits. That means making payments by the due date—ideally paying the balance in full each month—and keeping your outstanding balances low. By doing that, you can build your credit and have a solid credit score already established by the time you leave college. </p></div>	Easier to qualify for than a traditional credit card, a student credit card can give you a useful payment option for school costs and emergency expenses. And, using your card and making all of your payments on time will help you establish good credit for the years ahead. ### Key Takeaways * Student credit cards are designed for college students and are generally easier to get than other kinds of credit cards. * The issuer may ask for proof of enrollment and of your income. * Depending on your age and income, you may need a co-signer to qualify. * Using your card responsibly can help you build a good credit score. ## How to Get a Student Credit Card in 6 Steps Getting a student credit card is easier than you may think. You can usually apply online and be approved (or not) within minutes. To make sure the application process goes as smoothly as possible, follow these steps: ### 1. Check Your Credit Report Before applying for a credit card, make sure to [review your credit reports](https://www.investopedia.com/personal-finance/consumer-credit-report/) for accuracy. If there is incorrect information, especially anything that puts you in a bad light, that can make it difficult to qualify for a credit card. The information in your credit reports is also used to calculate your [credit score](https://www.investopedia.com/terms/c/credit_score.asp). There's no need to pay for a credit report. You can view your credit reports from all three major credit bureaus—Equifax, Experian, and TransUnion—for free at [AnnualCreditReport.com](http://www.annualcreditreport.com/). If you do discover an error, you should dispute it with that credit bureau. You can find instructions for how to do that on the bureaus' websites. ### 2. Compare Student Credit Cards There are many different student credit cards on the market. When comparing your various options, [pay particular attention to these details](https://www.investopedia.com/what-to-look-for-in-a-student-credit-card-5191392): * Annual Percentage Rate (APR). The APR on student cards can be quite high. If you carry a balance from month to month, the APR will affect how much interest you have to pay and how your debt grows over time. * Fees. Some cards charge annual fees, setup fees, or monthly maintenance fees. There are many cards today without these fees, so search around to avoid wasting money. * Rewards. Some student credit cards allow you to earn rewards on certain purchases, such as gas or groceries. Depending on the card you choose, you could earn cash back, airline miles, or points you can redeem for gift cards or merchandise. If you're interested in rewards, look for a card with a rewards program that aligns with your spending habits. ### 3. Review the Issuer's Eligibility Requirements Student credit card eligibility requirements can vary from issuer to issuer. But in general, you'll have to meet the following requirements: * You must be at least 18 years old * You must be currently enrolled in college * You must have a source of income or a co-signer * You must have a Social Security number ### 4. Collect Documentation Depending on the card issuer, you may have to provide proof of income and college enrollment. To save time, collect documentation in advance. That could include your W-2 tax forms, a recent pay stub, and your college acceptance letter or transcripts. The issuer may not require you to submit the actual documents, but you can use that paperwork to fill out the application. ### 5. Ask a Parent or Relative to Co-Sign Your Application, if Needed If you are under 21 and without sufficient income of your own, you'll need someone who has a reliable income and good credit to co-sign your credit card application. A co-signer can be a parent, relative, or even a close friend, as long as the person is over 21. Before asking someone to co-sign an application, be aware that the co-signer is responsible for making payments on your card if you fall behind, so it's not a [responsibility](https://www.investopedia.com/articles/personal-finance/082115/what-are-cosigners-liable-responsible.asp) they (or you) should take lightly. ### 6. Submit Your Application You can usually complete a student credit card application online. Once you submit it, you'll typically receive a decision within a few minutes. If your application needs further review, it can take longer to process, but if you're approved, you will find out quickly and your card will be mailed to you. If the card issuer rejects your application, it will send you a letter explaining why you were denied. This is formally known as an [adverse action](https://www.investopedia.com/terms/a/adverse-action.asp) notice, and while it may be disappointing to receive, it can also point you toward what you need to do before applying next time. ### A [debit card](https://www.investopedia.com/terms/d/debitcard.asp) from a bank or credit union can also be convenient to have in your wallet, but it won't help you build a credit history. Debit cards don't report your transactions to the credit bureaus because no credit is involved. ## How to Improve Your Odds of Qualifying for a Student Credit Card Here are some things you can do to increase your chances of being approved for a card: * Get a part-time job. While juggling classes and work can be difficult, having a source of your own income will make you a more attractive applicant. Even a part-time job where you work just a few hours a week can help. * Make all of your payments on time. If you're responsible for paying any bills, set reminders or sign up for [automatic bill payment](https://www.investopedia.com/terms/a/automatic-bill-payment.asp) so you never miss their due dates. Your payment history plays a big role in determining your credit score. * Ask a relative to add you as an authorized user. If you have a parent or relative with good credit and an active credit card, ask them to add you as an [authorized user](https://www.investopedia.com/terms/c/credit-card-authorized-user.asp). Even if you're not given a card to use, being added to their account will let you piggyback onto their credit history, building your credit. Once you get your student credit card, remember to practice good credit habits. That means making payments by the due date—ideally paying the balance in full each month—and keeping your outstanding balances low. By doing that, you can build your credit and have a solid credit score already established by the time you leave college.	Easier to qualify for than a traditional credit card, a student credit card can give you a useful payment option for school costs and emergency expenses. And, using your card and making all of your payments on time will help you establish good credit for the years ahead. Key Takeaways Student credit cards are designed for college students and are generally easier to get than other kinds of credit cards.The issuer may ask for proof of enrollment and of your income.Depending on your age and income, you may need a co-signer to qualify.Using your card responsibly can help you build a good credit score. How to Get a Student Credit Card in 6 Steps Getting a student credit card is easier than you may think. You can usually apply online and be approved (or not) within minutes. To make sure the application process goes as smoothly as possible, follow these steps: 1. Check Your Credit Report Before applying for a credit card, make sure to review your credit reports for accuracy. If there is incorrect information, especially anything that puts you in a bad light, that can make it difficult to qualify for a credit card. The information in your credit reports is also used to calculate your credit score. There's no need to pay for a credit report. You can view your credit reports from all three major credit bureaus—Equifax, Experian, and TransUnion—for free at AnnualCreditReport.com. If you do discover an error, you should dispute it with that credit bureau. You can find instructions for how to do that on the bureaus' websites. 2. Compare Student Credit Cards There are many different student credit cards on the market. When comparing your various options, pay particular attention to these details: Annual Percentage Rate (APR). The APR on student cards can be quite high. If you carry a balance from month to month, the APR will affect how much interest you have to pay and how your debt grows over time. Fees. Some cards charge annual fees, setup fees, or monthly maintenance fees. There are many cards today without these fees, so search around to avoid wasting money.Rewards. Some student credit cards allow you to earn rewards on certain purchases, such as gas or groceries. Depending on the card you choose, you could earn cash back, airline miles, or points you can redeem for gift cards or merchandise. If you're interested in rewards, look for a card with a rewards program that aligns with your spending habits. 3. Review the Issuer's Eligibility Requirements Student credit card eligibility requirements can vary from issuer to issuer. But in general, you'll have to meet the following requirements: You must be at least 18 years oldYou must be currently enrolled in collegeYou must have a source of income or a co-signerYou must have a Social Security number 4. Collect Documentation Depending on the card issuer, you may have to provide proof of income and college enrollment. To save time, collect documentation in advance. That could include your W-2 tax forms, a recent pay stub, and your college acceptance letter or transcripts. The issuer may not require you to submit the actual documents, but you can use that paperwork to fill out the application. 5. Ask a Parent or Relative to Co-Sign Your Application, if Needed If you are under 21 and without sufficient income of your own, you'll need someone who has a reliable income and good credit to co-sign your credit card application. A co-signer can be a parent, relative, or even a close friend, as long as the person is over 21. Before asking someone to co-sign an application, be aware that the co-signer is responsible for making payments on your card if you fall behind, so it's not a responsibility they (or you) should take lightly. 6. Submit Your Application You can usually complete a student credit card application online. Once you submit it, you'll typically receive a decision within a few minutes. If your application needs further review, it can take longer to process, but if you're approved, you will find out quickly and your card will be mailed to you. If the card issuer rejects your application, it will send you a letter explaining why you were denied. This is formally known as an adverse action notice, and while it may be disappointing to receive, it can also point you toward what you need to do before applying next time. A debit card from a bank or credit union can also be convenient to have in your wallet, but it won't help you build a credit history. Debit cards don't report your transactions to the credit bureaus because no credit is involved. How to Improve Your Odds of Qualifying for a Student Credit Card Here are some things you can do to increase your chances of being approved for a card: Get a part-time job. While juggling classes and work can be difficult, having a source of your own income will make you a more attractive applicant. Even a part-time job where you work just a few hours a week can help. Make all of your payments on time. If you're responsible for paying any bills, set reminders or sign up for automatic bill payment so you never miss their due dates. Your payment history plays a big role in determining your credit score. Ask a relative to add you as an authorized user. If you have a parent or relative with good credit and an active credit card, ask them to add you as an authorized user. Even if you're not given a card to use, being added to their account will let you piggyback onto their credit history, building your credit. Once you get your student credit card, remember to practice good credit habits. That means making payments by the due date—ideally paying the balance in full each month—and keeping your outstanding balances low. By doing that, you can build your credit and have a solid credit score already established by the time you leave college.	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https://www.investopedia.com/terms/e/equity-compensation.asp	Equity Compensation: Definition, How It Works, Types of Equity	<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-equity-compensation"></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 Equity Compensation? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Equity compensation is non-cash pay that is offered to employees. Equity compensation may include options, restricted stock, and performance shares; all of these investment vehicles represent ownership in the firm for a company's employees.<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"> Equity compensation allows the employees of the firm to share in the profits via appreciation and can encourage retention, particularly if there are vesting requirements. At times, equity compensation may accompany a below-market salary. </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>Equity compensation is non-cash pay that is offered to employees.</li><li>Equity compensation may include options, restricted stock, and performance shares; all of these investment vehicles represent ownership in the firm for a company's employees.</li><li>At times, equity compensation may accompany a below-market salary.</li><li>Equity compensation is a benefit provided by many public companies and some private companies, especially startup companies. </li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-equity-compensation"></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 Equity Compensation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Equity compensation is a benefit provided by many public companies and some private companies, especially <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/startup.asp">startup</a> companies. Recently launched firms may lack the cash or want to invest cash flow into growth initiatives, making <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equity</a> compensation an option to attract high-quality employees. Traditionally, technology companies in both the start-up phase and more mature companies have used equity compensation to reward employees. </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"> With equity compensation, there is never a guarantee that your equity stake will actually pay off. As opposed to equity (or in combination with equity compensation), being <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/031115/salary-vs-hourly-how-benefits-laws-differ.asp">paid a salary</a> can be beneficial if you know exactly what you're getting. There are many variables that can impact your equity compensation. </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-types-of-equity-compensation"></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"> Types of Equity Compensation </span> </h2> <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"> Stock Options </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Companies that offer equity compensation can give employees <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockoption.asp">stock options</a> that offer the right to purchase shares of the companies' stocks at a predetermined price, also referred to as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exerciseprice.asp">exercise price</a>. This right may vest with time, allowing employees to gain control of this option after working for the company for a certain period of time. When the option vests, they gain the right to sell or transfer the option.<span class="ql-inline-citation" data-cite="2"></span> This method encourages employees to stick with the company for the long term. However, the option typically has an expiration. </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"> Employees who have this option are not considered stockholders and do not share the same rights as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shareholder.asp">shareholders</a>. There are different tax consequences to options that are vested versus those that are not, so employees must look into what tax rules apply to their specific situations.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Non-Qualified Stock Options (NSOs) and Incentive Stock Options (ISOs) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Additional types of equity compensation include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nso.asp">non-qualified stock options (NSO)</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/iso.asp">incentive stock options (ISOs)</a>. ISOs are only available to employees (and not non-employee directors or consultants). These options <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/061615/how-stock-options-are-taxed-reported.asp">provide special tax advantages</a>. For example, with non-qualified stock options, employers do not have to report when they receive this option or when it becomes exercisable. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> Restricted Stock </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/restrictedstock.asp">Restricted stock</a> requires the completion of a vesting period. Vesting may be done all at once after a certain period of time. Alternatively, vesting may be done equally over a set period of years, or any other combination that the management of a company finds suitable. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-advisors/110915/restricted-stock-units-what-know.asp">Restricted stock units (RSUs)</a> are similar, but they represent the company's promise to pay shares based on a vesting schedule. This offers some advantages to the company, but employees do not gain any rights of stock ownership, such as voting, until the shares are earned and issued. </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"> Performance Shares </span> </h3> <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/p/performanceshares.asp">Performance shares</a> are awarded only if certain specified measures are met. These could include metrics, such as an earnings per share (EPS) target, return on equity (ROE), or the total return of the company's stock in relation to an index. Typically, performance periods are over a multi-year time horizon. </p></div>	## What Is Equity Compensation? Equity compensation is non-cash pay that is offered to employees. Equity compensation may include options, restricted stock, and performance shares; all of these investment vehicles represent ownership in the firm for a company's employees. Equity compensation allows the employees of the firm to share in the profits via appreciation and can encourage retention, particularly if there are vesting requirements. At times, equity compensation may accompany a below-market salary. ### Key Takeaways * Equity compensation is non-cash pay that is offered to employees. * Equity compensation may include options, restricted stock, and performance shares; all of these investment vehicles represent ownership in the firm for a company's employees. * At times, equity compensation may accompany a below-market salary. * Equity compensation is a benefit provided by many public companies and some private companies, especially startup companies. ## Understanding Equity Compensation Equity compensation is a benefit provided by many public companies and some private companies, especially [startup](https://www.investopedia.com/terms/s/startup.asp) companies. Recently launched firms may lack the cash or want to invest cash flow into growth initiatives, making [equity](https://www.investopedia.com/terms/e/equity.asp) compensation an option to attract high-quality employees. Traditionally, technology companies in both the start-up phase and more mature companies have used equity compensation to reward employees. With equity compensation, there is never a guarantee that your equity stake will actually pay off. As opposed to equity (or in combination with equity compensation), being [paid a salary](https://www.investopedia.com/articles/personal-finance/031115/salary-vs-hourly-how-benefits-laws-differ.asp) can be beneficial if you know exactly what you're getting. There are many variables that can impact your equity compensation. ## Types of Equity Compensation ### Stock Options Companies that offer equity compensation can give employees [stock options](https://www.investopedia.com/terms/s/stockoption.asp) that offer the right to purchase shares of the companies' stocks at a predetermined price, also referred to as [exercise price](https://www.investopedia.com/terms/e/exerciseprice.asp). This right may vest with time, allowing employees to gain control of this option after working for the company for a certain period of time. When the option vests, they gain the right to sell or transfer the option. This method encourages employees to stick with the company for the long term. However, the option typically has an expiration. Employees who have this option are not considered stockholders and do not share the same rights as [shareholders](https://www.investopedia.com/terms/s/shareholder.asp). There are different tax consequences to options that are vested versus those that are not, so employees must look into what tax rules apply to their specific situations. ### Non-Qualified Stock Options (NSOs) and Incentive Stock Options (ISOs) Additional types of equity compensation include [non-qualified stock options (NSO)](https://www.investopedia.com/terms/n/nso.asp) and [incentive stock options (ISOs)](https://www.investopedia.com/terms/i/iso.asp). ISOs are only available to employees (and not non-employee directors or consultants). These options [provide special tax advantages](https://www.investopedia.com/articles/active-trading/061615/how-stock-options-are-taxed-reported.asp). For example, with non-qualified stock options, employers do not have to report when they receive this option or when it becomes exercisable. ### Restricted Stock [Restricted stock](https://www.investopedia.com/terms/r/restrictedstock.asp) requires the completion of a vesting period. Vesting may be done all at once after a certain period of time. Alternatively, vesting may be done equally over a set period of years, or any other combination that the management of a company finds suitable. [Restricted stock units (RSUs)](https://www.investopedia.com/articles/financial-advisors/110915/restricted-stock-units-what-know.asp) are similar, but they represent the company's promise to pay shares based on a vesting schedule. This offers some advantages to the company, but employees do not gain any rights of stock ownership, such as voting, until the shares are earned and issued. ### Performance Shares [Performance shares](https://www.investopedia.com/terms/p/performanceshares.asp) are awarded only if certain specified measures are met. These could include metrics, such as an earnings per share (EPS) target, return on equity (ROE), or the total return of the company's stock in relation to an index. Typically, performance periods are over a multi-year time horizon.	What Is Equity Compensation? Equity compensation is non-cash pay that is offered to employees. Equity compensation may include options, restricted stock, and performance shares; all of these investment vehicles represent ownership in the firm for a company's employees. Equity compensation allows the employees of the firm to share in the profits via appreciation and can encourage retention, particularly if there are vesting requirements. At times, equity compensation may accompany a below-market salary. Key Takeaways Equity compensation is non-cash pay that is offered to employees.Equity compensation may include options, restricted stock, and performance shares; all of these investment vehicles represent ownership in the firm for a company's employees.At times, equity compensation may accompany a below-market salary.Equity compensation is a benefit provided by many public companies and some private companies, especially startup companies. Understanding Equity Compensation Equity compensation is a benefit provided by many public companies and some private companies, especially startup companies. Recently launched firms may lack the cash or want to invest cash flow into growth initiatives, making equity compensation an option to attract high-quality employees. Traditionally, technology companies in both the start-up phase and more mature companies have used equity compensation to reward employees. With equity compensation, there is never a guarantee that your equity stake will actually pay off. As opposed to equity (or in combination with equity compensation), being paid a salary can be beneficial if you know exactly what you're getting. There are many variables that can impact your equity compensation. Types of Equity Compensation Stock Options Companies that offer equity compensation can give employees stock options that offer the right to purchase shares of the companies' stocks at a predetermined price, also referred to as exercise price. This right may vest with time, allowing employees to gain control of this option after working for the company for a certain period of time. When the option vests, they gain the right to sell or transfer the option. This method encourages employees to stick with the company for the long term. However, the option typically has an expiration. Employees who have this option are not considered stockholders and do not share the same rights as shareholders. There are different tax consequences to options that are vested versus those that are not, so employees must look into what tax rules apply to their specific situations. Non-Qualified Stock Options (NSOs) and Incentive Stock Options (ISOs) Additional types of equity compensation include non-qualified stock options (NSO) and incentive stock options (ISOs). ISOs are only available to employees (and not non-employee directors or consultants). These options provide special tax advantages. For example, with non-qualified stock options, employers do not have to report when they receive this option or when it becomes exercisable. Restricted Stock Restricted stock requires the completion of a vesting period. Vesting may be done all at once after a certain period of time. Alternatively, vesting may be done equally over a set period of years, or any other combination that the management of a company finds suitable. Restricted stock units (RSUs) are similar, but they represent the company's promise to pay shares based on a vesting schedule. This offers some advantages to the company, but employees do not gain any rights of stock ownership, such as voting, until the shares are earned and issued. Performance Shares Performance shares are awarded only if certain specified measures are met. These could include metrics, such as an earnings per share (EPS) target, return on equity (ROE), or the total return of the company's stock in relation to an index. Typically, performance periods are over a multi-year time horizon.	[ [ "startup", "https://www.investopedia.com/terms/s/startup.asp" ], [ "equity", "https://www.investopedia.com/terms/e/equity.asp" ], [ "paid a salary", "https://www.investopedia.com/articles/personal-finance/031115/salary-vs-hourly-how-benefits-laws-differ.asp" ], [ "stock options", "https://www.investopedia.com/terms/s/stockoption.asp" ], [ "exercise price", "https://www.investopedia.com/terms/e/exerciseprice.asp" ], [ "shareholders", "https://www.investopedia.com/terms/s/shareholder.asp" ], [ "non-qualified stock options (NSO)", "https://www.investopedia.com/terms/n/nso.asp" ], [ "incentive stock options (ISOs)", "https://www.investopedia.com/terms/i/iso.asp" ], [ "provide special tax advantages", "https://www.investopedia.com/articles/active-trading/061615/how-stock-options-are-taxed-reported.asp" ], [ "Restricted stock", "https://www.investopedia.com/terms/r/restrictedstock.asp" ], [ "Restricted stock units (RSUs)", "https://www.investopedia.com/articles/financial-advisors/110915/restricted-stock-units-what-know.asp" ], [ "Performance shares", "https://www.investopedia.com/terms/p/performanceshares.asp" ] ]
https://www.investopedia.com/articles/pf/07/credit-card-dispute.asp	How to Dispute a Credit Card Charge	<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"> What happens when the brand-new 4K television you brought home turns out to be a bust? Or the new fitness tracker you got for your spouse doesn't work? Or, when you've been double-charged for something you're sure you only came home with one of? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> If you've made these purchases on a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit card</a>—and these days, that's a near certainty—you're in luck. Thanks to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fair-credit-billing-act-fcba.asp#axzz1ur6EzG81">Fair Credit Billing Act</a>, consumers have a good deal of protection for their credit card purchases. This law allows consumers to withhold payment on poor-quality, damaged merchandise or incorrectly billed items they bought with a credit card until the matter is resolved. </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"> Read on as we show you how to dispute a credit card charge and actually come out on the winning side. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">key takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Fair Credit Billing Act protects consumers on credit card purchases, outlining procedures they and card issuers should follow.</li><li>In a dispute, contact the merchant first.</li><li>The next step is to contact the credit card issuer and formally dispute the charge within 60 days.</li><li>Although the Act's rules limit disputes to purchases over $50 and within 100 miles, many card issuers waive these rules in the interest of good customer relations.</li></ul></div></div></div> <span class="heading-toc" id="toc-go-back-to-the-merchant"></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"> Go Back to the Merchant </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Your first move is always to go back and attempt to resolve the problem with the merchant. If you give them a chance to address your complaint they very often will, especially if you approach them with politeness and courtesy. Most large retailers have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/customer-service.asp">customer service</a> policies in place that err strongly on the side of being generous, at least within a certain period of time, and under "ordinary" circumstances. </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 bottom line is if you act promptly and reasonably, you're likely to get the full benefit of the doubt. If you don't have luck with the first representative you speak with, ask to talk with the manager or supervisor on duty. Be sure to keep records of each interaction, the person you spoke with as well as the date and time, so you can refer back to them if needed. </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-put-your-complaint-in-writing"></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"> Put Your Complaint in Writing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> If the merchant won't budge during your discussion, it's time to put your complaint in writing. Write a short, detailed letter outlining your particular dispute, and address it to the merchant via certified mail. Before you send it, make a few copies, so you can save one for your records and send another copy to your credit card company, as proof of your efforts to resolve this dispute. </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"> Next, you'll draft a letter to your credit card company to officially alert it of the disputed purchase amount. The Fair Credit Billing Act mandates that you do this in writing, within 60 days after the bill with the disputed charge was sent to you. In your letter, you'll need to include your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/account-number.asp">account number</a>, the closing date of the bill on which the disputed charge appears, a description of the disputed item, and the reason you're withholding payment. </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"> You should also enclose a copy of your complaint letter to the merchant, along with any other documentation that supports your position. This letter should also be sent via certified mail (return receipt requested). Be sure you send it to the "billing inquiries" address at your credit card company, and not the regular address for payments (since these are often two separate departments, and may well be in separate locations as well). </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>Usually, you can call your credit card issuer and ask to dispute a specific charge. They may mail or email you a form to fill out for details.</p></div></div></div> <span class="heading-toc" id="toc-maintain-your-other-payments"></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"> Maintain Your Other Payments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Even though you're disputing an item on your current bill, it's important to maintain your other obligations. If you've charged anything else on your card during this cycle, you'll need to send that payment and all interest to the regular address, otherwise, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/061301.asp">you'll incur interest and late-payment charges</a>. What if the disputed item is the only charge on the card? Double-check with the card issuer to see if you'll be penalized in any way if you don't pay it. </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"> At this point, you're just waiting to hear the result of your challenge. Many card companies will give the benefit of the doubt to their customers and issue a temporary credit until the dispute is resolved. This isn't required by law, however, so don't assume you will get this consideration. Meanwhile, the card issuer will get in touch with the merchant to find out their side of the story. Basically, if they end up siding with you, you will enjoy a full refund. If not, you'll have to pay for the disputed item, as well as any additional <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finance_charge.asp">finance charges</a> that may have accrued. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> There are a few catches to the Fair Credit Billing Act. Technically, the sale must be for more than $50 and have taken place in your home state or within 100 miles of your billing address, which means orders placed on the internet (or phone) may be exempt. Withholding payment for web purchases depends on state law. However, few issuers enforce these rules on purchases, because most credit card companies are eager to hold onto your business, given the highly competitive nature of the industry these days. But, there's still always a chance that your claim could be denied on these grounds. </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-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> If you find yourself in the position of having to dispute a credit card charge, you may have more rights and advantages than you realize. The key is to act quickly and responsibly. Address the matter in a prompt and courteous fashion with the merchant in question, and if necessary, follow up with your credit card issuer. In most cases, the whole dispute can be resolved to your satisfaction within a matter of weeks. </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"> If you fear <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/09/stolen-credit-card.asp">actual fraud</a>, call your card issuer straight away to put a stop to your card or cancel it outright. </p></div>	What happens when the brand-new 4K television you brought home turns out to be a bust? Or the new fitness tracker you got for your spouse doesn't work? Or, when you've been double-charged for something you're sure you only came home with one of? If you've made these purchases on a [credit card](https://www.investopedia.com/terms/c/creditcard.asp)—and these days, that's a near certainty—you're in luck. Thanks to the [Fair Credit Billing Act](https://www.investopedia.com/terms/f/fair-credit-billing-act-fcba.asp#axzz1ur6EzG81), consumers have a good deal of protection for their credit card purchases. This law allows consumers to withhold payment on poor-quality, damaged merchandise or incorrectly billed items they bought with a credit card until the matter is resolved. Read on as we show you how to dispute a credit card charge and actually come out on the winning side. ### key takeaways * The Fair Credit Billing Act protects consumers on credit card purchases, outlining procedures they and card issuers should follow. * In a dispute, contact the merchant first. * The next step is to contact the credit card issuer and formally dispute the charge within 60 days. * Although the Act's rules limit disputes to purchases over $50 and within 100 miles, many card issuers waive these rules in the interest of good customer relations. ## Go Back to the Merchant Your first move is always to go back and attempt to resolve the problem with the merchant. If you give them a chance to address your complaint they very often will, especially if you approach them with politeness and courtesy. Most large retailers have [customer service](https://www.investopedia.com/terms/c/customer-service.asp) policies in place that err strongly on the side of being generous, at least within a certain period of time, and under "ordinary" circumstances. The bottom line is if you act promptly and reasonably, you're likely to get the full benefit of the doubt. If you don't have luck with the first representative you speak with, ask to talk with the manager or supervisor on duty. Be sure to keep records of each interaction, the person you spoke with as well as the date and time, so you can refer back to them if needed. ## Put Your Complaint in Writing If the merchant won't budge during your discussion, it's time to put your complaint in writing. Write a short, detailed letter outlining your particular dispute, and address it to the merchant via certified mail. Before you send it, make a few copies, so you can save one for your records and send another copy to your credit card company, as proof of your efforts to resolve this dispute. Next, you'll draft a letter to your credit card company to officially alert it of the disputed purchase amount. The Fair Credit Billing Act mandates that you do this in writing, within 60 days after the bill with the disputed charge was sent to you. In your letter, you'll need to include your [account number](https://www.investopedia.com/terms/a/account-number.asp), the closing date of the bill on which the disputed charge appears, a description of the disputed item, and the reason you're withholding payment. You should also enclose a copy of your complaint letter to the merchant, along with any other documentation that supports your position. This letter should also be sent via certified mail (return receipt requested). Be sure you send it to the "billing inquiries" address at your credit card company, and not the regular address for payments (since these are often two separate departments, and may well be in separate locations as well). ### Usually, you can call your credit card issuer and ask to dispute a specific charge. They may mail or email you a form to fill out for details. ## Maintain Your Other Payments Even though you're disputing an item on your current bill, it's important to maintain your other obligations. If you've charged anything else on your card during this cycle, you'll need to send that payment and all interest to the regular address, otherwise, [you'll incur interest and late-payment charges](https://www.investopedia.com/articles/01/061301.asp). What if the disputed item is the only charge on the card? Double-check with the card issuer to see if you'll be penalized in any way if you don't pay it. At this point, you're just waiting to hear the result of your challenge. Many card companies will give the benefit of the doubt to their customers and issue a temporary credit until the dispute is resolved. This isn't required by law, however, so don't assume you will get this consideration. Meanwhile, the card issuer will get in touch with the merchant to find out their side of the story. Basically, if they end up siding with you, you will enjoy a full refund. If not, you'll have to pay for the disputed item, as well as any additional [finance charges](https://www.investopedia.com/terms/f/finance_charge.asp) that may have accrued. There are a few catches to the Fair Credit Billing Act. Technically, the sale must be for more than $50 and have taken place in your home state or within 100 miles of your billing address, which means orders placed on the internet (or phone) may be exempt. Withholding payment for web purchases depends on state law. However, few issuers enforce these rules on purchases, because most credit card companies are eager to hold onto your business, given the highly competitive nature of the industry these days. But, there's still always a chance that your claim could be denied on these grounds. ## The Bottom Line If you find yourself in the position of having to dispute a credit card charge, you may have more rights and advantages than you realize. The key is to act quickly and responsibly. Address the matter in a prompt and courteous fashion with the merchant in question, and if necessary, follow up with your credit card issuer. In most cases, the whole dispute can be resolved to your satisfaction within a matter of weeks. If you fear [actual fraud](https://www.investopedia.com/ask/answers/09/stolen-credit-card.asp), call your card issuer straight away to put a stop to your card or cancel it outright.	What happens when the brand-new 4K television you brought home turns out to be a bust? Or the new fitness tracker you got for your spouse doesn't work? Or, when you've been double-charged for something you're sure you only came home with one of? If you've made these purchases on a credit card—and these days, that's a near certainty—you're in luck. Thanks to the Fair Credit Billing Act, consumers have a good deal of protection for their credit card purchases. This law allows consumers to withhold payment on poor-quality, damaged merchandise or incorrectly billed items they bought with a credit card until the matter is resolved. Read on as we show you how to dispute a credit card charge and actually come out on the winning side. key takeaways The Fair Credit Billing Act protects consumers on credit card purchases, outlining procedures they and card issuers should follow.In a dispute, contact the merchant first.The next step is to contact the credit card issuer and formally dispute the charge within 60 days.Although the Act's rules limit disputes to purchases over $50 and within 100 miles, many card issuers waive these rules in the interest of good customer relations. Go Back to the Merchant Your first move is always to go back and attempt to resolve the problem with the merchant. If you give them a chance to address your complaint they very often will, especially if you approach them with politeness and courtesy. Most large retailers have customer service policies in place that err strongly on the side of being generous, at least within a certain period of time, and under "ordinary" circumstances. The bottom line is if you act promptly and reasonably, you're likely to get the full benefit of the doubt. If you don't have luck with the first representative you speak with, ask to talk with the manager or supervisor on duty. Be sure to keep records of each interaction, the person you spoke with as well as the date and time, so you can refer back to them if needed. Put Your Complaint in Writing If the merchant won't budge during your discussion, it's time to put your complaint in writing. Write a short, detailed letter outlining your particular dispute, and address it to the merchant via certified mail. Before you send it, make a few copies, so you can save one for your records and send another copy to your credit card company, as proof of your efforts to resolve this dispute. Next, you'll draft a letter to your credit card company to officially alert it of the disputed purchase amount. The Fair Credit Billing Act mandates that you do this in writing, within 60 days after the bill with the disputed charge was sent to you. In your letter, you'll need to include your account number, the closing date of the bill on which the disputed charge appears, a description of the disputed item, and the reason you're withholding payment. You should also enclose a copy of your complaint letter to the merchant, along with any other documentation that supports your position. This letter should also be sent via certified mail (return receipt requested). Be sure you send it to the "billing inquiries" address at your credit card company, and not the regular address for payments (since these are often two separate departments, and may well be in separate locations as well). Usually, you can call your credit card issuer and ask to dispute a specific charge. They may mail or email you a form to fill out for details. Maintain Your Other Payments Even though you're disputing an item on your current bill, it's important to maintain your other obligations. If you've charged anything else on your card during this cycle, you'll need to send that payment and all interest to the regular address, otherwise, you'll incur interest and late-payment charges. What if the disputed item is the only charge on the card? Double-check with the card issuer to see if you'll be penalized in any way if you don't pay it. At this point, you're just waiting to hear the result of your challenge. Many card companies will give the benefit of the doubt to their customers and issue a temporary credit until the dispute is resolved. This isn't required by law, however, so don't assume you will get this consideration. Meanwhile, the card issuer will get in touch with the merchant to find out their side of the story. Basically, if they end up siding with you, you will enjoy a full refund. If not, you'll have to pay for the disputed item, as well as any additional finance charges that may have accrued. There are a few catches to the Fair Credit Billing Act. Technically, the sale must be for more than $50 and have taken place in your home state or within 100 miles of your billing address, which means orders placed on the internet (or phone) may be exempt. Withholding payment for web purchases depends on state law. However, few issuers enforce these rules on purchases, because most credit card companies are eager to hold onto your business, given the highly competitive nature of the industry these days. But, there's still always a chance that your claim could be denied on these grounds. The Bottom Line If you find yourself in the position of having to dispute a credit card charge, you may have more rights and advantages than you realize. The key is to act quickly and responsibly. Address the matter in a prompt and courteous fashion with the merchant in question, and if necessary, follow up with your credit card issuer. In most cases, the whole dispute can be resolved to your satisfaction within a matter of weeks. If you fear actual fraud, call your card issuer straight away to put a stop to your card or cancel it outright.	[ [ "credit card", "https://www.investopedia.com/terms/c/creditcard.asp" ], [ "Fair Credit Billing Act", "https://www.investopedia.com/terms/f/fair-credit-billing-act-fcba.asp#axzz1ur6EzG81" ], [ "customer service", "https://www.investopedia.com/terms/c/customer-service.asp" ], [ "account number", "https://www.investopedia.com/terms/a/account-number.asp" ], [ "you'll incur interest and late-payment charges", "https://www.investopedia.com/articles/01/061301.asp" ], [ "finance charges", "https://www.investopedia.com/terms/f/finance_charge.asp" ], [ "actual fraud", "https://www.investopedia.com/ask/answers/09/stolen-credit-card.asp" ] ]
https://www.investopedia.com/terms/w/working-tax-credit-wtc.asp	Working Tax Credit (WTC) Definition	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-working-tax-credit-wtc"></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 Working Tax Credit (WTC)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Working Tax Credit (WTC) is a state benefit offered to individuals living in the United Kingdom who work and have a low income. It was introduced in April 2003 as a means-tested benefit, a central part of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/welfare-state.asp">welfare state</a> in the United Kingdom. A means-tested benefit is a payment available to people who demonstrate that their income and capital are below specified limits.<span class="ql-inline-citation" data-cite="7"></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_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 Working Tax Credit (WTC) is a state benefit offered to individuals living in the United Kingdom who work and have a low income.</li><li>You must already be receiving the Child Tax Credit to qualify for the WTC.</li><li>The Working Tax Credit (WTC) is available for individuals aged 25 and above or with a qualifying disability.<br/></li><li>Applicants must be gainfully employed and working a minimum number of hours required each week, as determined by the applicant’s age.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-the-working-tax-credit-wtc-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 the Working Tax Credit (WTC) Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> You are only eligible for the WTC if you already receive the Child Tax Credit. The Working Tax Credit (WTC) is available for individuals aged 25 and above or with a qualifying <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disability-insurance.asp">disability</a>. Applicants must be gainfully employed and working a minimum number of hours required each week, as determined by the applicant’s age.<span class="ql-inline-citation" data-cite="1"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-wtc-qualifications"></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"> WTC Qualifications </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> To qualify, you must work a certain number of hours depending on your age and fulfill other requirements, as seen here.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <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=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Working Tax Credit Eligibility: Circumstance & Hours a Week Worked</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Circumstance</b></td> <td><b>Hours a Week</b></td> </tr> <tr> <td>Aged 25 to 59</td> <td>At least 30 hours</td> </tr> <tr> <td>Aged 60 or over</td> <td>At least 16 hours</td> </tr> <tr> <td>Disabled</td> <td>At least 16 hours</td> </tr> <tr> <td>Single with 1 or more children</td> <td>At least 16 hours</td> </tr> <tr> <td>Couple with 1 or more children</td> <td>Usually, at least 24 hours between you (with 1 of you working at least 16 hours)</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"> What counts as work is broad. It includes work for someone else as an employee or worker, someone who is self-employed, or a combination of both. If you are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/self-employed-person.asp">self-employed</a>, the work must have the goal of making a profit, and be commercial, regular, and organized.<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> <span class="heading-toc" id="toc-wtc-payments"></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"> WTC Payments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The WTC base can pay out £2,280 annually, with additional qualifications bringing that figure up or down. Here is what you can receive based on specific circumstances.<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_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: 208px;"></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Working Tax Credit Elements & Amounts</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Element</b></td> <td> <b>Amount</b></td> </tr> <tr> <td>You’re a couple applying together</td> <td>Up to £2,340 a year</td> </tr> <tr> <td>You’re a single parent</td> <td>Up to £2,340 a year</td> </tr> <tr> <td>You work at least 30 hours a week</td> <td>Up to £950 a year</td> </tr> <tr> <td>You have a disability</td> <td>Up to £3,685 a year</td> </tr> <tr> <td>You have a severe disability</td> <td>Up to £1,595 a year (usually on top of the disability payment)</td> </tr> <tr> <td>You pay for approved childcare that takes place in-person (not online)</td> <td>Up to £122.50 (1 child) or £210 (2 or more children) a week </td> </tr> </tbody> </table> </div></figure> <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"> Eligible individuals will receive payments directly into their bank account or building society account every week or every four weeks. Typically, you will be paid from the point you made your first claim to the end of the tax year.<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_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>If citizens are not eligible to claim the WTC, they need to pursue the Universal Credit instead. The Universal Credit has been set up to replace several of the existing credits in the United Kingdom.<span class="ql-inline-citation" data-cite="9"></span></p></div></div></div> <span class="heading-toc" id="toc-welfare-programs-in-the-us"></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"> Welfare Programs in the U.S. </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Public Welfare is a common term for public assistance in the United States. People are said to be receiving <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/welfare.asp">welfare</a> or assistance when they are in receipt of a variety of government subsidies or benefits. </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"> These payments can range from federally-funded initiatives like Social Security payments and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/supplemental-nutrition-assistance-program-snap-5187718">Supplemental Nutrition Assistance Program</a> (SNAP) to state-sponsored programs. While only the Public Welfare program goes by that name, most of these programs are considered types of assistance programs because they are put in place to assist those who need them either temporarily or on a long-term basis. </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"> Many of these programs are paid for by a combination of taxes that are withheld from taxpayer paychecks. Programs like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/socialsecurity.asp">Social Security</a> are directly paid into by each individual taxpayer, while some other programs receive funding from other broader taxes.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> These subsidies aren’t entirely without cost to the recipient. Some require applicants to attend classes or apply to a certain number of jobs a week. In the case of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/social-security-benefits.asp">Social Security and Disability benefits</a>, a portion of the payment may be taxable, depending on income limitations.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Each assistance program has its own guidelines and qualifications. Anyone looking for additional information on whether they qualify for state or federal aid should consult the federal website for that specific program. </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-who-gets-the-working-tax-credit-in-the-uk"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Gets the Working Tax Credit in the U.K.?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Working Tax Credit (WTC) in the U.K. seeks to provide monetary support to low-income individuals. To receive the credit, one must meet different qualifications, such as already receiving the Child Tax Credit, being of a certain age and correspondingly working a certain number of hours, or if you are disabled, also working a certain number of hours. Your type of employment must also meet the required qualifications.<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-is-the-income-limit-for-the-working-tax-credit-in-the-uk"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Income Limit for the Working Tax Credit in the U.K.?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There is no income limit for the Working Tax Credit in the U.K. To be eligible and what you receive depends on a variety of qualifications, but there is no income limit to determine if and what you will receive as a credit.<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_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-often-is-the-working-tax-credit-paid-in-the-uk"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Often Is the Working Tax Credit Paid in the U.K.?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The working tax credit in the U.K. is paid either every week or every four weeks. You will be paid from the time you file your first claim to the end of the tax year.<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_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"> The Working Tax Credit (WTC) in the U.K. seeks to assist individuals working with low income and who already receive the Child Tax Credit. For those who do not qualify, the U.K. does provide the Universal Credit. The programs are welfare programs that seek to improve the quality of living for a certain segment of the population.<br> </br></p></div>	## What Is the Working Tax Credit (WTC)? The Working Tax Credit (WTC) is a state benefit offered to individuals living in the United Kingdom who work and have a low income. It was introduced in April 2003 as a means-tested benefit, a central part of the [welfare state](https://www.investopedia.com/terms/w/welfare-state.asp) in the United Kingdom. A means-tested benefit is a payment available to people who demonstrate that their income and capital are below specified limits. ### Key Takeaways * The Working Tax Credit (WTC) is a state benefit offered to individuals living in the United Kingdom who work and have a low income. * You must already be receiving the Child Tax Credit to qualify for the WTC. * The Working Tax Credit (WTC) is available for individuals aged 25 and above or with a qualifying disability. * Applicants must be gainfully employed and working a minimum number of hours required each week, as determined by the applicant’s age. ## How the Working Tax Credit (WTC) Works You are only eligible for the WTC if you already receive the Child Tax Credit. The Working Tax Credit (WTC) is available for individuals aged 25 and above or with a qualifying [disability](https://www.investopedia.com/terms/d/disability-insurance.asp). Applicants must be gainfully employed and working a minimum number of hours required each week, as determined by the applicant’s age. ## WTC Qualifications To qualify, you must work a certain number of hours depending on your age and fulfill other requirements, as seen here. \| Working Tax Credit Eligibility: Circumstance & Hours a Week Worked \| \| \| --- \| --- \| \| Circumstance \| Hours a Week \| \| Aged 25 to 59 \| At least 30 hours \| \| Aged 60 or over \| At least 16 hours \| \| Disabled \| At least 16 hours \| \| Single with 1 or more children \| At least 16 hours \| \| Couple with 1 or more children \| Usually, at least 24 hours between you (with 1 of you working at least 16 hours) \| What counts as work is broad. It includes work for someone else as an employee or worker, someone who is self-employed, or a combination of both. If you are [self-employed](https://www.investopedia.com/terms/s/self-employed-person.asp), the work must have the goal of making a profit, and be commercial, regular, and organized. ## WTC Payments The WTC base can pay out £2,280 annually, with additional qualifications bringing that figure up or down. Here is what you can receive based on specific circumstances. \| Working Tax Credit Elements & Amounts \| \| \| --- \| --- \| \| Element \| Amount \| \| You’re a couple applying together \| Up to £2,340 a year \| \| You’re a single parent \| Up to £2,340 a year \| \| You work at least 30 hours a week \| Up to £950 a year \| \| You have a disability \| Up to £3,685 a year \| \| You have a severe disability \| Up to £1,595 a year (usually on top of the disability payment) \| \| You pay for approved childcare that takes place in-person (not online) \| Up to £122.50 (1 child) or £210 (2 or more children) a week \| Eligible individuals will receive payments directly into their bank account or building society account every week or every four weeks. Typically, you will be paid from the point you made your first claim to the end of the tax year. ### If citizens are not eligible to claim the WTC, they need to pursue the Universal Credit instead. The Universal Credit has been set up to replace several of the existing credits in the United Kingdom. ## Welfare Programs in the U.S. Public Welfare is a common term for public assistance in the United States. People are said to be receiving [welfare](https://www.investopedia.com/terms/w/welfare.asp) or assistance when they are in receipt of a variety of government subsidies or benefits. These payments can range from federally-funded initiatives like Social Security payments and the [Supplemental Nutrition Assistance Program](https://www.investopedia.com/supplemental-nutrition-assistance-program-snap-5187718) (SNAP) to state-sponsored programs. While only the Public Welfare program goes by that name, most of these programs are considered types of assistance programs because they are put in place to assist those who need them either temporarily or on a long-term basis. Many of these programs are paid for by a combination of taxes that are withheld from taxpayer paychecks. Programs like [Social Security](https://www.investopedia.com/terms/s/socialsecurity.asp) are directly paid into by each individual taxpayer, while some other programs receive funding from other broader taxes. These subsidies aren’t entirely without cost to the recipient. Some require applicants to attend classes or apply to a certain number of jobs a week. In the case of [Social Security and Disability benefits](https://www.investopedia.com/terms/s/social-security-benefits.asp), a portion of the payment may be taxable, depending on income limitations. Each assistance program has its own guidelines and qualifications. Anyone looking for additional information on whether they qualify for state or federal aid should consult the federal website for that specific program. ## Who Gets the Working Tax Credit in the U.K.? The Working Tax Credit (WTC) in the U.K. seeks to provide monetary support to low-income individuals. To receive the credit, one must meet different qualifications, such as already receiving the Child Tax Credit, being of a certain age and correspondingly working a certain number of hours, or if you are disabled, also working a certain number of hours. Your type of employment must also meet the required qualifications. ## What Is the Income Limit for the Working Tax Credit in the U.K.? There is no income limit for the Working Tax Credit in the U.K. To be eligible and what you receive depends on a variety of qualifications, but there is no income limit to determine if and what you will receive as a credit. ## How Often Is the Working Tax Credit Paid in the U.K.? The working tax credit in the U.K. is paid either every week or every four weeks. You will be paid from the time you file your first claim to the end of the tax year. ## The Bottom Line The Working Tax Credit (WTC) in the U.K. seeks to assist individuals working with low income and who already receive the Child Tax Credit. For those who do not qualify, the U.K. does provide the Universal Credit. The programs are welfare programs that seek to improve the quality of living for a certain segment of the population.	What Is the Working Tax Credit (WTC)? The Working Tax Credit (WTC) is a state benefit offered to individuals living in the United Kingdom who work and have a low income. It was introduced in April 2003 as a means-tested benefit, a central part of the welfare state in the United Kingdom. A means-tested benefit is a payment available to people who demonstrate that their income and capital are below specified limits. Key Takeaways The Working Tax Credit (WTC) is a state benefit offered to individuals living in the United Kingdom who work and have a low income.You must already be receiving the Child Tax Credit to qualify for the WTC.The Working Tax Credit (WTC) is available for individuals aged 25 and above or with a qualifying disability.Applicants must be gainfully employed and working a minimum number of hours required each week, as determined by the applicant’s age. How the Working Tax Credit (WTC) Works You are only eligible for the WTC if you already receive the Child Tax Credit. The Working Tax Credit (WTC) is available for individuals aged 25 and above or with a qualifying disability. Applicants must be gainfully employed and working a minimum number of hours required each week, as determined by the applicant’s age. WTC Qualifications To qualify, you must work a certain number of hours depending on your age and fulfill other requirements, as seen here. Working Tax Credit Eligibility: Circumstance & Hours a Week Worked Circumstance Hours a Week Aged 25 to 59 At least 30 hours Aged 60 or over At least 16 hours Disabled At least 16 hours Single with 1 or more children At least 16 hours Couple with 1 or more children Usually, at least 24 hours between you (with 1 of you working at least 16 hours) What counts as work is broad. It includes work for someone else as an employee or worker, someone who is self-employed, or a combination of both. If you are self-employed, the work must have the goal of making a profit, and be commercial, regular, and organized. WTC Payments The WTC base can pay out £2,280 annually, with additional qualifications bringing that figure up or down. Here is what you can receive based on specific circumstances. Working Tax Credit Elements & Amounts Element Amount You’re a couple applying together Up to £2,340 a year You’re a single parent Up to £2,340 a year You work at least 30 hours a week Up to £950 a year You have a disability Up to £3,685 a year You have a severe disability Up to £1,595 a year (usually on top of the disability payment) You pay for approved childcare that takes place in-person (not online) Up to £122.50 (1 child) or £210 (2 or more children) a week Eligible individuals will receive payments directly into their bank account or building society account every week or every four weeks. Typically, you will be paid from the point you made your first claim to the end of the tax year. If citizens are not eligible to claim the WTC, they need to pursue the Universal Credit instead. The Universal Credit has been set up to replace several of the existing credits in the United Kingdom. Welfare Programs in the U.S. Public Welfare is a common term for public assistance in the United States. People are said to be receiving welfare or assistance when they are in receipt of a variety of government subsidies or benefits. These payments can range from federally-funded initiatives like Social Security payments and the Supplemental Nutrition Assistance Program (SNAP) to state-sponsored programs. While only the Public Welfare program goes by that name, most of these programs are considered types of assistance programs because they are put in place to assist those who need them either temporarily or on a long-term basis. Many of these programs are paid for by a combination of taxes that are withheld from taxpayer paychecks. Programs like Social Security are directly paid into by each individual taxpayer, while some other programs receive funding from other broader taxes. These subsidies aren’t entirely without cost to the recipient. Some require applicants to attend classes or apply to a certain number of jobs a week. In the case of Social Security and Disability benefits, a portion of the payment may be taxable, depending on income limitations. Each assistance program has its own guidelines and qualifications. Anyone looking for additional information on whether they qualify for state or federal aid should consult the federal website for that specific program. Who Gets the Working Tax Credit in the U.K.? The Working Tax Credit (WTC) in the U.K. seeks to provide monetary support to low-income individuals. To receive the credit, one must meet different qualifications, such as already receiving the Child Tax Credit, being of a certain age and correspondingly working a certain number of hours, or if you are disabled, also working a certain number of hours. Your type of employment must also meet the required qualifications. What Is the Income Limit for the Working Tax Credit in the U.K.? There is no income limit for the Working Tax Credit in the U.K. To be eligible and what you receive depends on a variety of qualifications, but there is no income limit to determine if and what you will receive as a credit. How Often Is the Working Tax Credit Paid in the U.K.? The working tax credit in the U.K. is paid either every week or every four weeks. You will be paid from the time you file your first claim to the end of the tax year. The Bottom Line The Working Tax Credit (WTC) in the U.K. seeks to assist individuals working with low income and who already receive the Child Tax Credit. For those who do not qualify, the U.K. does provide the Universal Credit. The programs are welfare programs that seek to improve the quality of living for a certain segment of the population.	[ [ "welfare state", "https://www.investopedia.com/terms/w/welfare-state.asp" ], [ "disability", "https://www.investopedia.com/terms/d/disability-insurance.asp" ], [ "self-employed", "https://www.investopedia.com/terms/s/self-employed-person.asp" ], [ "welfare", "https://www.investopedia.com/terms/w/welfare.asp" ], [ "Supplemental Nutrition Assistance Program", "https://www.investopedia.com/supplemental-nutrition-assistance-program-snap-5187718" ], [ "Social Security", "https://www.investopedia.com/terms/s/socialsecurity.asp" ], [ "Social Security and Disability benefits", "https://www.investopedia.com/terms/s/social-security-benefits.asp" ] ]
https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp	What Does the Nasdaq Composite Index Measure?	<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-nasdaq-composite-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 the Nasdaq Composite Index? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Nasdaq Composite Index is a market capitalization-weighted index of more than 2,500 stocks listed on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp#citation-15">Nasdaq stock exchange</a>. It is a broad index that is heavily weighted toward the important technology sector. The index is composed of both domestic and international companies. The Nasdaq Composite Index is a highly-watched index and is a staple of financial markets reports.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Nasdaq Composite Index is an index of more than 2,500 stocks that trade on the Nasdaq. </li><li>The index is weighted by market capitalization and includes both domestic and international companies.<span class="ql-inline-citation" data-cite="9"></span></li><li>It is heavily weighted in technology stocks, followed by consumer discretionary and healthcare companies.<span class="ql-inline-citation" data-cite="1"></span><br/></li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-nasdaq-composite-index"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding the Nasdaq Composite Index </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The Nasdaq Composite Index includes all equity securities listed on the Nasdaq. They include common stocks, ordinary shares, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adr.asp">American depositary receipts (ADRs)</a>, units of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reit.asp">real estate investment trusts (REITs)</a>, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/ptp.asp">publicly traded partnerships</a>, as well as <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trackingstocks.asp">tracking stocks</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"> Stocks that aren't eligible for inclusion are the securities of closed-end funds, exchange-traded funds (ETFs), preferred shares, rights, warrants, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debenture.asp">convertible debenture</a> securities, or other derivatives.<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_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The Nasdaq Composite includes the stocks of companies headquartered in the U.S. International companies are also included in the index, which is in contrast to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&P 500 Index</a> and 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 (DJIA)</a>—the two other most frequently cited market benchmarks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The Nasdaq Composite Index is one of the most widely-watched indexes in the world and is often seen as a stand-in for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technology_sector.asp">technology sector</a>, due to its heavy weighting in tech companies.</p></div></div></div> <span class="heading-toc" id="toc-nasdaq-composite-index-methodology"></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"> Nasdaq Composite Index Methodology </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The Nasdaq Composite Index was launched on Feb. 5, 1971. It uses 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> weighting methodology. The index's value is calculated by summing the market capitalization of its components based on the current price of the constituents. This total is then adjusted by a constant index divisor.<span class="ql-inline-citation" data-cite="13"></span> The index had a value of 100 when it was first established.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The index is constantly calculated throughout the trading day. Its value is disseminated once per second from 9:30 a.m. to 5:16 p.m. ET. The closing value of the index may change up until 5:15 p.m. ET as a result of corrections to the last reported price for index components.<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_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Two versions of the Nasdaq Composite Index are calculated. The first is a price return index and the other is a total return index. The total return index assumes the reinvestment of cash <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a> distributed by companies included in the 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_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 with-title" id="mntl-sc-block-callout-heading_3-0">1971</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The year the Nasdaq Composite Index was launched. It had an initial value of 100.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Changes in the share price as a result of corporate actions such as stock splits, stock dividends, or spinoffs are tallied on the action's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ex-date.asp">ex-date</a>. Changes in total shares outstanding following conversions, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalbudgeting.asp">stock repurchases</a>, secondary offerings, or acquisitions are usually reflected on the night before the action's effective date.<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_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Eligibility requirements for the index are reviewed throughout the year. A security that does not meet the eligibility requirements can be removed at any time, usually at its last sale price. </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-nasdaq-composite-index-composition"></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"> Nasdaq Composite Index Composition </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> As noted above, the Nasaq Composite is made up of more than 2,500 different companies that trade on the Nasdaq.<span class="ql-inline-citation" data-cite="15"></span> The industry weighting of the Nasdaq Composite Index based on the included stocks was as follows as of July 10, 2023:<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_30-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_31-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Sector Breakdown for Nasdaq Composite Index</th> </tr> </thead> <tbody data-check="-1"> <tr> <td>Technology</td> <td>55.32%</td> </tr> <tr> <td>Consumer Discretionary </td> <td>18.80% </td> </tr> <tr> <td>Healthcare </td> <td>8.08% </td> </tr> <tr> <td>Industrials </td> <td>4.66% </td> </tr> <tr> <td>Financials</td> <td>3.47%</td> </tr> <tr> <td>Telecommunications</td> <td>3.22%</td> </tr> <tr> <td>Consumer Staples</td> <td>2.96%</td> </tr> <tr> <td>Energy</td> <td>1.05%</td> </tr> <tr> <td>Real Estate</td> <td>1.05%</td> </tr> <tr> <td>Utilities</td> <td>0.94%</td> </tr> <tr> <td>Basic Materials</td> <td>0.45%</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The 10 most heavily weighed securities in the Nasdaq Composite Index as of March 31, 2023, were: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <li>Apple (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl">AAPL</a>): 13.79%</li> <li>Microsoft (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft">MSFT</a>): 11.44%</li> <li>Amazon (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn">AMZN</a>): 6.04%</li> <li>NVIDIA (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda">NVDA</a>): 4.72%</li> <li>Tesla Inc (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=tsla">TSLA</a>): 3.75%</li> <li>Alphabet Class A (<a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=googl">GOOGL</a>): 3.21%<br/></li> <li>Alphabet Class C (<a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=goog">GOOG</a>): 3.21%</li> <li>Meta Platforms (<a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>): 2.87%</li> <li>Broadcom (<a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=avgo">AVGO</a>): 1.63%</li> <li>Pepsico (<a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=pep">PEP</a>): 1.15%<span class="ql-inline-citation" data-cite="11"></span></li> </ol> <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-nasdaq-composite-index-market-performance"></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"> Nasdaq Composite Index Market Performance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The Nasdaq Composite Index produced an annualized return of 14.66% over the 10 years through July 7, 2023.<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_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Its 9.1% decline in Q1 2022 was the Nasdaq Composite's worst since the 14.2% loss in Q1 2020 as the COVID-19 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/special-economic-impact-of-pandemics-4800597">pandemic</a> struck. The Nasdaq's 12% drop in April 2022 was its worst since the 17.4% decline in October 2008 at the height of the global financial crisis. </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 Nasdaq Composite met the common definition for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bearmarket.asp">bear market</a> in mid-March of 2022 by dropping more than 20% from its Jan. 3, 2022 peak. From there, the index saw a strong relief rally that roughly halved its losses by the start of April, then gave back all those gains over the next month. </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"> Because the Nasdaq Composite is dominated by the historically <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatile</a> technology sector, index performance tends to be more volatile than that of the S&P 500 or the Dow Industrials. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-how-can-i-invest-in-the-nasdaq-composite-index"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Invest in the Nasdaq Composite Index?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No, you can't invest in the Nasdaq Composite Index. But <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/08/invest-in-nasdaq-nyse.asp">you can invest in a security</a> that mimics its performance. There are assets like mutual funds or exchange-traded funds (ETFs) that are composed of the same stocks with the same weightings that try to at least match the index's performance.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-what-are-the-benefits-of-index-investing"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Benefits of Index Investing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are several key benefits of index investing. They give you broad exposure to the market. That's because they are made up of stocks from a wide range of different sectors. For instance, the Nasdaq is heavily focused on technology stocks but also has exposure to consumer discretionary, healthcare, and financial stocks among others.</p><p>Index investing is easier to manage because securities like mutual funds and ETFs are reallocated whenever the corresponding index changes. This eliminates any bias as portfolio managers only make adjustments when the index does.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-how-is-the-nasdaq-composite-index-constructed"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Is the Nasdaq Composite Index Constructed?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Nasdaq Composite Index is a market-capitalization-weighted index. This means the index is heavily influenced by larger companies. The index is one of the most heavily-watched in the world.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> The Nasdaq Composite Index rose to prominence thanks to the rapid growth of the most successful companies with Nasdaq-listed stocks, including Microsoft and more recently Apple and Alphabet. </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 flip side of such ling-term success in an index based on market capitalization is that the Nasdaq Composite is very top-heavy. The top five companies (and six stocks including both traded classes of Alphabet's shares) account for more than 40% of the Nasdaq Composite's index weight. </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"> Moreover, high-growth stocks prevalent in the index tend to be more economically sensitive and more volatile as a result. When the market does well, the Nasdaq Composite can be a standout: it gained 43.6% in 2020 despite a rough March, after a 35.2% surge in 2019. When the going gets rough, you get its 40.5% loss in 2008—or the first four months of 2022.<br> </br></p></div>	## What Is the Nasdaq Composite Index? The Nasdaq Composite Index is a market capitalization-weighted index of more than 2,500 stocks listed on the [Nasdaq stock exchange](https://www.investopedia.com/terms/n/nasdaq.asp#citation-15). It is a broad index that is heavily weighted toward the important technology sector. The index is composed of both domestic and international companies. The Nasdaq Composite Index is a highly-watched index and is a staple of financial markets reports. ### Key Takeaways * The Nasdaq Composite Index is an index of more than 2,500 stocks that trade on the Nasdaq. * The index is weighted by market capitalization and includes both domestic and international companies. * It is heavily weighted in technology stocks, followed by consumer discretionary and healthcare companies. ## Understanding the Nasdaq Composite Index The Nasdaq Composite Index includes all equity securities listed on the Nasdaq. They include common stocks, ordinary shares, [American depositary receipts (ADRs)](https://www.investopedia.com/terms/a/adr.asp), units of [real estate investment trusts (REITs)](https://www.investopedia.com/terms/r/reit.asp), and [publicly traded partnerships](https://www.investopedia.com/terms/p/ptp.asp), as well as [tracking stocks](https://www.investopedia.com/terms/t/trackingstocks.asp), Stocks that aren't eligible for inclusion are the securities of closed-end funds, exchange-traded funds (ETFs), preferred shares, rights, warrants, [convertible debenture](https://www.investopedia.com/terms/d/debenture.asp) securities, or other derivatives. The Nasdaq Composite includes the stocks of companies headquartered in the U.S. International companies are also included in the index, which is in contrast to the [S&P 500 Index](https://www.investopedia.com/terms/s/sp500.asp) and the [Dow Jones Industrial Average (DJIA)](https://www.investopedia.com/terms/d/djia.asp)—the two other most frequently cited market benchmarks. ### The Nasdaq Composite Index is one of the most widely-watched indexes in the world and is often seen as a stand-in for the [technology sector](https://www.investopedia.com/terms/t/technology_sector.asp), due to its heavy weighting in tech companies. ## Nasdaq Composite Index Methodology The Nasdaq Composite Index was launched on Feb. 5, 1971. It uses a [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp) weighting methodology. The index's value is calculated by summing the market capitalization of its components based on the current price of the constituents. This total is then adjusted by a constant index divisor. The index had a value of 100 when it was first established. The index is constantly calculated throughout the trading day. Its value is disseminated once per second from 9:30 a.m. to 5:16 p.m. ET. The closing value of the index may change up until 5:15 p.m. ET as a result of corrections to the last reported price for index components. Two versions of the Nasdaq Composite Index are calculated. The first is a price return index and the other is a total return index. The total return index assumes the reinvestment of cash [dividends](https://www.investopedia.com/terms/d/dividend.asp) distributed by companies included in the index. ### 1971 The year the Nasdaq Composite Index was launched. It had an initial value of 100. Changes in the share price as a result of corporate actions such as stock splits, stock dividends, or spinoffs are tallied on the action's [ex-date](https://www.investopedia.com/terms/e/ex-date.asp). Changes in total shares outstanding following conversions, [stock repurchases](https://www.investopedia.com/terms/c/capitalbudgeting.asp), secondary offerings, or acquisitions are usually reflected on the night before the action's effective date. Eligibility requirements for the index are reviewed throughout the year. A security that does not meet the eligibility requirements can be removed at any time, usually at its last sale price. ## Nasdaq Composite Index Composition As noted above, the Nasaq Composite is made up of more than 2,500 different companies that trade on the Nasdaq. The industry weighting of the Nasdaq Composite Index based on the included stocks was as follows as of July 10, 2023: \| Sector Breakdown for Nasdaq Composite Index \| \| \| --- \| --- \| \| Technology \| 55.32% \| \| Consumer Discretionary \| 18.80% \| \| Healthcare \| 8.08% \| \| Industrials \| 4.66% \| \| Financials \| 3.47% \| \| Telecommunications \| 3.22% \| \| Consumer Staples \| 2.96% \| \| Energy \| 1.05% \| \| Real Estate \| 1.05% \| \| Utilities \| 0.94% \| \| Basic Materials \| 0.45% \| The 10 most heavily weighed securities in the Nasdaq Composite Index as of March 31, 2023, were: 1. Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl)): 13.79% 2. Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft)): 11.44% 3. Amazon ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn)): 6.04% 4. NVIDIA ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda)): 4.72% 5. Tesla Inc ([TSLA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=tsla)): 3.75% 6. Alphabet Class A ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=googl)): 3.21% 7. Alphabet Class C ([GOOG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=goog)): 3.21% 8. Meta Platforms ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)): 2.87% 9. Broadcom ([AVGO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=avgo)): 1.63% 10. Pepsico ([PEP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=pep)): 1.15% ## Nasdaq Composite Index Market Performance The Nasdaq Composite Index produced an annualized return of 14.66% over the 10 years through July 7, 2023. Its 9.1% decline in Q1 2022 was the Nasdaq Composite's worst since the 14.2% loss in Q1 2020 as the COVID-19 [pandemic](https://www.investopedia.com/special-economic-impact-of-pandemics-4800597) struck. The Nasdaq's 12% drop in April 2022 was its worst since the 17.4% decline in October 2008 at the height of the global financial crisis. The Nasdaq Composite met the common definition for a [bear market](https://www.investopedia.com/terms/b/bearmarket.asp) in mid-March of 2022 by dropping more than 20% from its Jan. 3, 2022 peak. From there, the index saw a strong relief rally that roughly halved its losses by the start of April, then gave back all those gains over the next month. Because the Nasdaq Composite is dominated by the historically [volatile](https://www.investopedia.com/terms/v/volatility.asp) technology sector, index performance tends to be more volatile than that of the S&P 500 or the Dow Industrials. ## How Can I Invest in the Nasdaq Composite Index? No, you can't invest in the Nasdaq Composite Index. But [you can invest in a security](https://www.investopedia.com/ask/answers/08/invest-in-nasdaq-nyse.asp) that mimics its performance. There are assets like mutual funds or exchange-traded funds (ETFs) that are composed of the same stocks with the same weightings that try to at least match the index's performance. ## What Are the Benefits of Index Investing? There are several key benefits of index investing. They give you broad exposure to the market. That's because they are made up of stocks from a wide range of different sectors. For instance, the Nasdaq is heavily focused on technology stocks but also has exposure to consumer discretionary, healthcare, and financial stocks among others. Index investing is easier to manage because securities like mutual funds and ETFs are reallocated whenever the corresponding index changes. This eliminates any bias as portfolio managers only make adjustments when the index does. ## How Is the Nasdaq Composite Index Constructed? The Nasdaq Composite Index is a market-capitalization-weighted index. This means the index is heavily influenced by larger companies. The index is one of the most heavily-watched in the world. ## The Bottom Line The Nasdaq Composite Index rose to prominence thanks to the rapid growth of the most successful companies with Nasdaq-listed stocks, including Microsoft and more recently Apple and Alphabet. The flip side of such ling-term success in an index based on market capitalization is that the Nasdaq Composite is very top-heavy. The top five companies (and six stocks including both traded classes of Alphabet's shares) account for more than 40% of the Nasdaq Composite's index weight. Moreover, high-growth stocks prevalent in the index tend to be more economically sensitive and more volatile as a result. When the market does well, the Nasdaq Composite can be a standout: it gained 43.6% in 2020 despite a rough March, after a 35.2% surge in 2019. When the going gets rough, you get its 40.5% loss in 2008—or the first four months of 2022.	What Is the Nasdaq Composite Index? The Nasdaq Composite Index is a market capitalization-weighted index of more than 2,500 stocks listed on the Nasdaq stock exchange. It is a broad index that is heavily weighted toward the important technology sector. The index is composed of both domestic and international companies. The Nasdaq Composite Index is a highly-watched index and is a staple of financial markets reports. Key Takeaways The Nasdaq Composite Index is an index of more than 2,500 stocks that trade on the Nasdaq. The index is weighted by market capitalization and includes both domestic and international companies.It is heavily weighted in technology stocks, followed by consumer discretionary and healthcare companies. Understanding the Nasdaq Composite Index The Nasdaq Composite Index includes all equity securities listed on the Nasdaq. They include common stocks, ordinary shares, American depositary receipts (ADRs), units of real estate investment trusts (REITs), and publicly traded partnerships, as well as tracking stocks, Stocks that aren't eligible for inclusion are the securities of closed-end funds, exchange-traded funds (ETFs), preferred shares, rights, warrants, convertible debenture securities, or other derivatives. The Nasdaq Composite includes the stocks of companies headquartered in the U.S. International companies are also included in the index, which is in contrast to the S&P 500 Index and the Dow Jones Industrial Average (DJIA)—the two other most frequently cited market benchmarks. The Nasdaq Composite Index is one of the most widely-watched indexes in the world and is often seen as a stand-in for the technology sector, due to its heavy weighting in tech companies. Nasdaq Composite Index Methodology The Nasdaq Composite Index was launched on Feb. 5, 1971. It uses a market capitalization weighting methodology. The index's value is calculated by summing the market capitalization of its components based on the current price of the constituents. This total is then adjusted by a constant index divisor. The index had a value of 100 when it was first established. The index is constantly calculated throughout the trading day. Its value is disseminated once per second from 9:30 a.m. to 5:16 p.m. ET. The closing value of the index may change up until 5:15 p.m. ET as a result of corrections to the last reported price for index components. Two versions of the Nasdaq Composite Index are calculated. The first is a price return index and the other is a total return index. The total return index assumes the reinvestment of cash dividends distributed by companies included in the index. 1971 The year the Nasdaq Composite Index was launched. It had an initial value of 100. Changes in the share price as a result of corporate actions such as stock splits, stock dividends, or spinoffs are tallied on the action's ex-date. Changes in total shares outstanding following conversions, stock repurchases, secondary offerings, or acquisitions are usually reflected on the night before the action's effective date. Eligibility requirements for the index are reviewed throughout the year. A security that does not meet the eligibility requirements can be removed at any time, usually at its last sale price. Nasdaq Composite Index Composition As noted above, the Nasaq Composite is made up of more than 2,500 different companies that trade on the Nasdaq. The industry weighting of the Nasdaq Composite Index based on the included stocks was as follows as of July 10, 2023: Sector Breakdown for Nasdaq Composite Index Technology 55.32% Consumer Discretionary 18.80% Healthcare 8.08% Industrials 4.66% Financials 3.47% Telecommunications 3.22% Consumer Staples 2.96% Energy 1.05% Real Estate 1.05% Utilities 0.94% Basic Materials 0.45% The 10 most heavily weighed securities in the Nasdaq Composite Index as of March 31, 2023, were: Apple (AAPL): 13.79% Microsoft (MSFT): 11.44% Amazon (AMZN): 6.04% NVIDIA (NVDA): 4.72% Tesla Inc (TSLA): 3.75% Alphabet Class A (GOOGL): 3.21% Alphabet Class C (GOOG): 3.21% Meta Platforms (META): 2.87% Broadcom (AVGO): 1.63% Pepsico (PEP): 1.15% Nasdaq Composite Index Market Performance The Nasdaq Composite Index produced an annualized return of 14.66% over the 10 years through July 7, 2023. Its 9.1% decline in Q1 2022 was the Nasdaq Composite's worst since the 14.2% loss in Q1 2020 as the COVID-19 pandemic struck. The Nasdaq's 12% drop in April 2022 was its worst since the 17.4% decline in October 2008 at the height of the global financial crisis. The Nasdaq Composite met the common definition for a bear market in mid-March of 2022 by dropping more than 20% from its Jan. 3, 2022 peak. From there, the index saw a strong relief rally that roughly halved its losses by the start of April, then gave back all those gains over the next month. Because the Nasdaq Composite is dominated by the historically volatile technology sector, index performance tends to be more volatile than that of the S&P 500 or the Dow Industrials. How Can I Invest in the Nasdaq Composite Index? No, you can't invest in the Nasdaq Composite Index. But you can invest in a security that mimics its performance. There are assets like mutual funds or exchange-traded funds (ETFs) that are composed of the same stocks with the same weightings that try to at least match the index's performance. What Are the Benefits of Index Investing? There are several key benefits of index investing. They give you broad exposure to the market. That's because they are made up of stocks from a wide range of different sectors. For instance, the Nasdaq is heavily focused on technology stocks but also has exposure to consumer discretionary, healthcare, and financial stocks among others.Index investing is easier to manage because securities like mutual funds and ETFs are reallocated whenever the corresponding index changes. This eliminates any bias as portfolio managers only make adjustments when the index does. How Is the Nasdaq Composite Index Constructed? The Nasdaq Composite Index is a market-capitalization-weighted index. This means the index is heavily influenced by larger companies. The index is one of the most heavily-watched in the world. The Bottom Line The Nasdaq Composite Index rose to prominence thanks to the rapid growth of the most successful companies with Nasdaq-listed stocks, including Microsoft and more recently Apple and Alphabet. The flip side of such ling-term success in an index based on market capitalization is that the Nasdaq Composite is very top-heavy. The top five companies (and six stocks including both traded classes of Alphabet's shares) account for more than 40% of the Nasdaq Composite's index weight. Moreover, high-growth stocks prevalent in the index tend to be more economically sensitive and more volatile as a result. When the market does well, the Nasdaq Composite can be a standout: it gained 43.6% in 2020 despite a rough March, after a 35.2% surge in 2019. When the going gets rough, you get its 40.5% loss in 2008—or the first four months of 2022.	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https://www.investopedia.com/anglo-american-plans-breakup-after-rejecting-bhp-s-usd43b-bid-8648015	Anglo American Plans Breakup After Rejecting BHP’s $43B Bid	<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>Anglo American is planning to split up and sell several assets after rejecting a sweetened $43 billion offer by rival mining giant BHP Group.</li><li>Anglo said that it would spin off its platinum-metals subsidiary Anglo American Platinum and explore options for putting its nickel operation on “care and maintenance” before divesting it.</li><li> Anglo also plans to divest or demerge its diamond unit De Beers and sell its steelmaking coal assets.</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"> Anglo American is planning to split up and sell several assets after rejecting a sweetened $43 billion offer by rival mining giant BHP Group (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BHP">BHP</a>) in a break-up plan <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/ceo.asp">Chief Executive Officer (CEO</a>) Duncan Wanblad called its most “radical” shakeup in decades.<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"> Anglo said Tuesday that it would spin off its platinum-metals subsidiary Anglo American Platinum; explore options for putting its nickel operation on “care and maintenance” before divesting it; divest or demerge its diamond unit De Beers; and sell its steelmaking coal assets. </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"> BHP had made the bid for Anglo on soaring demand for copper at a time when the world is moving away from fossil fuels towards more <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/why-mining-stocks-are-on-the-rise-tuesday-8629028">renewable energy projects</a> and electric vehicles. Wanblad said the breakup will mean the miner’s assets base will be focused on copper and premium iron ore. </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"> Copper has been on a tear this year, driven by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ai-thirst-for-data-center-power-feeds-renewed-demand-for-copper-8646160">rising demand for artificial intelligence (AI)</a>, which feeds on power from increasingly large data centers. Copper is commonly used in electrical wiring. </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"> Bank of America (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BAC">BAC</a>) released a note earlier this month estimating that prices could rise another 17% by 2026, <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"> BHP <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adr.asp">American depositary receipts (ADRs</a>) were 3% higher as of 10:54 a.m. ET Tuesday, while Anglo shares were trading 3.6% lower in London. </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:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	### KEY TAKEAWAYS * Anglo American is planning to split up and sell several assets after rejecting a sweetened $43 billion offer by rival mining giant BHP Group. * Anglo said that it would spin off its platinum-metals subsidiary Anglo American Platinum and explore options for putting its nickel operation on “care and maintenance” before divesting it. * Anglo also plans to divest or demerge its diamond unit De Beers and sell its steelmaking coal assets. Anglo American is planning to split up and sell several assets after rejecting a sweetened $43 billion offer by rival mining giant BHP Group ([BHP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BHP)) in a break-up plan [Chief Executive Officer (CEO](https://www.investopedia.com/terms/c/ceo.asp)) Duncan Wanblad called its most “radical” shakeup in decades. Anglo said Tuesday that it would spin off its platinum-metals subsidiary Anglo American Platinum; explore options for putting its nickel operation on “care and maintenance” before divesting it; divest or demerge its diamond unit De Beers; and sell its steelmaking coal assets. BHP had made the bid for Anglo on soaring demand for copper at a time when the world is moving away from fossil fuels towards more [renewable energy projects](https://www.investopedia.com/why-mining-stocks-are-on-the-rise-tuesday-8629028) and electric vehicles. Wanblad said the breakup will mean the miner’s assets base will be focused on copper and premium iron ore. Copper has been on a tear this year, driven by [rising demand for artificial intelligence (AI)](https://www.investopedia.com/ai-thirst-for-data-center-power-feeds-renewed-demand-for-copper-8646160), which feeds on power from increasingly large data centers. Copper is commonly used in electrical wiring. Bank of America ([BAC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BAC)) released a note earlier this month estimating that prices could rise another 17% by 2026, BHP [American depositary receipts (ADRs](https://www.investopedia.com/terms/a/adr.asp)) were 3% higher as of 10:54 a.m. ET Tuesday, while Anglo shares were trading 3.6% lower in London. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	KEY TAKEAWAYS Anglo American is planning to split up and sell several assets after rejecting a sweetened $43 billion offer by rival mining giant BHP Group.Anglo said that it would spin off its platinum-metals subsidiary Anglo American Platinum and explore options for putting its nickel operation on “care and maintenance” before divesting it. Anglo also plans to divest or demerge its diamond unit De Beers and sell its steelmaking coal assets. Anglo American is planning to split up and sell several assets after rejecting a sweetened $43 billion offer by rival mining giant BHP Group (BHP) in a break-up plan Chief Executive Officer (CEO) Duncan Wanblad called its most “radical” shakeup in decades. Anglo said Tuesday that it would spin off its platinum-metals subsidiary Anglo American Platinum; explore options for putting its nickel operation on “care and maintenance” before divesting it; divest or demerge its diamond unit De Beers; and sell its steelmaking coal assets. BHP had made the bid for Anglo on soaring demand for copper at a time when the world is moving away from fossil fuels towards more renewable energy projects and electric vehicles. Wanblad said the breakup will mean the miner’s assets base will be focused on copper and premium iron ore. Copper has been on a tear this year, driven by rising demand for artificial intelligence (AI), which feeds on power from increasingly large data centers. Copper is commonly used in electrical wiring. Bank of America (BAC) released a note earlier this month estimating that prices could rise another 17% by 2026, BHP American depositary receipts (ADRs) were 3% higher as of 10:54 a.m. ET Tuesday, while Anglo shares were trading 3.6% lower in London. Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "BHP", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=BHP" ], [ "Chief Executive Officer (CEO", "https://www.investopedia.com/terms/c/ceo.asp" ], [ "renewable energy projects", "https://www.investopedia.com/why-mining-stocks-are-on-the-rise-tuesday-8629028" ], [ "rising demand for artificial intelligence (AI)", "https://www.investopedia.com/ai-thirst-for-data-center-power-feeds-renewed-demand-for-copper-8646160" ], [ "BAC", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=BAC" ], [ "American depositary receipts (ADRs", "https://www.investopedia.com/terms/a/adr.asp" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/terms/r/ridingtheyieldcurve.asp	Riding the Yield Curve: 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-riding-the-yield-curve"></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 Riding the Yield Curve? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Riding the yield curve is a trading strategy that involves buying a long-term <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp">bond</a> and selling it before it matures so as to profit from the declining yield that occurs over the life of a bond. Investors hope to achieve <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalgain.asp">capital gains</a> by employing this strategy. </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"> As a trading strategy, riding the yield curve works best in a stable interest rate environment where interest rates are not increasing. Additionally, the strategy only produces excess gains when longer-term <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 higher than shorter-term rates. </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>Riding the yield curve refers to a fixed-income strategy where investors purchase long-term bonds with a maturity date longer than their investment time horizon.</li><li>Investors then sell their bonds at the end of their time horizon, profiting from the declining yield that occurs over the life of the bond.</li><li>For example, an investor with a three-month investment horizon may buy a six-month bond because it has a higher yield; the investor sells the bond at the three-month date, but profits from the higher six-month yield.</li><li>If interest rates rise, then riding the yield curve is not as profitable as a buy-and-hold strategy.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-riding-the-yield-curve-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 Riding the Yield Curve Works </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/y/yieldcurve.asp">yield curve</a> is a graphical illustration of the yields of bonds with various terms to maturities. The graph is plotted with interest rates on the y-axis and increasing time durations on the x-axis. Since short-term bonds typically have lower yields than longer-term bonds, the curve slopes upwards from the bottom left to the right. This term structure of interest rates is referred to as a normal yield curve. </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, the rate of a one-year bond is lower than the rate of a 20-year bond in times of economic growth. When the term structure reveals 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>, this means short-term yields are higher than longer-term yields, implying that investors’ confidence in economic growth is low. </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 bond markets, prices rise when yields fall, which is what tends to happen as bonds approach maturity. To take advantage of declining yields that occur over a bond’s life, investors can implement a fixed-income strategy known as riding the yield curve. Riding the yield curve involves buying a bond with a longer term to maturity than the investor's expected <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/holdingperiod.asp">holding period</a> in order to produce increased returns. </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-advantages-of-riding-the-yield-curve"></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"> Advantages of Riding the Yield Curve </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> An investor’s expected holding period is the length of time an investor plans to hold his investments in his portfolio. According to an investor’s risk profile and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timehorizon.asp">time horizon</a>, they may decide to hold a security short-term before selling or to hold long-term (more than a year). Typically, fixed-income investors purchase securities with a maturity equal to their investment horizons and hold to maturity. However, riding the yield curve attempts to outperform this basic and low-risk strategy. </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"> When riding the yield curve, an investor will purchase bonds with maturities longer than the investment horizon and sell them at the end of the investment horizon. This strategy is used in order to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rolldownreturn.asp">profit from the normal upward slope</a> in the yield curve caused by liquidity preferences and from the greater price fluctuations that occur at longer maturities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> In a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskneutral.asp">risk-neutral</a> environment, the expected return of a three-month bond held for three months should equal the expected return of a six-month bond held for three months and then sold at the end of the three-month period. In other words, a portfolio manager or investor with a three-month holding period horizon buys a six-month bond—which has a higher yield than the three-month bond—and then sells the bond at the three-month horizon date. </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-special-considerations"></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"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Riding the yield curve is only more profitable than the classic <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buyandhold.asp">buy-and-hold</a> strategy if interest rates stay the same and do not increase. If rates rise, then the return may be less than the yield that results from riding the curve and could even fall below the return of the bond that matches the investor’s investment horizon, thereby, resulting in a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalloss.asp">capital loss</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> In addition, this strategy produces excess returns only when longer-term interest rates are higher than shorter-term rates. The steeper the yield curve's upward slope at the outset, the lower the interest rates when the position is liquidated at the horizon and the higher the return from riding the curve. </p></div>	## What Is Riding the Yield Curve? Riding the yield curve is a trading strategy that involves buying a long-term [bond](https://www.investopedia.com/terms/b/bond.asp) and selling it before it matures so as to profit from the declining yield that occurs over the life of a bond. Investors hope to achieve [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) by employing this strategy. As a trading strategy, riding the yield curve works best in a stable interest rate environment where interest rates are not increasing. Additionally, the strategy only produces excess gains when longer-term [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) are higher than shorter-term rates. ### Key Takeaways * Riding the yield curve refers to a fixed-income strategy where investors purchase long-term bonds with a maturity date longer than their investment time horizon. * Investors then sell their bonds at the end of their time horizon, profiting from the declining yield that occurs over the life of the bond. * For example, an investor with a three-month investment horizon may buy a six-month bond because it has a higher yield; the investor sells the bond at the three-month date, but profits from the higher six-month yield. * If interest rates rise, then riding the yield curve is not as profitable as a buy-and-hold strategy. ## How Riding the Yield Curve Works The [yield curve](https://www.investopedia.com/terms/y/yieldcurve.asp) is a graphical illustration of the yields of bonds with various terms to maturities. The graph is plotted with interest rates on the y-axis and increasing time durations on the x-axis. Since short-term bonds typically have lower yields than longer-term bonds, the curve slopes upwards from the bottom left to the right. This term structure of interest rates is referred to as a normal yield curve. For example, the rate of a one-year bond is lower than the rate of a 20-year bond in times of economic growth. When the term structure reveals an [inverted yield curve](https://www.investopedia.com/terms/i/invertedyieldcurve.asp), this means short-term yields are higher than longer-term yields, implying that investors’ confidence in economic growth is low. In bond markets, prices rise when yields fall, which is what tends to happen as bonds approach maturity. To take advantage of declining yields that occur over a bond’s life, investors can implement a fixed-income strategy known as riding the yield curve. Riding the yield curve involves buying a bond with a longer term to maturity than the investor's expected [holding period](https://www.investopedia.com/terms/h/holdingperiod.asp) in order to produce increased returns. ## Advantages of Riding the Yield Curve An investor’s expected holding period is the length of time an investor plans to hold his investments in his portfolio. According to an investor’s risk profile and [time horizon](https://www.investopedia.com/terms/t/timehorizon.asp), they may decide to hold a security short-term before selling or to hold long-term (more than a year). Typically, fixed-income investors purchase securities with a maturity equal to their investment horizons and hold to maturity. However, riding the yield curve attempts to outperform this basic and low-risk strategy. When riding the yield curve, an investor will purchase bonds with maturities longer than the investment horizon and sell them at the end of the investment horizon. This strategy is used in order to [profit from the normal upward slope](https://www.investopedia.com/terms/r/rolldownreturn.asp) in the yield curve caused by liquidity preferences and from the greater price fluctuations that occur at longer maturities. In a [risk-neutral](https://www.investopedia.com/terms/r/riskneutral.asp) environment, the expected return of a three-month bond held for three months should equal the expected return of a six-month bond held for three months and then sold at the end of the three-month period. In other words, a portfolio manager or investor with a three-month holding period horizon buys a six-month bond—which has a higher yield than the three-month bond—and then sells the bond at the three-month horizon date. ## Special Considerations Riding the yield curve is only more profitable than the classic [buy-and-hold](https://www.investopedia.com/terms/b/buyandhold.asp) strategy if interest rates stay the same and do not increase. If rates rise, then the return may be less than the yield that results from riding the curve and could even fall below the return of the bond that matches the investor’s investment horizon, thereby, resulting in a [capital loss](https://www.investopedia.com/terms/c/capitalloss.asp). In addition, this strategy produces excess returns only when longer-term interest rates are higher than shorter-term rates. The steeper the yield curve's upward slope at the outset, the lower the interest rates when the position is liquidated at the horizon and the higher the return from riding the curve.	What Is Riding the Yield Curve? Riding the yield curve is a trading strategy that involves buying a long-term bond and selling it before it matures so as to profit from the declining yield that occurs over the life of a bond. Investors hope to achieve capital gains by employing this strategy. As a trading strategy, riding the yield curve works best in a stable interest rate environment where interest rates are not increasing. Additionally, the strategy only produces excess gains when longer-term interest rates are higher than shorter-term rates. Key Takeaways Riding the yield curve refers to a fixed-income strategy where investors purchase long-term bonds with a maturity date longer than their investment time horizon.Investors then sell their bonds at the end of their time horizon, profiting from the declining yield that occurs over the life of the bond.For example, an investor with a three-month investment horizon may buy a six-month bond because it has a higher yield; the investor sells the bond at the three-month date, but profits from the higher six-month yield.If interest rates rise, then riding the yield curve is not as profitable as a buy-and-hold strategy. How Riding the Yield Curve Works The yield curve is a graphical illustration of the yields of bonds with various terms to maturities. The graph is plotted with interest rates on the y-axis and increasing time durations on the x-axis. Since short-term bonds typically have lower yields than longer-term bonds, the curve slopes upwards from the bottom left to the right. This term structure of interest rates is referred to as a normal yield curve. For example, the rate of a one-year bond is lower than the rate of a 20-year bond in times of economic growth. When the term structure reveals an inverted yield curve, this means short-term yields are higher than longer-term yields, implying that investors’ confidence in economic growth is low. In bond markets, prices rise when yields fall, which is what tends to happen as bonds approach maturity. To take advantage of declining yields that occur over a bond’s life, investors can implement a fixed-income strategy known as riding the yield curve. Riding the yield curve involves buying a bond with a longer term to maturity than the investor's expected holding period in order to produce increased returns. Advantages of Riding the Yield Curve An investor’s expected holding period is the length of time an investor plans to hold his investments in his portfolio. According to an investor’s risk profile and time horizon, they may decide to hold a security short-term before selling or to hold long-term (more than a year). Typically, fixed-income investors purchase securities with a maturity equal to their investment horizons and hold to maturity. However, riding the yield curve attempts to outperform this basic and low-risk strategy. When riding the yield curve, an investor will purchase bonds with maturities longer than the investment horizon and sell them at the end of the investment horizon. This strategy is used in order to profit from the normal upward slope in the yield curve caused by liquidity preferences and from the greater price fluctuations that occur at longer maturities. In a risk-neutral environment, the expected return of a three-month bond held for three months should equal the expected return of a six-month bond held for three months and then sold at the end of the three-month period. In other words, a portfolio manager or investor with a three-month holding period horizon buys a six-month bond—which has a higher yield than the three-month bond—and then sells the bond at the three-month horizon date. Special Considerations Riding the yield curve is only more profitable than the classic buy-and-hold strategy if interest rates stay the same and do not increase. If rates rise, then the return may be less than the yield that results from riding the curve and could even fall below the return of the bond that matches the investor’s investment horizon, thereby, resulting in a capital loss. In addition, this strategy produces excess returns only when longer-term interest rates are higher than shorter-term rates. The steeper the yield curve's upward slope at the outset, the lower the interest rates when the position is liquidated at the horizon and the higher the return from riding the curve.	[ [ "bond", "https://www.investopedia.com/terms/b/bond.asp" ], [ "capital gains", "https://www.investopedia.com/terms/c/capitalgain.asp" ], [ "interest rates", "https://www.investopedia.com/terms/i/interestrate.asp" ], [ "yield curve", "https://www.investopedia.com/terms/y/yieldcurve.asp" ], [ "inverted yield curve", "https://www.investopedia.com/terms/i/invertedyieldcurve.asp" ], [ "holding period", "https://www.investopedia.com/terms/h/holdingperiod.asp" ], [ "time horizon", "https://www.investopedia.com/terms/t/timehorizon.asp" ], [ "profit from the normal upward slope", "https://www.investopedia.com/terms/r/rolldownreturn.asp" ], [ "risk-neutral", "https://www.investopedia.com/terms/r/riskneutral.asp" ], [ "buy-and-hold", "https://www.investopedia.com/terms/b/buyandhold.asp" ], [ "capital loss", "https://www.investopedia.com/terms/c/capitalloss.asp" ] ]
https://www.investopedia.com/terms/c/clienteleeffect.asp	Clientele Effect: Definition, Theory, 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-the-clientele-effect"></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 Clientele Effect? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The clientele effect explains the movement in a company's stock price according to the demands and goals of its investors. These investor demands come in reaction to a tax, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividend</a>, or other policy change or corporate action which affects a company's shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The clientele effect assumes that specific investors are preliminarily attracted to different company policies, and that when a company alters one or more such policies they will adjust their stock holdings accordingly. As a result of this adjustment, stock prices can fluctuate. </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 clientele effect is a common occurrence whereby stock prices are influenced by shareholder demands.</li><li>One side of the clientele effect describes the way in which individual investors seek out stocks from a specific category.</li><li>A specific instance of this effect is dividend clientele, a term for a group of stockholders who share the same opinion on how a specific company conducts its dividend policy. </li></ul></div></div></div> <span class="heading-toc" id="toc-how-the-clientele-effect-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 Clientele Effect Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The clientele effect is a change in share price due to corporate decision-making that triggers investors' reactions. A change in policy that is viewed by shareholders as unfavorable may cause them to sell some or all of their holdings, depressing the share 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"> Large policy shifts can be disruptive for both the company’s long-term interests, as well as shareholders’ <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolios</a>. Once a company establishes a policy pattern and attracts a given clientele, it is generally best not to tinker with it too much. </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 a good deal of controversy about whether the clientele effect is a real phenomenon in the markets. Some believe that it takes more factors than just the wishes of a company’s clientele to move a stock’s price greatly. Moreover, even though investors could switch to companies that offered the profile they desired, such changes could entail <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transactioncosts.asp">transaction fees</a>, taxable events, and other costs. </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"> Dividend Clientele </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Public equities are typically categorized either as dividend-paying securities or not. Each of these categories links to a specific age in the lifecycle of a business as it matures. </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, high-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/growthstock.asp">growth stocks</a> traditionally do not pay dividends. However, they are more likely to exhibit substantial price appreciation as the company grows. On the other hand, dividend-paying stocks tend to show smaller movements in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalgain.asp">capital gains</a> but reward investors with stable, periodic dividends. </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"> Shareholders in a dividend clientele generally base their preferences for a particular <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividendpayoutratio.asp">dividend payout ratio</a> on comparable income level, personal <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incometax.asp">income tax</a> considerations, or their age. </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>The clientele effect is often connected with dividend rates and payouts by a company.</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_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"> Some investors, like the legendary Warren Buffett, seek investment opportunities in high-dividend stocks. Others, such as technology investors, often seek out high-growth companies with the potential for extravagant capital gains. Thus, the effect first outlines the way in which the company's maturity and business operations initially attract a specific investor type. </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 second facet of the clientele effect describes how current investors react to substantial changes in a company's policies. For example, if a public technology stock pays no dividends and reinvests all of its profits back into its operations, it initially attracts <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/growthinvesting.asp">growth investors</a>. However, if the company stops reinvesting in its growth and instead begins channeling money to dividend payouts, high-growth investors may be inclined to exit their positions and seek other opportunities that better match their needs. Dividend-seeking income investors may now view the company as an attractive investment. </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"> Consider a company that already pays dividends and has consequently attracted clientele seeking high dividend-paying stocks. If the company should experience a downturn or elects to decrease its dividend offerings, the dividend investors may sell their stock and reinvest the proceeds in another company paying higher returns. As a result of a sell-off, the company's share price is apt to decline. </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-example-of-the-clientele-effect"></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"> Example of the Clientele Effect </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> In 2016, the CEO of Northwestern Mutual publicly announced in a press release a 45-basis-point drop in the dividend scale interest rate. This decision proved to impact the company’s dividend policy negatively. Following the disclosed plans, the company depressed its dividend rate from 5.45% to 5.00%.<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_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Meanwhile, in 2001, Winn-Dixie slashed its dividend and altered its payment structure, opting to distribute income quarterly in arrears instead of monthly in advance. Its shareholders, many of which valued the regular <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currentincome.asp">current income</a>, were not happy, and the stock tanked. Some experts see this as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend-clientele.asp">clientele effect in action</a>.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="2"></span> </p></div>	## What Is the Clientele Effect? The clientele effect explains the movement in a company's stock price according to the demands and goals of its investors. These investor demands come in reaction to a tax, [dividend](https://www.investopedia.com/terms/d/dividend.asp), or other policy change or corporate action which affects a company's shares. The clientele effect assumes that specific investors are preliminarily attracted to different company policies, and that when a company alters one or more such policies they will adjust their stock holdings accordingly. As a result of this adjustment, stock prices can fluctuate. ### Key Takeaways * The clientele effect is a common occurrence whereby stock prices are influenced by shareholder demands. * One side of the clientele effect describes the way in which individual investors seek out stocks from a specific category. * A specific instance of this effect is dividend clientele, a term for a group of stockholders who share the same opinion on how a specific company conducts its dividend policy. ## How the Clientele Effect Works The clientele effect is a change in share price due to corporate decision-making that triggers investors' reactions. A change in policy that is viewed by shareholders as unfavorable may cause them to sell some or all of their holdings, depressing the share price. Large policy shifts can be disruptive for both the company’s long-term interests, as well as shareholders’ [portfolios](https://www.investopedia.com/terms/p/portfolio.asp). Once a company establishes a policy pattern and attracts a given clientele, it is generally best not to tinker with it too much. There is a good deal of controversy about whether the clientele effect is a real phenomenon in the markets. Some believe that it takes more factors than just the wishes of a company’s clientele to move a stock’s price greatly. Moreover, even though investors could switch to companies that offered the profile they desired, such changes could entail [transaction fees](https://www.investopedia.com/terms/t/transactioncosts.asp), taxable events, and other costs. ### Dividend Clientele Public equities are typically categorized either as dividend-paying securities or not. Each of these categories links to a specific age in the lifecycle of a business as it matures. For example, high-[growth stocks](https://www.investopedia.com/terms/g/growthstock.asp) traditionally do not pay dividends. However, they are more likely to exhibit substantial price appreciation as the company grows. On the other hand, dividend-paying stocks tend to show smaller movements in [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) but reward investors with stable, periodic dividends. Shareholders in a dividend clientele generally base their preferences for a particular [dividend payout ratio](https://www.investopedia.com/terms/d/dividendpayoutratio.asp) on comparable income level, personal [income tax](https://www.investopedia.com/terms/i/incometax.asp) considerations, or their age. ### The clientele effect is often connected with dividend rates and payouts by a company. ## Special Considerations Some investors, like the legendary Warren Buffett, seek investment opportunities in high-dividend stocks. Others, such as technology investors, often seek out high-growth companies with the potential for extravagant capital gains. Thus, the effect first outlines the way in which the company's maturity and business operations initially attract a specific investor type. The second facet of the clientele effect describes how current investors react to substantial changes in a company's policies. For example, if a public technology stock pays no dividends and reinvests all of its profits back into its operations, it initially attracts [growth investors](https://www.investopedia.com/terms/g/growthinvesting.asp). However, if the company stops reinvesting in its growth and instead begins channeling money to dividend payouts, high-growth investors may be inclined to exit their positions and seek other opportunities that better match their needs. Dividend-seeking income investors may now view the company as an attractive investment. Consider a company that already pays dividends and has consequently attracted clientele seeking high dividend-paying stocks. If the company should experience a downturn or elects to decrease its dividend offerings, the dividend investors may sell their stock and reinvest the proceeds in another company paying higher returns. As a result of a sell-off, the company's share price is apt to decline. ## Example of the Clientele Effect In 2016, the CEO of Northwestern Mutual publicly announced in a press release a 45-basis-point drop in the dividend scale interest rate. This decision proved to impact the company’s dividend policy negatively. Following the disclosed plans, the company depressed its dividend rate from 5.45% to 5.00%. Meanwhile, in 2001, Winn-Dixie slashed its dividend and altered its payment structure, opting to distribute income quarterly in arrears instead of monthly in advance. Its shareholders, many of which valued the regular [current income](https://www.investopedia.com/terms/c/currentincome.asp), were not happy, and the stock tanked. Some experts see this as the [clientele effect in action](https://www.investopedia.com/terms/d/dividend-clientele.asp).	What Is the Clientele Effect? The clientele effect explains the movement in a company's stock price according to the demands and goals of its investors. These investor demands come in reaction to a tax, dividend, or other policy change or corporate action which affects a company's shares. The clientele effect assumes that specific investors are preliminarily attracted to different company policies, and that when a company alters one or more such policies they will adjust their stock holdings accordingly. As a result of this adjustment, stock prices can fluctuate. Key Takeaways The clientele effect is a common occurrence whereby stock prices are influenced by shareholder demands.One side of the clientele effect describes the way in which individual investors seek out stocks from a specific category.A specific instance of this effect is dividend clientele, a term for a group of stockholders who share the same opinion on how a specific company conducts its dividend policy. How the Clientele Effect Works The clientele effect is a change in share price due to corporate decision-making that triggers investors' reactions. A change in policy that is viewed by shareholders as unfavorable may cause them to sell some or all of their holdings, depressing the share price. Large policy shifts can be disruptive for both the company’s long-term interests, as well as shareholders’ portfolios. Once a company establishes a policy pattern and attracts a given clientele, it is generally best not to tinker with it too much. There is a good deal of controversy about whether the clientele effect is a real phenomenon in the markets. Some believe that it takes more factors than just the wishes of a company’s clientele to move a stock’s price greatly. Moreover, even though investors could switch to companies that offered the profile they desired, such changes could entail transaction fees, taxable events, and other costs. Dividend Clientele Public equities are typically categorized either as dividend-paying securities or not. Each of these categories links to a specific age in the lifecycle of a business as it matures. For example, high-growth stocks traditionally do not pay dividends. However, they are more likely to exhibit substantial price appreciation as the company grows. On the other hand, dividend-paying stocks tend to show smaller movements in capital gains but reward investors with stable, periodic dividends. Shareholders in a dividend clientele generally base their preferences for a particular dividend payout ratio on comparable income level, personal income tax considerations, or their age. The clientele effect is often connected with dividend rates and payouts by a company. Special Considerations Some investors, like the legendary Warren Buffett, seek investment opportunities in high-dividend stocks. Others, such as technology investors, often seek out high-growth companies with the potential for extravagant capital gains. Thus, the effect first outlines the way in which the company's maturity and business operations initially attract a specific investor type. The second facet of the clientele effect describes how current investors react to substantial changes in a company's policies. For example, if a public technology stock pays no dividends and reinvests all of its profits back into its operations, it initially attracts growth investors. However, if the company stops reinvesting in its growth and instead begins channeling money to dividend payouts, high-growth investors may be inclined to exit their positions and seek other opportunities that better match their needs. Dividend-seeking income investors may now view the company as an attractive investment. Consider a company that already pays dividends and has consequently attracted clientele seeking high dividend-paying stocks. If the company should experience a downturn or elects to decrease its dividend offerings, the dividend investors may sell their stock and reinvest the proceeds in another company paying higher returns. As a result of a sell-off, the company's share price is apt to decline. Example of the Clientele Effect In 2016, the CEO of Northwestern Mutual publicly announced in a press release a 45-basis-point drop in the dividend scale interest rate. This decision proved to impact the company’s dividend policy negatively. Following the disclosed plans, the company depressed its dividend rate from 5.45% to 5.00%. Meanwhile, in 2001, Winn-Dixie slashed its dividend and altered its payment structure, opting to distribute income quarterly in arrears instead of monthly in advance. Its shareholders, many of which valued the regular current income, were not happy, and the stock tanked. Some experts see this as the clientele effect in action.	[ [ "dividend", "https://www.investopedia.com/terms/d/dividend.asp" ], [ "portfolios", "https://www.investopedia.com/terms/p/portfolio.asp" ], [ "transaction fees", "https://www.investopedia.com/terms/t/transactioncosts.asp" ], [ "growth stocks", "https://www.investopedia.com/terms/g/growthstock.asp" ], [ "capital gains", "https://www.investopedia.com/terms/c/capitalgain.asp" ], [ "dividend payout ratio", "https://www.investopedia.com/terms/d/dividendpayoutratio.asp" ], [ "income tax", "https://www.investopedia.com/terms/i/incometax.asp" ], [ "growth investors", "https://www.investopedia.com/terms/g/growthinvesting.asp" ], [ "current income", "https://www.investopedia.com/terms/c/currentincome.asp" ], [ "clientele effect in action", "https://www.investopedia.com/terms/d/dividend-clientele.asp" ] ]
https://www.investopedia.com/terms/a/asteroid-event.asp	Asteroid Event	<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-asteroid-event"></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 Asteroid Event? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> An asteroid event is a sudden, unexpected incident that has serious consequences for a 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>Asteroid events are types of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eventrisk.asp">event risk</a> that find companies unprepared.</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/institutionalinvestor.asp">Institutional investors</a> may try to benefit from an asteroid event if they perceive it as a temporary stock mispricing.</li> </ul></div></div></div> <span class="heading-toc" id="toc-understanding-an-asteroid-event"></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 an Asteroid Event </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Asteroid events are types of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eventrisk.asp" rel="noopener noreferrer">event risk</a> that find companies unprepared. For example, if a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/publiccompany.asp" rel="noopener noreferrer">public company</a> relies on a particular executive or board member, or the sales of one or a few products, then a sudden departure or market disruption could reduce sales and the stock price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/institutionalinvestor.asp" rel="noopener noreferrer">Institutional investors</a> may try to benefit from an asteroid event if they perceive it as a temporary stock mispricing. Such a strategy leverages the tendency of a stock price to decrease due to a sudden or dramatic change. Stock analysts review factors such as the regulatory environment and possible synergies or advantages of the changes, then set a new <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pricetarget.asp" rel="noopener noreferrer">price target</a> for the stock. An investment decision would then be made based on the current stock price and the price objective. A correct call could lead to profitable trading; an incorrect call could generate losses. </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 an asteroid event such as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hostiletakeover.asp" rel="noopener noreferrer">hostile takeover</a> occurs, the stock price of the company is likely to fall. Research analysts aim to project whether the takeover will occur, and its effects and their duration as well as implications for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnings.asp" rel="noopener noreferrer">earnings</a> and the stock price. If the takeover fails, the stock price could rise or fall depending on market sentiment. Analysts could estimate a stock price range or select a single price target for each. Investors would buy or sell shares of the target company depending on their outlook on the transaction and the stock price </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-risk-factors-in-the-10-k-report"></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"> Risk factors in the 10-k Report </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Companies are required to publish fundamental information so investors are better able to make informed investment decisions, in documents such as the annual <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/10-k.asp" rel="noopener noreferrer">10-k</a> report. Five sections are included: business overview, risk factors, selected financial data, management discussion and analysis of financial condition and results of operations (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mdanalysis.asp" rel="noopener noreferrer">MD&A</a>) plus financial statements and supplementary data. The risk factors section lists current and potential risks the company faces, listed in order of importance and may provide clues to areas vulnerable to event risk or asteroid risk. However, it focuses on the risks themselves, not how the company addresses them.<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"> Some risks may apply to the entire economy, some only to the company’s industry sector or geographic region, and some may be unique to the company. Companies may discuss how they handle competition, build their brands, or manage in an economic downturn. Or, they may address how they ensure compliance with laws and regulations, or how they are addressing the impact of new or expected laws and regulations. </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-example-of-asteroid-event"></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"> Example of Asteroid Event </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> As an example, asteroid events may occur in small pharmaceutical or biotechnology companies dependent on clinical trial success, FDA approval, and product sales of a single drug. If company ABC has only one drug in the pipeline for FDA approval and the approval gets denied, it can leave the company in shambles. </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"> Other potential asteroid events are restructurings, mergers and acquisitions, bankruptcy, spin-offs or takeovers. </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"> <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. Investors should consider engaging a financial professional to determine a suitable retirement savings, tax and investment strategy.</em> </p></div>	## What is an Asteroid Event? An asteroid event is a sudden, unexpected incident that has serious consequences for a business. ### Key Takeaways * Asteroid events are types of [event risk](https://www.investopedia.com/terms/e/eventrisk.asp) that find companies unprepared. * [Institutional investors](https://www.investopedia.com/terms/i/institutionalinvestor.asp) may try to benefit from an asteroid event if they perceive it as a temporary stock mispricing. ## Understanding an Asteroid Event Asteroid events are types of [event risk](https://www.investopedia.com/terms/e/eventrisk.asp) that find companies unprepared. For example, if a [public company](https://www.investopedia.com/terms/p/publiccompany.asp) relies on a particular executive or board member, or the sales of one or a few products, then a sudden departure or market disruption could reduce sales and the stock price. [Institutional investors](https://www.investopedia.com/terms/i/institutionalinvestor.asp) may try to benefit from an asteroid event if they perceive it as a temporary stock mispricing. Such a strategy leverages the tendency of a stock price to decrease due to a sudden or dramatic change. Stock analysts review factors such as the regulatory environment and possible synergies or advantages of the changes, then set a new [price target](https://www.investopedia.com/terms/p/pricetarget.asp) for the stock. An investment decision would then be made based on the current stock price and the price objective. A correct call could lead to profitable trading; an incorrect call could generate losses. For example, when an asteroid event such as a [hostile takeover](https://www.investopedia.com/terms/h/hostiletakeover.asp) occurs, the stock price of the company is likely to fall. Research analysts aim to project whether the takeover will occur, and its effects and their duration as well as implications for [earnings](https://www.investopedia.com/terms/e/earnings.asp) and the stock price. If the takeover fails, the stock price could rise or fall depending on market sentiment. Analysts could estimate a stock price range or select a single price target for each. Investors would buy or sell shares of the target company depending on their outlook on the transaction and the stock price ## Risk factors in the 10-k Report Companies are required to publish fundamental information so investors are better able to make informed investment decisions, in documents such as the annual [10-k](https://www.investopedia.com/terms/1/10-k.asp) report. Five sections are included: business overview, risk factors, selected financial data, management discussion and analysis of financial condition and results of operations ([MD&A](https://www.investopedia.com/terms/m/mdanalysis.asp)) plus financial statements and supplementary data. The risk factors section lists current and potential risks the company faces, listed in order of importance and may provide clues to areas vulnerable to event risk or asteroid risk. However, it focuses on the risks themselves, not how the company addresses them. Some risks may apply to the entire economy, some only to the company’s industry sector or geographic region, and some may be unique to the company. Companies may discuss how they handle competition, build their brands, or manage in an economic downturn. Or, they may address how they ensure compliance with laws and regulations, or how they are addressing the impact of new or expected laws and regulations. ## Example of Asteroid Event As an example, asteroid events may occur in small pharmaceutical or biotechnology companies dependent on clinical trial success, FDA approval, and product sales of a single drug. If company ABC has only one drug in the pipeline for FDA approval and the approval gets denied, it can leave the company in shambles. Other potential asteroid events are restructurings, mergers and acquisitions, bankruptcy, spin-offs or takeovers. 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. Investors should consider engaging a financial professional to determine a suitable retirement savings, tax and investment strategy.	What is an Asteroid Event? An asteroid event is a sudden, unexpected incident that has serious consequences for a business. Key Takeaways Asteroid events are types of event risk that find companies unprepared. Institutional investors may try to benefit from an asteroid event if they perceive it as a temporary stock mispricing. Understanding an Asteroid Event Asteroid events are types of event risk that find companies unprepared. For example, if a public company relies on a particular executive or board member, or the sales of one or a few products, then a sudden departure or market disruption could reduce sales and the stock price. Institutional investors may try to benefit from an asteroid event if they perceive it as a temporary stock mispricing. Such a strategy leverages the tendency of a stock price to decrease due to a sudden or dramatic change. Stock analysts review factors such as the regulatory environment and possible synergies or advantages of the changes, then set a new price target for the stock. An investment decision would then be made based on the current stock price and the price objective. A correct call could lead to profitable trading; an incorrect call could generate losses. For example, when an asteroid event such as a hostile takeover occurs, the stock price of the company is likely to fall. Research analysts aim to project whether the takeover will occur, and its effects and their duration as well as implications for earnings and the stock price. If the takeover fails, the stock price could rise or fall depending on market sentiment. Analysts could estimate a stock price range or select a single price target for each. Investors would buy or sell shares of the target company depending on their outlook on the transaction and the stock price Risk factors in the 10-k Report Companies are required to publish fundamental information so investors are better able to make informed investment decisions, in documents such as the annual 10-k report. Five sections are included: business overview, risk factors, selected financial data, management discussion and analysis of financial condition and results of operations (MD&A) plus financial statements and supplementary data. The risk factors section lists current and potential risks the company faces, listed in order of importance and may provide clues to areas vulnerable to event risk or asteroid risk. However, it focuses on the risks themselves, not how the company addresses them. Some risks may apply to the entire economy, some only to the company’s industry sector or geographic region, and some may be unique to the company. Companies may discuss how they handle competition, build their brands, or manage in an economic downturn. Or, they may address how they ensure compliance with laws and regulations, or how they are addressing the impact of new or expected laws and regulations. Example of Asteroid Event As an example, asteroid events may occur in small pharmaceutical or biotechnology companies dependent on clinical trial success, FDA approval, and product sales of a single drug. If company ABC has only one drug in the pipeline for FDA approval and the approval gets denied, it can leave the company in shambles. Other potential asteroid events are restructurings, mergers and acquisitions, bankruptcy, spin-offs or takeovers. 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. Investors should consider engaging a financial professional to determine a suitable retirement savings, tax and investment strategy.	[ [ "event risk", "https://www.investopedia.com/terms/e/eventrisk.asp" ], [ "Institutional investors", "https://www.investopedia.com/terms/i/institutionalinvestor.asp" ], [ "event risk", "https://www.investopedia.com/terms/e/eventrisk.asp" ], [ "public company", "https://www.investopedia.com/terms/p/publiccompany.asp" ], [ "Institutional investors", "https://www.investopedia.com/terms/i/institutionalinvestor.asp" ], [ "price target", "https://www.investopedia.com/terms/p/pricetarget.asp" ], [ "hostile takeover", "https://www.investopedia.com/terms/h/hostiletakeover.asp" ], [ "earnings", "https://www.investopedia.com/terms/e/earnings.asp" ], [ "10-k", "https://www.investopedia.com/terms/1/10-k.asp" ], [ "MD&A", "https://www.investopedia.com/terms/m/mdanalysis.asp" ] ]
https://www.investopedia.com/news/can-whirlpool-remain-durable/	Can Whirlpool Remain Durable?	<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 Tuesday's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://academy.investopedia.com/pages/live-daily-markets-commentary?aca_ref=dmc">Daily Market Commentary webinar</a>, we got a lot of questions about the impact of tariffs on stocks. President Donald Trump's tariffs on steel and aluminum have not been fully imposed yet, and some exporters are likely to be exempt, but they are still causing problems for durable goods makers like Whirlpool (<a class="link-symbol" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=whr">WHR</a>). Along with other manufacturers, Whirlpool has already been warning its investors that rising costs may slow profits next year. </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-tariffs-may-have-unintended-effects"></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"> Tariffs May Have Unintended Effects </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The issue for manufacturers who use steel and aluminum as an input for the products they manufacture is that tariffs on raw materials increase their costs, which takes time to pass along to consumers. In the meantime, manufacturers wind up absorbing the higher costs and suffering from lower profit margins. Unless economic growth offsets the damage, even passing along those extra costs may hurt manufacturers because it lowers demand. </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"> In Whirlpool's case, this is especially problematic in the short-term. The stock rallied after releasing earnings in April but has now reached a key pivot level near $164-165 per share. From a technical perspective, any bad news could trigger selling at this level, which increases the importance of the durable goods report that the Census Bureau will be releasing on Friday. In a market where not much impresses investors, WHR could be sucked into a whirlpool of profit-taking after rising 14% since April. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></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-low-res" id="mntl-sc-block_8-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:89.6%;"> <img class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/lo9hHxrmQzUVN8Ato0Bj7rOOsks=/600x0/filters:no_upscale():max_bytes(150000):strip_icc()/whr05222018-5bfd804cc9e77c0058b490f9" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/9HDgf5qSEeKW3VagmOAoqHoXqDg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/whr05222018-5bfd804cc9e77c0058b490f9" data-srcset="https://www.investopedia.com/thmb/n3yMw1dbundz1Eb4MCs5crsFHEw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/whr05222018-5bfd804cc9e77c0058b490f9 750w" data-tracking-container="true" height="538" id="mntl-sc-block-image_1-0" width="600"/> <noscript> <img class="img--noscript universal-image__image" height="538" sizes="750px" src="https://www.investopedia.com/thmb/9HDgf5qSEeKW3VagmOAoqHoXqDg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/whr05222018-5bfd804cc9e77c0058b490f9" srcset="https://www.investopedia.com/thmb/n3yMw1dbundz1Eb4MCs5crsFHEw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/whr05222018-5bfd804cc9e77c0058b490f9 750w" width="600"/> </noscript> </div> </div> </figure></div>	In Tuesday's [Daily Market Commentary webinar](https://academy.investopedia.com/pages/live-daily-markets-commentary?aca_ref=dmc), we got a lot of questions about the impact of tariffs on stocks. President Donald Trump's tariffs on steel and aluminum have not been fully imposed yet, and some exporters are likely to be exempt, but they are still causing problems for durable goods makers like Whirlpool ([WHR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=whr)). Along with other manufacturers, Whirlpool has already been warning its investors that rising costs may slow profits next year. ## Tariffs May Have Unintended Effects The issue for manufacturers who use steel and aluminum as an input for the products they manufacture is that tariffs on raw materials increase their costs, which takes time to pass along to consumers. In the meantime, manufacturers wind up absorbing the higher costs and suffering from lower profit margins. Unless economic growth offsets the damage, even passing along those extra costs may hurt manufacturers because it lowers demand. In Whirlpool's case, this is especially problematic in the short-term. The stock rallied after releasing earnings in April but has now reached a key pivot level near $164-165 per share. From a technical perspective, any bad news could trigger selling at this level, which increases the importance of the durable goods report that the Census Bureau will be releasing on Friday. In a market where not much impresses investors, WHR could be sucked into a whirlpool of profit-taking after rising 14% since April. ![]() ![](https://www.investopedia.com/thmb/9HDgf5qSEeKW3VagmOAoqHoXqDg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/whr05222018-5bfd804cc9e77c0058b490f9)	In Tuesday's Daily Market Commentary webinar, we got a lot of questions about the impact of tariffs on stocks. President Donald Trump's tariffs on steel and aluminum have not been fully imposed yet, and some exporters are likely to be exempt, but they are still causing problems for durable goods makers like Whirlpool (WHR). Along with other manufacturers, Whirlpool has already been warning its investors that rising costs may slow profits next year. Tariffs May Have Unintended Effects The issue for manufacturers who use steel and aluminum as an input for the products they manufacture is that tariffs on raw materials increase their costs, which takes time to pass along to consumers. In the meantime, manufacturers wind up absorbing the higher costs and suffering from lower profit margins. Unless economic growth offsets the damage, even passing along those extra costs may hurt manufacturers because it lowers demand. In Whirlpool's case, this is especially problematic in the short-term. The stock rallied after releasing earnings in April but has now reached a key pivot level near $164-165 per share. From a technical perspective, any bad news could trigger selling at this level, which increases the importance of the durable goods report that the Census Bureau will be releasing on Friday. In a market where not much impresses investors, WHR could be sucked into a whirlpool of profit-taking after rising 14% since April.	[ [ "Daily Market Commentary webinar", "https://academy.investopedia.com/pages/live-daily-markets-commentary?aca_ref=dmc" ], [ "WHR", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=whr" ] ]
https://www.investopedia.com/terms/f/full-cost-method.asp	Full Cost (FC) Method	<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-full-cost-fc-method"></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 Full Cost (FC) Method? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The full cost (FC) method is an accounting system used specifically by extractive industries such as oil and gas companies. Under this technique, all exploration operating costs are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalizedcost.asp" rel="noopener noreferrer">capitalized</a>, regardless of whether they were successful or not, and then <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/amortization.asp" rel="noopener noreferrer">amortized</a> into expenses over time as the total reserves are produced. </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 approach stands in contrast to the successful efforts (SE) <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accountingmethod.asp" rel="noopener noreferrer">accounting method</a>, which only capitalizes <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expense.asp" rel="noopener noreferrer">expenses</a> related to fruitful extraction ventures. </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>Full cost (FC) accounting permits companies to capitalize all operating expenses related to locating new oil and gas reserves, regardless of the outcome.</li><li>Deferring unsuccessful expenses to a future date inflates reported net income (NI) but also makes the company more susceptible to large non-cash charges.</li><li>Full cost (FC) accounting is an alternative to the successful efforts (SE) accounting method, which only capitalizes expenses related to fruitful extraction ventures.</li><li>These two accounting techniques coexist because governing bodies cannot always agree on which method most transparently reports earnings and cash flow.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-full-cost-fc-method"></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 Full Cost (FC) Method </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Oil and gas companies spend a lot of money exploring new untapped reservoirs without any guarantee that they will find anything. Costs include acquiring land, obtaining the necessary permissions to extract, buying or leasing relevant equipment, transportation, and paying a specialist workforce’s wages. </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 a company’s exploration efforts come up short, any costs incurred are usually recorded as an expense on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incomestatement.asp" rel="noopener noreferrer">income statement</a>. The full cost (FC) method takes a different approach, recording all successful and unsuccessful explorations as a cost on the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balancesheet.asp" rel="noopener noreferrer">balance sheet</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"> Oil and gas explorers can account for costs using either the full cost (FC) method or the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/fundamental-analysis/08/oil-gas.asp" rel="noopener noreferrer">successful efforts</a> (SE) accounting method. Under the latter, a company is permitted to capitalize only those expenses associated with successfully locating new oil and natural gas reserves. For unsuccessful, or "dry hole," results, the associated <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/operating-cost.asp" rel="noopener noreferrer">operating costs</a> are immediately charged against <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revenue.asp" rel="noopener noreferrer">revenues</a> for that period. </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">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Two contrasting<strong> </strong>types of accounting methods coexist because governing bodies are divided about which one best transparently reports a company's earnings and cash flows.</p></div></div></div> <span class="heading-toc" id="toc-full-cost-fc-method-vs-successful-efforts-se-method"></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"> Full Cost (FC) Method vs. Successful Efforts (SE) Method </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The two alternative methods for recording oil and gas exploration and development expenses are the result of two differing views of the realities of exploring and developing oil and gas reserves. Each view insists that the associated accounting method best achieves transparency relative to an oil and gas company's accounting of its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnings.asp" rel="noopener noreferrer">earnings</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp" rel="noopener noreferrer">cash flows</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"> According to the view behind the SE method, the ultimate objective of an oil and gas company is to produce the oil or natural gas from reserves it locates and develops so that only those costs relating to successful efforts should be capitalized. Conversely, because there is no change in productive <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp" rel="noopener noreferrer">assets</a> with unsuccessful results, costs incurred with those efforts should be expensed. </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"> Proponents of the full cost (FC) method, meanwhile, contend that the dominant activity of an oil and gas company is simply the exploration and development of oil and gas reserves, meaning that all costs incurred in pursuit of that activity should first be capitalized and then <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/write-off.asp" rel="noopener noreferrer">written off</a> over the course of a full operating cycle. </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-advantages-and-disadvantages-of-the-full-cost-fc-method"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Advantages and Disadvantages of the Full Cost (FC) Method </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Choosing the full cost (FC) method path comes with a series of benefits and drawbacks. Until an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/impairment.asp" rel="noopener noreferrer">impairment</a><strong> </strong>occurs, reported profit levels can appear to be deceivingly elevated, since the expense recognition for so many costs has been deferred to a future date. Higher <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/netincome.asp" rel="noopener noreferrer">net income</a> (NI)<strong> </strong>may make the company immediately seem more attractive to investors than competitors and help it to raise new capital. </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"> At the same time, capitalizing unsuccessful exploration costs rather than expensing them results in the company being more susceptible to large <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/noncashcharge.asp" rel="noopener noreferrer">non-cash charges</a> whenever the preceding factors result in an expected cash flow decline. These write-downs or accounting expenses have a tendency to weigh on earnings and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/08/stock-prices-fool.asp" rel="noopener noreferrer">share prices</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"> Finally, it’s worth pointing out that the need for periodic impairment reviews can also increase accounting costs. </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-special-considerations"></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"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The existence of two accounting methods represents conflicting views in the industry about how oil and natural gas companies can most transparently report their earnings. Ultimately, the two organizations that regulate accounting and financial reporting, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fasb.asp">Financial Accounting Standards Board</a> (FASB) and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission</a><strong> </strong>(SEC), cannot always agree on which method is most appropriate. </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"> In its "Statement of Financial Accounting Standard No. 19," the FASB requires that oil and gas companies use the SE method. The SEC, on the other hand, allows companies to use the full cost (FC) method.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span> In other words, these two governing bodies have yet to find the ideological common ground needed to establish a single accounting approach. </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"> That ultimately means that investors must be vigilant, recognizing that there are reporting variations and being aware of their associated impacts. The choice between these two accounting methods affects a company's reported NI and cash flows, so investors should take note of the method used and the differences between the two. </p></div>	## What Is the Full Cost (FC) Method? The full cost (FC) method is an accounting system used specifically by extractive industries such as oil and gas companies. Under this technique, all exploration operating costs are [capitalized](https://www.investopedia.com/terms/c/capitalizedcost.asp), regardless of whether they were successful or not, and then [amortized](https://www.investopedia.com/terms/a/amortization.asp) into expenses over time as the total reserves are produced. This approach stands in contrast to the successful efforts (SE) [accounting method](https://www.investopedia.com/terms/a/accountingmethod.asp), which only capitalizes [expenses](https://www.investopedia.com/terms/e/expense.asp) related to fruitful extraction ventures. ### Key Takeaways * Full cost (FC) accounting permits companies to capitalize all operating expenses related to locating new oil and gas reserves, regardless of the outcome. * Deferring unsuccessful expenses to a future date inflates reported net income (NI) but also makes the company more susceptible to large non-cash charges. * Full cost (FC) accounting is an alternative to the successful efforts (SE) accounting method, which only capitalizes expenses related to fruitful extraction ventures. * These two accounting techniques coexist because governing bodies cannot always agree on which method most transparently reports earnings and cash flow. ## Understanding the Full Cost (FC) Method Oil and gas companies spend a lot of money exploring new untapped reservoirs without any guarantee that they will find anything. Costs include acquiring land, obtaining the necessary permissions to extract, buying or leasing relevant equipment, transportation, and paying a specialist workforce’s wages. When a company’s exploration efforts come up short, any costs incurred are usually recorded as an expense on the [income statement](https://www.investopedia.com/terms/i/incomestatement.asp). The full cost (FC) method takes a different approach, recording all successful and unsuccessful explorations as a cost on the [balance sheet](https://www.investopedia.com/terms/b/balancesheet.asp). Oil and gas explorers can account for costs using either the full cost (FC) method or the [successful efforts](https://www.investopedia.com/articles/fundamental-analysis/08/oil-gas.asp) (SE) accounting method. Under the latter, a company is permitted to capitalize only those expenses associated with successfully locating new oil and natural gas reserves. For unsuccessful, or "dry hole," results, the associated [operating costs](https://www.investopedia.com/terms/o/operating-cost.asp) are immediately charged against [revenues](https://www.investopedia.com/terms/r/revenue.asp) for that period. ### Important Two contrastingtypes of accounting methods coexist because governing bodies are divided about which one best transparently reports a company's earnings and cash flows. ## Full Cost (FC) Method vs. Successful Efforts (SE) Method The two alternative methods for recording oil and gas exploration and development expenses are the result of two differing views of the realities of exploring and developing oil and gas reserves. Each view insists that the associated accounting method best achieves transparency relative to an oil and gas company's accounting of its [earnings](https://www.investopedia.com/terms/e/earnings.asp) and [cash flows](https://www.investopedia.com/terms/c/cashflow.asp). According to the view behind the SE method, the ultimate objective of an oil and gas company is to produce the oil or natural gas from reserves it locates and develops so that only those costs relating to successful efforts should be capitalized. Conversely, because there is no change in productive [assets](https://www.investopedia.com/terms/a/asset.asp) with unsuccessful results, costs incurred with those efforts should be expensed. Proponents of the full cost (FC) method, meanwhile, contend that the dominant activity of an oil and gas company is simply the exploration and development of oil and gas reserves, meaning that all costs incurred in pursuit of that activity should first be capitalized and then [written off](https://www.investopedia.com/terms/w/write-off.asp) over the course of a full operating cycle. ## Advantages and Disadvantages of the Full Cost (FC) Method Choosing the full cost (FC) method path comes with a series of benefits and drawbacks. Until an [impairment](https://www.investopedia.com/terms/i/impairment.asp)occurs, reported profit levels can appear to be deceivingly elevated, since the expense recognition for so many costs has been deferred to a future date. Higher [net income](https://www.investopedia.com/terms/n/netincome.asp) (NI)may make the company immediately seem more attractive to investors than competitors and help it to raise new capital. At the same time, capitalizing unsuccessful exploration costs rather than expensing them results in the company being more susceptible to large [non-cash charges](https://www.investopedia.com/terms/n/noncashcharge.asp) whenever the preceding factors result in an expected cash flow decline. These write-downs or accounting expenses have a tendency to weigh on earnings and [share prices](https://www.investopedia.com/articles/stocks/08/stock-prices-fool.asp). Finally, it’s worth pointing out that the need for periodic impairment reviews can also increase accounting costs. ## Special Considerations The existence of two accounting methods represents conflicting views in the industry about how oil and natural gas companies can most transparently report their earnings. Ultimately, the two organizations that regulate accounting and financial reporting, the [Financial Accounting Standards Board](https://www.investopedia.com/terms/f/fasb.asp) (FASB) and the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp)(SEC), cannot always agree on which method is most appropriate. In its "Statement of Financial Accounting Standard No. 19," the FASB requires that oil and gas companies use the SE method. The SEC, on the other hand, allows companies to use the full cost (FC) method. In other words, these two governing bodies have yet to find the ideological common ground needed to establish a single accounting approach. That ultimately means that investors must be vigilant, recognizing that there are reporting variations and being aware of their associated impacts. The choice between these two accounting methods affects a company's reported NI and cash flows, so investors should take note of the method used and the differences between the two.	What Is the Full Cost (FC) Method? The full cost (FC) method is an accounting system used specifically by extractive industries such as oil and gas companies. Under this technique, all exploration operating costs are capitalized, regardless of whether they were successful or not, and then amortized into expenses over time as the total reserves are produced. This approach stands in contrast to the successful efforts (SE) accounting method, which only capitalizes expenses related to fruitful extraction ventures. Key Takeaways Full cost (FC) accounting permits companies to capitalize all operating expenses related to locating new oil and gas reserves, regardless of the outcome.Deferring unsuccessful expenses to a future date inflates reported net income (NI) but also makes the company more susceptible to large non-cash charges.Full cost (FC) accounting is an alternative to the successful efforts (SE) accounting method, which only capitalizes expenses related to fruitful extraction ventures.These two accounting techniques coexist because governing bodies cannot always agree on which method most transparently reports earnings and cash flow. Understanding the Full Cost (FC) Method Oil and gas companies spend a lot of money exploring new untapped reservoirs without any guarantee that they will find anything. Costs include acquiring land, obtaining the necessary permissions to extract, buying or leasing relevant equipment, transportation, and paying a specialist workforce’s wages. When a company’s exploration efforts come up short, any costs incurred are usually recorded as an expense on the income statement. The full cost (FC) method takes a different approach, recording all successful and unsuccessful explorations as a cost on the balance sheet. Oil and gas explorers can account for costs using either the full cost (FC) method or the successful efforts (SE) accounting method. Under the latter, a company is permitted to capitalize only those expenses associated with successfully locating new oil and natural gas reserves. For unsuccessful, or "dry hole," results, the associated operating costs are immediately charged against revenues for that period. Important Two contrasting types of accounting methods coexist because governing bodies are divided about which one best transparently reports a company's earnings and cash flows. Full Cost (FC) Method vs. Successful Efforts (SE) Method The two alternative methods for recording oil and gas exploration and development expenses are the result of two differing views of the realities of exploring and developing oil and gas reserves. Each view insists that the associated accounting method best achieves transparency relative to an oil and gas company's accounting of its earnings and cash flows. According to the view behind the SE method, the ultimate objective of an oil and gas company is to produce the oil or natural gas from reserves it locates and develops so that only those costs relating to successful efforts should be capitalized. Conversely, because there is no change in productive assets with unsuccessful results, costs incurred with those efforts should be expensed. Proponents of the full cost (FC) method, meanwhile, contend that the dominant activity of an oil and gas company is simply the exploration and development of oil and gas reserves, meaning that all costs incurred in pursuit of that activity should first be capitalized and then written off over the course of a full operating cycle. Advantages and Disadvantages of the Full Cost (FC) Method Choosing the full cost (FC) method path comes with a series of benefits and drawbacks. Until an impairment occurs, reported profit levels can appear to be deceivingly elevated, since the expense recognition for so many costs has been deferred to a future date. Higher net income (NI) may make the company immediately seem more attractive to investors than competitors and help it to raise new capital. At the same time, capitalizing unsuccessful exploration costs rather than expensing them results in the company being more susceptible to large non-cash charges whenever the preceding factors result in an expected cash flow decline. These write-downs or accounting expenses have a tendency to weigh on earnings and share prices. Finally, it’s worth pointing out that the need for periodic impairment reviews can also increase accounting costs. Special Considerations The existence of two accounting methods represents conflicting views in the industry about how oil and natural gas companies can most transparently report their earnings. Ultimately, the two organizations that regulate accounting and financial reporting, the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC), cannot always agree on which method is most appropriate. In its "Statement of Financial Accounting Standard No. 19," the FASB requires that oil and gas companies use the SE method. The SEC, on the other hand, allows companies to use the full cost (FC) method. In other words, these two governing bodies have yet to find the ideological common ground needed to establish a single accounting approach. That ultimately means that investors must be vigilant, recognizing that there are reporting variations and being aware of their associated impacts. The choice between these two accounting methods affects a company's reported NI and cash flows, so investors should take note of the method used and the differences between the two.	[ [ "capitalized", "https://www.investopedia.com/terms/c/capitalizedcost.asp" ], [ "amortized", "https://www.investopedia.com/terms/a/amortization.asp" ], [ "accounting method", "https://www.investopedia.com/terms/a/accountingmethod.asp" ], [ "expenses", "https://www.investopedia.com/terms/e/expense.asp" ], [ "income statement", "https://www.investopedia.com/terms/i/incomestatement.asp" ], [ "balance sheet", "https://www.investopedia.com/terms/b/balancesheet.asp" ], [ "successful efforts", "https://www.investopedia.com/articles/fundamental-analysis/08/oil-gas.asp" ], [ "operating costs", "https://www.investopedia.com/terms/o/operating-cost.asp" ], [ "revenues", "https://www.investopedia.com/terms/r/revenue.asp" ], [ "earnings", "https://www.investopedia.com/terms/e/earnings.asp" ], [ "cash flows", "https://www.investopedia.com/terms/c/cashflow.asp" ], [ "assets", "https://www.investopedia.com/terms/a/asset.asp" ], [ "written off", "https://www.investopedia.com/terms/w/write-off.asp" ], [ "impairment", "https://www.investopedia.com/terms/i/impairment.asp" ], [ "net income", "https://www.investopedia.com/terms/n/netincome.asp" ], [ "non-cash charges", "https://www.investopedia.com/terms/n/noncashcharge.asp" ], [ "share prices", "https://www.investopedia.com/articles/stocks/08/stock-prices-fool.asp" ], [ "Financial Accounting Standards Board", "https://www.investopedia.com/terms/f/fasb.asp" ], [ "Securities and Exchange Commission", "https://www.investopedia.com/terms/s/sec.asp" ] ]
https://www.investopedia.com/terms/c/crb.asp	Commodity Research Bureau Index (CRBI): Definition and Weightings	<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-commodity-research-bureau-index-crbi"></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 Commodity Research Bureau Index (CRBI)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Commodity Research Bureau Index (CRBI) acts as a representative indicator of today's global commodity markets. It measures the aggregated price direction of various <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodity.asp">commodity</a> sectors. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodityindices.asp">commodity index</a> comprises a basket of 19 commodities, with 39% allocated to energy contracts, 41% to agriculture, 7% to precious metals, and 13% to industrial metals. The CRB is designed to isolate and reveal the directional movement of prices in overall commodity trades. </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 Commodity Research Bureau Index (CRB) acts as a representative indicator of today's global commodity markets. </li><li>The CRBI measures the aggregated price direction of various commodity sectors, and is designed to isolate and reveal the directional movement of prices in overall commodity trades.</li><li>In 1986, the CRBI became the most-watched contract on the exchange; today, several brokers still support commodity indices that track commodity price movements.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-commodity-research-bureau-index-crbi"></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 Commodity Research Bureau Index (CRBI) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> After the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/great_depression.asp">Great Depression</a> in the 1930s, trading activity in stocks, bonds, and commodity futures was beginning to show some life. However, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trader.asp">traders</a> and those interested in commodities found that very few sources of comprehensive information were available to them. </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"> With that in mind, a journalist named Milton Jiler founded the Commodity Research Bureau, with the Futures Market Service as its first publication, according to the CRB website. He felt traders needed something that better reflected the overall price activity in the commodity markets. To solve this problem and improve trade transparency, the CRB Index was designed to provide a dynamic representation of broad trends in commodity prices. </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 1986, the New York Futures Exchange (NYFE) introduced the CRB Futures Price Index, which quickly became the most-watched contract on the exchange. Today, several different brokers support commodity indices that track baskets of commodities to reflect price movements. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">Investors</a> recognize them as a significant barometer of commodity prices and market access. For example, The Thomson Reuters Equal Weight Commodity Index is the CRB Index in its original equal weight from 1957. </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-other-commodity-indices"></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"> Other Commodity Indices </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The CBR is one of the original commodity index providers. Since its inception, many other providers have followed. </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, today there is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dj-aigci.asp">Dow Jones Commodity Index</a>, <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.bloomberg.com/tosv2.html?vid=&uuid=899b14b8-d258-11ed-b8ea-476e5948594c&url=L3Byb2Zlc3Npb25hbC9wcm9kdWN0L2luZGljZXMvYmxvb21iZXJnLWNvbW1vZGl0eS1pbmRleC1mYW1pbHkv">Bloomberg Commodity Index</a> (BCOM), UBS Bloomberg CMCI, Reuters/Jefferies CRB, Rogers International, and the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gsci.asp">S&P Goldman Sachs Commodity Index</a> (GSCI). </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"> All of these indices are designed to provide liquid and diverse exposure to actual commodities through futures contracts. </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-commodities-as-an-asset-class"></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"> Commodities as an Asset Class </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The three main asset classes are traditionally equities or stocks; fixed income, or bonds; and cash equivalents, or money market instruments. More recently investment professionals have added commodities to the asset class mix. Some investment professionals feel they are beneficial to an investor's portfolio because they add diversification, inflation protection, and absolute returns. </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"> Other asset managers think commodities are a niche asset class that is subject to high price volatility. Regarding strategies, passive long-only indexes represent the highest exposure, according to an article <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://blogs.cfainstitute.org/investor/2015/11/23/the-effects-of-fx/" rel="sponsored nofollow">published by the CFA Institute</a>. To this end, commodity indices such as the CRB are an invaluable tool for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/wealth-management/021816/portfolio-manager-job-description-average-salary.asp">portfolio managers</a>. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_27-0"><span class="heading-toc" id="toc-what-commodities-does-the-crb-index-track"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Commodities Does the CRB Index Track?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The CRB index tracks a basket of 19 commodities. These include (in alphabetical order): Aluminum; Cocoa; Coffee; Copper; Corn; Cotton; Crude Oil; Gold; Heating Oil; Lean Hogs; Live Cattle; Natural Gas; Nickel; Orange Juice; RBOB Gasoline; Silver; Soybeans; Sugar; and Wheat.<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_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_29-0"><span class="heading-toc" id="toc-how-are-the-commodities-in-the-crb-index-weighted"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Are the Commodities in the CRB Index Weighted?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The CRB index is weighted to Energy: 39%; Agriculture: 41%; Precious Metals: 7%; and Base/Industrial Metals: 13%.<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_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-who-publishes-the-crb-index"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Publishes the CRB Index?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Commodity Research Bureau (CRB) Index is currently published by Thomson Reuters.<span class="ql-inline-citation" data-cite="1"></span></p></div> </div></div>	## What Is the Commodity Research Bureau Index (CRBI)? The Commodity Research Bureau Index (CRBI) acts as a representative indicator of today's global commodity markets. It measures the aggregated price direction of various [commodity](https://www.investopedia.com/terms/c/commodity.asp) sectors. This [commodity index](https://www.investopedia.com/terms/c/commodityindices.asp) comprises a basket of 19 commodities, with 39% allocated to energy contracts, 41% to agriculture, 7% to precious metals, and 13% to industrial metals. The CRB is designed to isolate and reveal the directional movement of prices in overall commodity trades. ### Key Takeaways * The Commodity Research Bureau Index (CRB) acts as a representative indicator of today's global commodity markets. * The CRBI measures the aggregated price direction of various commodity sectors, and is designed to isolate and reveal the directional movement of prices in overall commodity trades. * In 1986, the CRBI became the most-watched contract on the exchange; today, several brokers still support commodity indices that track commodity price movements. ## Understanding the Commodity Research Bureau Index (CRBI) After the [Great Depression](https://www.investopedia.com/terms/g/great_depression.asp) in the 1930s, trading activity in stocks, bonds, and commodity futures was beginning to show some life. However, [traders](https://www.investopedia.com/terms/t/trader.asp) and those interested in commodities found that very few sources of comprehensive information were available to them. With that in mind, a journalist named Milton Jiler founded the Commodity Research Bureau, with the Futures Market Service as its first publication, according to the CRB website. He felt traders needed something that better reflected the overall price activity in the commodity markets. To solve this problem and improve trade transparency, the CRB Index was designed to provide a dynamic representation of broad trends in commodity prices. In 1986, the New York Futures Exchange (NYFE) introduced the CRB Futures Price Index, which quickly became the most-watched contract on the exchange. Today, several different brokers support commodity indices that track baskets of commodities to reflect price movements. [Investors](https://www.investopedia.com/terms/i/investor.asp) recognize them as a significant barometer of commodity prices and market access. For example, The Thomson Reuters Equal Weight Commodity Index is the CRB Index in its original equal weight from 1957. ## Other Commodity Indices The CBR is one of the original commodity index providers. Since its inception, many other providers have followed. For example, today there is the [Dow Jones Commodity Index](https://www.investopedia.com/terms/d/dj-aigci.asp), [Bloomberg Commodity Index](https://www.bloomberg.com/tosv2.html?vid=&uuid=899b14b8-d258-11ed-b8ea-476e5948594c&url=L3Byb2Zlc3Npb25hbC9wcm9kdWN0L2luZGljZXMvYmxvb21iZXJnLWNvbW1vZGl0eS1pbmRleC1mYW1pbHkv) (BCOM), UBS Bloomberg CMCI, Reuters/Jefferies CRB, Rogers International, and the [S&P Goldman Sachs Commodity Index](https://www.investopedia.com/terms/g/gsci.asp) (GSCI). All of these indices are designed to provide liquid and diverse exposure to actual commodities through futures contracts. ## Commodities as an Asset Class The three main asset classes are traditionally equities or stocks; fixed income, or bonds; and cash equivalents, or money market instruments. More recently investment professionals have added commodities to the asset class mix. Some investment professionals feel they are beneficial to an investor's portfolio because they add diversification, inflation protection, and absolute returns. Other asset managers think commodities are a niche asset class that is subject to high price volatility. Regarding strategies, passive long-only indexes represent the highest exposure, according to an article [published by the CFA Institute](https://blogs.cfainstitute.org/investor/2015/11/23/the-effects-of-fx/). To this end, commodity indices such as the CRB are an invaluable tool for [portfolio managers](https://www.investopedia.com/articles/wealth-management/021816/portfolio-manager-job-description-average-salary.asp). ## What Commodities Does the CRB Index Track? The CRB index tracks a basket of 19 commodities. These include (in alphabetical order): Aluminum; Cocoa; Coffee; Copper; Corn; Cotton; Crude Oil; Gold; Heating Oil; Lean Hogs; Live Cattle; Natural Gas; Nickel; Orange Juice; RBOB Gasoline; Silver; Soybeans; Sugar; and Wheat. ## How Are the Commodities in the CRB Index Weighted? The CRB index is weighted to Energy: 39%; Agriculture: 41%; Precious Metals: 7%; and Base/Industrial Metals: 13%. ## Who Publishes the CRB Index? The Commodity Research Bureau (CRB) Index is currently published by Thomson Reuters.	What Is the Commodity Research Bureau Index (CRBI)? The Commodity Research Bureau Index (CRBI) acts as a representative indicator of today's global commodity markets. It measures the aggregated price direction of various commodity sectors. This commodity index comprises a basket of 19 commodities, with 39% allocated to energy contracts, 41% to agriculture, 7% to precious metals, and 13% to industrial metals. The CRB is designed to isolate and reveal the directional movement of prices in overall commodity trades. Key Takeaways The Commodity Research Bureau Index (CRB) acts as a representative indicator of today's global commodity markets. The CRBI measures the aggregated price direction of various commodity sectors, and is designed to isolate and reveal the directional movement of prices in overall commodity trades.In 1986, the CRBI became the most-watched contract on the exchange; today, several brokers still support commodity indices that track commodity price movements. Understanding the Commodity Research Bureau Index (CRBI) After the Great Depression in the 1930s, trading activity in stocks, bonds, and commodity futures was beginning to show some life. However, traders and those interested in commodities found that very few sources of comprehensive information were available to them. With that in mind, a journalist named Milton Jiler founded the Commodity Research Bureau, with the Futures Market Service as its first publication, according to the CRB website. He felt traders needed something that better reflected the overall price activity in the commodity markets. To solve this problem and improve trade transparency, the CRB Index was designed to provide a dynamic representation of broad trends in commodity prices. In 1986, the New York Futures Exchange (NYFE) introduced the CRB Futures Price Index, which quickly became the most-watched contract on the exchange. Today, several different brokers support commodity indices that track baskets of commodities to reflect price movements. Investors recognize them as a significant barometer of commodity prices and market access. For example, The Thomson Reuters Equal Weight Commodity Index is the CRB Index in its original equal weight from 1957. Other Commodity Indices The CBR is one of the original commodity index providers. Since its inception, many other providers have followed. For example, today there is the Dow Jones Commodity Index, Bloomberg Commodity Index (BCOM), UBS Bloomberg CMCI, Reuters/Jefferies CRB, Rogers International, and the S&P Goldman Sachs Commodity Index (GSCI). All of these indices are designed to provide liquid and diverse exposure to actual commodities through futures contracts. Commodities as an Asset Class The three main asset classes are traditionally equities or stocks; fixed income, or bonds; and cash equivalents, or money market instruments. More recently investment professionals have added commodities to the asset class mix. Some investment professionals feel they are beneficial to an investor's portfolio because they add diversification, inflation protection, and absolute returns. Other asset managers think commodities are a niche asset class that is subject to high price volatility. Regarding strategies, passive long-only indexes represent the highest exposure, according to an article published by the CFA Institute. To this end, commodity indices such as the CRB are an invaluable tool for portfolio managers. What Commodities Does the CRB Index Track? The CRB index tracks a basket of 19 commodities. These include (in alphabetical order): Aluminum; Cocoa; Coffee; Copper; Corn; Cotton; Crude Oil; Gold; Heating Oil; Lean Hogs; Live Cattle; Natural Gas; Nickel; Orange Juice; RBOB Gasoline; Silver; Soybeans; Sugar; and Wheat. How Are the Commodities in the CRB Index Weighted? The CRB index is weighted to Energy: 39%; Agriculture: 41%; Precious Metals: 7%; and Base/Industrial Metals: 13%. Who Publishes the CRB Index? The Commodity Research Bureau (CRB) Index is currently published by Thomson Reuters.	[ [ "commodity", "https://www.investopedia.com/terms/c/commodity.asp" ], [ "commodity index", "https://www.investopedia.com/terms/c/commodityindices.asp" ], [ "Great Depression", "https://www.investopedia.com/terms/g/great_depression.asp" ], [ "traders", "https://www.investopedia.com/terms/t/trader.asp" ], [ "Investors", "https://www.investopedia.com/terms/i/investor.asp" ], [ "Dow Jones Commodity Index", "https://www.investopedia.com/terms/d/dj-aigci.asp" ], [ "Bloomberg Commodity Index", "https://www.bloomberg.com/tosv2.html?vid=&uuid=899b14b8-d258-11ed-b8ea-476e5948594c&url=L3Byb2Zlc3Npb25hbC9wcm9kdWN0L2luZGljZXMvYmxvb21iZXJnLWNvbW1vZGl0eS1pbmRleC1mYW1pbHkv" ], [ "S&P Goldman Sachs Commodity Index", "https://www.investopedia.com/terms/g/gsci.asp" ], [ "published by the CFA Institute", "https://blogs.cfainstitute.org/investor/2015/11/23/the-effects-of-fx/" ], [ "portfolio managers", "https://www.investopedia.com/articles/wealth-management/021816/portfolio-manager-job-description-average-salary.asp" ] ]
https://www.investopedia.com/terms/c/concession.asp	Concession: Meaning of the Fee an Underwriter Receives	<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-concession"></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 Concession? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A concession—also known as a selling concession—is the compensation a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sellinggroup.asp">selling group</a> receives as part of a stock or bond underwriting agreement. The calculation of compensation is the difference between what the public pays for the securities and what the issuing company receives from the sale based on a per-share or a per-bond basis. Included in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underwritingspread.asp">underwriting spread</a> is the management fee, selling concession, and underwriter's compensation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> In business, other types of concessions exist for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/acquisition.asp">acquisition</a> of assets, the purchase of real estate, and the leasing of buildings and other property. </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>In finance, a concession refers to the compensation an underwriter receives for managing the sale of stocks or bonds for a company.</li><li>The underwriter is generally an investment bank that assumes the risk of marketing and distributing the shares of a new issue for a publicly traded company.</li><li>Another type of concession is a real estate concession, which is an agreement between a buyer and a seller to adjust the price or other terms of the sale based on a new condition, such as a home inspection that reveals the need for costly repairs.</li><li>Governments, corporations, and individuals can grant vendors concessions to allow access to property or buildings for the purpose of running a business.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-concession-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> How a Concession Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> When a publicly traded company wishes to raise capital by issuing stocks or bonds, it hires an investment bank to act as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underwriter.asp">underwriter</a> and handle the transaction. The underwriter receives compensation for the securities it sells. This compensation is called a selling concession. </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 underwriter is responsible for assisting the issuing company to distribute their securities. The underwriter will help with the filing of the appropriate documents with the <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) and works with the company to set a date for the sale of the securities. </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 underwriter purchases the company's shares and then sells them through its distribution network to the public at a higher price. While underwriters assume the risk of managing and selling shares, they are not always responsible for the securities they are not able to sell. These conditions will be outlined in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underwriting-agreement.asp">underwriting agreement</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"> Concessions can be involved in a variety of other transactions based on adjustments to the price in a trade. Adjustments can include changes to the purchase price due to inaccurate valuation and compensation to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/third-party.asp">third party</a> involved in administering the transaction. Market changes and faulty data may cause an inaccurate valuation. </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-concession-agreement"></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"> Concession Agreement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/concessionagreement.asp">concession agreement</a> will become part of the deal when concessions are a necessary part of the transaction. The document, like other forms of contracts, serves as a legally binding agreement between the two undersigned parties. The concession agreement contains the details upon which the concessions will or will not take place. </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 case where an underwriter is managing the sale of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/newissue.asp">new issue</a> for a company, the amount of compensation the underwriter will receive will be detailed in the concession agreement. The underwriter's compensation is calculated as a discount from the price of the new issue. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> For example, if the issuing company sells the underwriter a series of bonds at $4,900 per bond, the underwriter may sell the bonds to the public for $5,000 each. The $100 difference represents the underwriting company's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/profit.asp">profit</a> or concession. </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-types-of-concessions"></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"> Types of Concessions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> As it relates to the finance industry, a concession may be present during the sale or acquisition of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a>. The purchasing company may attempt to adjust the price based on the resources required to maintain the assets. If the adjustment is permitted and becomes part of the transaction's official agreement, it is a concession. </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"> One ordinary transaction that often includes such concessions involves the purchase or sale of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/realestate.asp">real estate</a>. Real estate concessions are typical in the residential marketplace. In this scenario, both buyers and sellers may negotiate concessions, such as a change in the sale price of the property based on a change in valuation (e.g., repairs identified by a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/home-inspection.asp">home inspection</a>) or the addition of assets not previously listed in the negotiation (e.g., the inclusion of appliances). </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"> Lastly, concessions most notably occur in locations like shopping centers, theaters, and sporting arenas. The vendors, as part of the rental agreement, often owe concessions to the building owner that go beyond the traditional rental fee. Governments, corporations, and individuals can grant concessions to allow another party access to a property or building. Most commonly, these concessions require the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/vendor.asp">vendor</a> to pay the building owner a certain percentage of all sales that take place within the facility. </p></div>	## What Is a Concession? A concession—also known as a selling concession—is the compensation a [selling group](https://www.investopedia.com/terms/s/sellinggroup.asp) receives as part of a stock or bond underwriting agreement. The calculation of compensation is the difference between what the public pays for the securities and what the issuing company receives from the sale based on a per-share or a per-bond basis. Included in the [underwriting spread](https://www.investopedia.com/terms/u/underwritingspread.asp) is the management fee, selling concession, and underwriter's compensation. In business, other types of concessions exist for the [acquisition](https://www.investopedia.com/terms/a/acquisition.asp) of assets, the purchase of real estate, and the leasing of buildings and other property. ### Key Takeaways * In finance, a concession refers to the compensation an underwriter receives for managing the sale of stocks or bonds for a company. * The underwriter is generally an investment bank that assumes the risk of marketing and distributing the shares of a new issue for a publicly traded company. * Another type of concession is a real estate concession, which is an agreement between a buyer and a seller to adjust the price or other terms of the sale based on a new condition, such as a home inspection that reveals the need for costly repairs. * Governments, corporations, and individuals can grant vendors concessions to allow access to property or buildings for the purpose of running a business. ## How a Concession Works When a publicly traded company wishes to raise capital by issuing stocks or bonds, it hires an investment bank to act as an [underwriter](https://www.investopedia.com/terms/u/underwriter.asp) and handle the transaction. The underwriter receives compensation for the securities it sells. This compensation is called a selling concession. The underwriter is responsible for assisting the issuing company to distribute their securities. The underwriter will help with the filing of the appropriate documents with the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC) and works with the company to set a date for the sale of the securities. The underwriter purchases the company's shares and then sells them through its distribution network to the public at a higher price. While underwriters assume the risk of managing and selling shares, they are not always responsible for the securities they are not able to sell. These conditions will be outlined in the [underwriting agreement](https://www.investopedia.com/terms/u/underwriting-agreement.asp). Concessions can be involved in a variety of other transactions based on adjustments to the price in a trade. Adjustments can include changes to the purchase price due to inaccurate valuation and compensation to a [third party](https://www.investopedia.com/terms/t/third-party.asp) involved in administering the transaction. Market changes and faulty data may cause an inaccurate valuation. ## Concession Agreement A [concession agreement](https://www.investopedia.com/terms/c/concessionagreement.asp) will become part of the deal when concessions are a necessary part of the transaction. The document, like other forms of contracts, serves as a legally binding agreement between the two undersigned parties. The concession agreement contains the details upon which the concessions will or will not take place. In the case where an underwriter is managing the sale of a [new issue](https://www.investopedia.com/terms/n/newissue.asp) for a company, the amount of compensation the underwriter will receive will be detailed in the concession agreement. The underwriter's compensation is calculated as a discount from the price of the new issue. For example, if the issuing company sells the underwriter a series of bonds at $4,900 per bond, the underwriter may sell the bonds to the public for $5,000 each. The $100 difference represents the underwriting company's [profit](https://www.investopedia.com/terms/p/profit.asp) or concession. ## Types of Concessions As it relates to the finance industry, a concession may be present during the sale or acquisition of [assets](https://www.investopedia.com/terms/a/asset.asp). The purchasing company may attempt to adjust the price based on the resources required to maintain the assets. If the adjustment is permitted and becomes part of the transaction's official agreement, it is a concession. One ordinary transaction that often includes such concessions involves the purchase or sale of [real estate](https://www.investopedia.com/terms/r/realestate.asp). Real estate concessions are typical in the residential marketplace. In this scenario, both buyers and sellers may negotiate concessions, such as a change in the sale price of the property based on a change in valuation (e.g., repairs identified by a [home inspection](https://www.investopedia.com/terms/h/home-inspection.asp)) or the addition of assets not previously listed in the negotiation (e.g., the inclusion of appliances). Lastly, concessions most notably occur in locations like shopping centers, theaters, and sporting arenas. The vendors, as part of the rental agreement, often owe concessions to the building owner that go beyond the traditional rental fee. Governments, corporations, and individuals can grant concessions to allow another party access to a property or building. Most commonly, these concessions require the [vendor](https://www.investopedia.com/terms/v/vendor.asp) to pay the building owner a certain percentage of all sales that take place within the facility.	What Is a Concession? A concession—also known as a selling concession—is the compensation a selling group receives as part of a stock or bond underwriting agreement. The calculation of compensation is the difference between what the public pays for the securities and what the issuing company receives from the sale based on a per-share or a per-bond basis. Included in the underwriting spread is the management fee, selling concession, and underwriter's compensation. In business, other types of concessions exist for the acquisition of assets, the purchase of real estate, and the leasing of buildings and other property. Key Takeaways In finance, a concession refers to the compensation an underwriter receives for managing the sale of stocks or bonds for a company.The underwriter is generally an investment bank that assumes the risk of marketing and distributing the shares of a new issue for a publicly traded company.Another type of concession is a real estate concession, which is an agreement between a buyer and a seller to adjust the price or other terms of the sale based on a new condition, such as a home inspection that reveals the need for costly repairs.Governments, corporations, and individuals can grant vendors concessions to allow access to property or buildings for the purpose of running a business. How a Concession Works When a publicly traded company wishes to raise capital by issuing stocks or bonds, it hires an investment bank to act as an underwriter and handle the transaction. The underwriter receives compensation for the securities it sells. This compensation is called a selling concession. The underwriter is responsible for assisting the issuing company to distribute their securities. The underwriter will help with the filing of the appropriate documents with the Securities and Exchange Commission (SEC) and works with the company to set a date for the sale of the securities. The underwriter purchases the company's shares and then sells them through its distribution network to the public at a higher price. While underwriters assume the risk of managing and selling shares, they are not always responsible for the securities they are not able to sell. These conditions will be outlined in the underwriting agreement. Concessions can be involved in a variety of other transactions based on adjustments to the price in a trade. Adjustments can include changes to the purchase price due to inaccurate valuation and compensation to a third party involved in administering the transaction. Market changes and faulty data may cause an inaccurate valuation. Concession Agreement A concession agreement will become part of the deal when concessions are a necessary part of the transaction. The document, like other forms of contracts, serves as a legally binding agreement between the two undersigned parties. The concession agreement contains the details upon which the concessions will or will not take place. In the case where an underwriter is managing the sale of a new issue for a company, the amount of compensation the underwriter will receive will be detailed in the concession agreement. The underwriter's compensation is calculated as a discount from the price of the new issue. For example, if the issuing company sells the underwriter a series of bonds at $4,900 per bond, the underwriter may sell the bonds to the public for $5,000 each. The $100 difference represents the underwriting company's profit or concession. Types of Concessions As it relates to the finance industry, a concession may be present during the sale or acquisition of assets. The purchasing company may attempt to adjust the price based on the resources required to maintain the assets. If the adjustment is permitted and becomes part of the transaction's official agreement, it is a concession. One ordinary transaction that often includes such concessions involves the purchase or sale of real estate. Real estate concessions are typical in the residential marketplace. In this scenario, both buyers and sellers may negotiate concessions, such as a change in the sale price of the property based on a change in valuation (e.g., repairs identified by a home inspection) or the addition of assets not previously listed in the negotiation (e.g., the inclusion of appliances). Lastly, concessions most notably occur in locations like shopping centers, theaters, and sporting arenas. The vendors, as part of the rental agreement, often owe concessions to the building owner that go beyond the traditional rental fee. Governments, corporations, and individuals can grant concessions to allow another party access to a property or building. Most commonly, these concessions require the vendor to pay the building owner a certain percentage of all sales that take place within the facility.	[ [ "selling group", "https://www.investopedia.com/terms/s/sellinggroup.asp" ], [ "underwriting spread", "https://www.investopedia.com/terms/u/underwritingspread.asp" ], [ "acquisition", "https://www.investopedia.com/terms/a/acquisition.asp" ], [ "underwriter", "https://www.investopedia.com/terms/u/underwriter.asp" ], [ "Securities and Exchange Commission", "https://www.investopedia.com/terms/s/sec.asp" ], [ "underwriting agreement", "https://www.investopedia.com/terms/u/underwriting-agreement.asp" ], [ "third party", "https://www.investopedia.com/terms/t/third-party.asp" ], [ "concession agreement", "https://www.investopedia.com/terms/c/concessionagreement.asp" ], [ "new issue", "https://www.investopedia.com/terms/n/newissue.asp" ], [ "profit", "https://www.investopedia.com/terms/p/profit.asp" ], [ "assets", "https://www.investopedia.com/terms/a/asset.asp" ], [ "real estate", "https://www.investopedia.com/terms/r/realestate.asp" ], [ "home inspection", "https://www.investopedia.com/terms/h/home-inspection.asp" ], [ "vendor", "https://www.investopedia.com/terms/v/vendor.asp" ] ]
https://www.investopedia.com/cash-management-account-vs-brokerage-account-7498122	Cash Management Account vs. Brokerage Account	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-cash-management-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Cash Management Account? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A cash management account (CMA) is a type of account offered by many financial institutions that combines features of checking, savings, and investment accounts. This kind of account is designed to streamline an individual’s financial operations by providing a “one-stop shop” for multiple banking activities. </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 key features of a cash management account include the ability to deposit and withdraw money, write checks, make electronic transfers, and sometimes access <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/atm.asp">automated teller machines (ATMs)</a>.<span class="ql-inline-citation" data-cite="4"></span> Many CMAs also allow you to earn <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> on the cash held in the account. In some cases, the interest rates may be higher than those provided by traditional <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savingsaccount.asp">savings accounts</a>.<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_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Cash management accounts often come with additional features like automatic <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sweepaccount.asp">cash sweep</a> (where excess cash is automatically moved into an investment account or <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>), debit cards, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/overdraft-protection.asp">overdraft protection</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_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>Cash management accounts (CMAs) are versatile and combine features of checking, savings, and sometimes investment accounts, offering convenience and easy access to your money.</li><li>Brokerage accounts are primarily designed for investing in securities such as stocks, bonds, and mutual funds, providing opportunities for potentially higher returns, but with greater risk.</li><li>The choice between a CMA and a brokerage account should align with your personal financial goals, risk tolerance, and banking needs.</li><li>Many people may find it beneficial to have both a CMA for day-to-day money management and a brokerage account for long-term wealth growth.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-a-brokerage-account"></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"> What Is a Brokerage Account? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerageaccount.asp">brokerage account</a> is an investment account that an individual opens with a brokerage firm. The primary purpose of this account is to invest money in various financial instruments such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stock.asp">stocks</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0312/the-basics-of-bonds.aspx">bonds</a>, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">mutual funds</a>, <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a>, and other securities. The money deposited into the brokerage account can be used to buy and sell these investments.<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_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> While a brokerage account doesn’t typically provide the same breadth of services as a cash management account, it can offer higher potential returns through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment.asp">investing</a>. And, increasingly, many brokerage firms are incorporating features like check writing and debit cards. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/types-brokerage-accounts/">Brokerage accounts</a> are best-suited for those who have some knowledge of the financial markets and are looking to grow their wealth over the long term. </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-comparisonlist mntl-block" id="mntl-sc-block_17-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_18-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">CMA vs. Brokerage Account</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Similarities</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Opportunity for growth</p></li> <li><p>Alternatives to traditional savings</p></li> <li><p>Flexibility</p></li> <li><p>Offered by many financial institutions</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">Differences</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Primary purpose</p></li> <li><p>Access to funds</p></li> <li><p>Riskiness</p></li> <li><p>Account features and extras</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-cash-management-account-vs-brokerage-account-key-similarities"></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"> Cash Management Account vs. Brokerage Account: Key Similarities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Despite their different primary functions, cash management accounts and brokerage accounts share some similarities. Both accounts: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <li><strong>Offer an avenue for wealth growth</strong>: CMAs offer interest-bearing features, while brokerage accounts provide opportunities for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/investing-strategies/">investment</a> gains.</li> <li><strong>Have potential for higher returns than traditional savings accounts</strong>: Brokerage accounts can provide substantial <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp">returns</a> through investments, while some CMAs offer competitive interest rates.</li> <li><strong>Flexibility</strong>: CMAs’ various features and kinds of account activities make them useful for different banking activities.</li> <li><strong>Are offered by many financial institutions</strong>: Both types of accounts are available from a variety of financial institutions, including traditional <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank.asp">banks</a>, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/onlinebanking.asp">online banks</a>, and <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerage-company.asp">brokerage firms</a>.</li> </ol> <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-cash-management-account-vs-brokerage-account-key-differences"></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"> Cash Management Account vs. Brokerage Account: Key Differences </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> While there are similarities between CMAs and brokerage accounts, there are also significant differences: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <li><strong>Primary purpose</strong>: The primary purpose of a CMA is to manage daily cash flow and offer convenience and liquidity for banking needs, while a brokerage account is designed specifically for investing in financial securities.</li> <li><strong>Access to funds</strong>: Funds in a CMA are typically easier to gain access to than those in a brokerage account. Withdrawals often can be made without penalties, unlike the fact that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earlywithdrawal.asp">early withdrawal</a> of certain investments in a brokerage account that may incur fees.</li> <li><strong>Risk level</strong>: Cash in a CMA generally carries less risk, as it isn’t subject to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/08/volatility.asp">market fluctuations</a> like investments in a brokerage account are. However, this also means potentially lower returns.<span class="ql-inline-citation" data-cite="8"></span></li> <li><strong>Account features</strong>: CMAs often come with features like debit cards, check writing, and ATM access, which are usually not offered with brokerage accounts.</li> </ol> <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-choosing-an-account-type"></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"> Choosing an Account Type </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Choosing between a cash management account and a brokerage account depends on your individual financial goals, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/07/risk_tolerance.asp">risk tolerance</a>, and banking needs. </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"> If you’re looking for an account that combines the features of checking, savings, and potentially investment accounts, and you value the convenience of having everything in one place, then a cash management account may be right for you. It’s also a good choice if you prefer easy access to your money and lower risk. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_35-0"><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_36-0"><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 decision to open a CMA vs. a brokerage account ultimately comes down to your personal financial situation, your goals, and your comfort with risk. It’s always a good idea to speak with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/managing-wealth/when-should-you-hire-financial-advisor/">financial advisor</a> or conduct thorough research before making a decision. In either case, both types of accounts can play a role in a balanced financial plan.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> On the other hand, if your primary goal is to invest and grow your wealth over the long term, and you’re comfortable with the higher risks associated with investing in the stock market, then a brokerage account could be more suitable. </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"> It’s also worth considering that these two account types are not mutually exclusive. Many individuals may find it beneficial to have a cash management account <em>and</em> a brokerage account. You could use the CMA for day-to-day financial management and saving for short-term goals and use the brokerage account for long-term investing and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/managing-wealth/simple-steps-building-wealth/">wealth building</a>. </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-do-i-need-a-large-amount-of-money-to-open-a-cash-management-account-or-a-brokerage-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do I Need a Large Amount of Money to Open a Cash Management Account or a Brokerage Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Not necessarily. Many institutions offer cash management and brokerage accounts with low or no <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/minimum-balance.asp">minimum balance</a> requirements. However, certain premium accounts or specific investments within a brokerage account may require a higher minimum. Always check the account details with the specific institution.</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-i-lose-money-in-a-cash-management-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Lose Money in a Cash Management Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Cash management accounts are generally considered low-risk due to the nature of their features, and the savings portions are often <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">insured by the Federal Deposit Insurance Corp. (FDIC)</a>. But if the institution where you hold your CMA goes bankrupt, you could lose money in amounts that exceed FDIC limits.<span class="ql-inline-citation" data-cite="9"></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_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-can-i-use-a-brokerage-account-like-a-bank-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Use a Brokerage Account Like a Bank Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While some brokerage accounts may offer features similar to a bank account, such as check writing or a debit card, they are primarily designed for investing. Unlike bank accounts, the value of your brokerage account can fluctuate based on the performance of your investments.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_47-0"><span class="heading-toc" id="toc-which-account-is-better-for-saving-for-retirement-a-cash-management-account-or-a-brokerage-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Account Is Better for Saving for Retirement, a Cash Management Account or a Brokerage Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While you can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/06/tips35to44.asp">save for retirement</a> in either type of account, a brokerage account may be more suitable for this purpose. Brokerage accounts allow for investing in a wider range of securities, which can potentially provide greater returns over the long term. However, it’s also worth considering specific retirement accounts like <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">individual retirement accounts (IRAs)</a> and employer-sponsored <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k)s</a>, which come with tax advantages.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Cash management accounts (CMAs) and brokerage accounts each offer distinct features and benefits. CMAs provide a consolidated stop for banking needs with check writing, savings, and sometimes investing options. They are a great choice if you value <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/103015/cash-vs-bonds-what-pick-times-uncertainty.asp">convenience, easy access to your money, and lower risk</a>. On the other hand, brokerage accounts are primarily designed for investing in the financial markets and can offer potentially higher returns, albeit at a higher <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/03/050203.asp">risk</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"> Your choice between a CMA and a brokerage account, or potentially using both, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/invest-for-short-term-and-long-term-goals-8347417">should align with your financial goals</a>, risk tolerance, and specific needs. Always conduct thorough research or consult with a financial advisor before making such decisions to ensure the best fit for your financial situation. </p></div>	## What Is a Cash Management Account? A cash management account (CMA) is a type of account offered by many financial institutions that combines features of checking, savings, and investment accounts. This kind of account is designed to streamline an individual’s financial operations by providing a “one-stop shop” for multiple banking activities. The key features of a cash management account include the ability to deposit and withdraw money, write checks, make electronic transfers, and sometimes access [automated teller machines (ATMs)](https://www.investopedia.com/terms/a/atm.asp). Many CMAs also allow you to earn [interest](https://www.investopedia.com/terms/i/interest.asp) on the cash held in the account. In some cases, the interest rates may be higher than those provided by traditional [savings accounts](https://www.investopedia.com/terms/s/savingsaccount.asp). Cash management accounts often come with additional features like automatic [cash sweep](https://www.investopedia.com/terms/s/sweepaccount.asp) (where excess cash is automatically moved into an investment account or [money market fund](https://www.investopedia.com/terms/m/money-marketfund.asp)), debit cards, and [overdraft protection](https://www.investopedia.com/terms/o/overdraft-protection.asp). ### Key Takeaways * Cash management accounts (CMAs) are versatile and combine features of checking, savings, and sometimes investment accounts, offering convenience and easy access to your money. * Brokerage accounts are primarily designed for investing in securities such as stocks, bonds, and mutual funds, providing opportunities for potentially higher returns, but with greater risk. * The choice between a CMA and a brokerage account should align with your personal financial goals, risk tolerance, and banking needs. * Many people may find it beneficial to have both a CMA for day-to-day money management and a brokerage account for long-term wealth growth. ## What Is a Brokerage Account? A [brokerage account](https://www.investopedia.com/terms/b/brokerageaccount.asp) is an investment account that an individual opens with a brokerage firm. The primary purpose of this account is to invest money in various financial instruments such as [stocks](https://www.investopedia.com/terms/s/stock.asp), [bonds](https://www.investopedia.com/financial-edge/0312/the-basics-of-bonds.aspx), [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp), [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp), and other securities. The money deposited into the brokerage account can be used to buy and sell these investments. While a brokerage account doesn’t typically provide the same breadth of services as a cash management account, it can offer higher potential returns through [investing](https://www.investopedia.com/terms/i/investment.asp). And, increasingly, many brokerage firms are incorporating features like check writing and debit cards. [Brokerage accounts](https://www.investopedia.com/investing/types-brokerage-accounts/) are best-suited for those who have some knowledge of the financial markets and are looking to grow their wealth over the long term. ### CMA vs. Brokerage Account Similarities * Opportunity for growth * Alternatives to traditional savings * Flexibility * Offered by many financial institutions Differences * Primary purpose * Access to funds * Riskiness * Account features and extras ## Cash Management Account vs. Brokerage Account: Key Similarities Despite their different primary functions, cash management accounts and brokerage accounts share some similarities. Both accounts: 1. Offer an avenue for wealth growth: CMAs offer interest-bearing features, while brokerage accounts provide opportunities for [investment](https://www.investopedia.com/investing/investing-strategies/) gains. 2. Have potential for higher returns than traditional savings accounts: Brokerage accounts can provide substantial [returns](https://www.investopedia.com/terms/r/return.asp) through investments, while some CMAs offer competitive interest rates. 3. Flexibility: CMAs’ various features and kinds of account activities make them useful for different banking activities. 4. Are offered by many financial institutions: Both types of accounts are available from a variety of financial institutions, including traditional [banks](https://www.investopedia.com/terms/b/bank.asp), [online banks](https://www.investopedia.com/terms/o/onlinebanking.asp), and [brokerage firms](https://www.investopedia.com/terms/b/brokerage-company.asp). ## Cash Management Account vs. Brokerage Account: Key Differences While there are similarities between CMAs and brokerage accounts, there are also significant differences: 1. Primary purpose: The primary purpose of a CMA is to manage daily cash flow and offer convenience and liquidity for banking needs, while a brokerage account is designed specifically for investing in financial securities. 2. Access to funds: Funds in a CMA are typically easier to gain access to than those in a brokerage account. Withdrawals often can be made without penalties, unlike the fact that [early withdrawal](https://www.investopedia.com/terms/e/earlywithdrawal.asp) of certain investments in a brokerage account that may incur fees. 3. Risk level: Cash in a CMA generally carries less risk, as it isn’t subject to [market fluctuations](https://www.investopedia.com/articles/financial-theory/08/volatility.asp) like investments in a brokerage account are. However, this also means potentially lower returns. 4. Account features: CMAs often come with features like debit cards, check writing, and ATM access, which are usually not offered with brokerage accounts. ## Choosing an Account Type Choosing between a cash management account and a brokerage account depends on your individual financial goals, [risk tolerance](https://www.investopedia.com/articles/pf/07/risk_tolerance.asp), and banking needs. If you’re looking for an account that combines the features of checking, savings, and potentially investment accounts, and you value the convenience of having everything in one place, then a cash management account may be right for you. It’s also a good choice if you prefer easy access to your money and lower risk. ### The decision to open a CMA vs. a brokerage account ultimately comes down to your personal financial situation, your goals, and your comfort with risk. It’s always a good idea to speak with a [financial advisor](https://www.investopedia.com/managing-wealth/when-should-you-hire-financial-advisor/) or conduct thorough research before making a decision. In either case, both types of accounts can play a role in a balanced financial plan. On the other hand, if your primary goal is to invest and grow your wealth over the long term, and you’re comfortable with the higher risks associated with investing in the stock market, then a brokerage account could be more suitable. It’s also worth considering that these two account types are not mutually exclusive. Many individuals may find it beneficial to have a cash management account and a brokerage account. You could use the CMA for day-to-day financial management and saving for short-term goals and use the brokerage account for long-term investing and [wealth building](https://www.investopedia.com/managing-wealth/simple-steps-building-wealth/). ## Do I Need a Large Amount of Money to Open a Cash Management Account or a Brokerage Account? Not necessarily. Many institutions offer cash management and brokerage accounts with low or no [minimum balance](https://www.investopedia.com/terms/m/minimum-balance.asp) requirements. However, certain premium accounts or specific investments within a brokerage account may require a higher minimum. Always check the account details with the specific institution. ## Can I Lose Money in a Cash Management Account? Cash management accounts are generally considered low-risk due to the nature of their features, and the savings portions are often [insured by the Federal Deposit Insurance Corp. (FDIC)](https://www.investopedia.com/terms/f/fdic-insured-account.asp). But if the institution where you hold your CMA goes bankrupt, you could lose money in amounts that exceed FDIC limits. ## Can I Use a Brokerage Account Like a Bank Account? While some brokerage accounts may offer features similar to a bank account, such as check writing or a debit card, they are primarily designed for investing. Unlike bank accounts, the value of your brokerage account can fluctuate based on the performance of your investments. ## Which Account Is Better for Saving for Retirement, a Cash Management Account or a Brokerage Account? While you can [save for retirement](https://www.investopedia.com/articles/retirement/06/tips35to44.asp) in either type of account, a brokerage account may be more suitable for this purpose. Brokerage accounts allow for investing in a wider range of securities, which can potentially provide greater returns over the long term. However, it’s also worth considering specific retirement accounts like [individual retirement accounts (IRAs)](https://www.investopedia.com/terms/i/ira.asp) and employer-sponsored [401(k)s](https://www.investopedia.com/terms/1/401kplan.asp), which come with tax advantages. ## The Bottom Line Cash management accounts (CMAs) and brokerage accounts each offer distinct features and benefits. CMAs provide a consolidated stop for banking needs with check writing, savings, and sometimes investing options. They are a great choice if you value [convenience, easy access to your money, and lower risk](https://www.investopedia.com/articles/investing/103015/cash-vs-bonds-what-pick-times-uncertainty.asp). On the other hand, brokerage accounts are primarily designed for investing in the financial markets and can offer potentially higher returns, albeit at a higher [risk](https://www.investopedia.com/articles/basics/03/050203.asp). Your choice between a CMA and a brokerage account, or potentially using both, [should align with your financial goals](https://www.investopedia.com/invest-for-short-term-and-long-term-goals-8347417), risk tolerance, and specific needs. Always conduct thorough research or consult with a financial advisor before making such decisions to ensure the best fit for your financial situation.	What Is a Cash Management Account? A cash management account (CMA) is a type of account offered by many financial institutions that combines features of checking, savings, and investment accounts. This kind of account is designed to streamline an individual’s financial operations by providing a “one-stop shop” for multiple banking activities. The key features of a cash management account include the ability to deposit and withdraw money, write checks, make electronic transfers, and sometimes access automated teller machines (ATMs). Many CMAs also allow you to earn interest on the cash held in the account. In some cases, the interest rates may be higher than those provided by traditional savings accounts. Cash management accounts often come with additional features like automatic cash sweep (where excess cash is automatically moved into an investment account or money market fund), debit cards, and overdraft protection. Key Takeaways Cash management accounts (CMAs) are versatile and combine features of checking, savings, and sometimes investment accounts, offering convenience and easy access to your money.Brokerage accounts are primarily designed for investing in securities such as stocks, bonds, and mutual funds, providing opportunities for potentially higher returns, but with greater risk.The choice between a CMA and a brokerage account should align with your personal financial goals, risk tolerance, and banking needs.Many people may find it beneficial to have both a CMA for day-to-day money management and a brokerage account for long-term wealth growth. What Is a Brokerage Account? A brokerage account is an investment account that an individual opens with a brokerage firm. The primary purpose of this account is to invest money in various financial instruments such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other securities. The money deposited into the brokerage account can be used to buy and sell these investments. While a brokerage account doesn’t typically provide the same breadth of services as a cash management account, it can offer higher potential returns through investing. And, increasingly, many brokerage firms are incorporating features like check writing and debit cards. Brokerage accounts are best-suited for those who have some knowledge of the financial markets and are looking to grow their wealth over the long term. CMA vs. Brokerage Account Similarities Opportunity for growth Alternatives to traditional savings Flexibility Offered by many financial institutions Differences Primary purpose Access to funds Riskiness Account features and extras Cash Management Account vs. Brokerage Account: Key Similarities Despite their different primary functions, cash management accounts and brokerage accounts share some similarities. Both accounts: Offer an avenue for wealth growth: CMAs offer interest-bearing features, while brokerage accounts provide opportunities for investment gains. Have potential for higher returns than traditional savings accounts: Brokerage accounts can provide substantial returns through investments, while some CMAs offer competitive interest rates. Flexibility: CMAs’ various features and kinds of account activities make them useful for different banking activities. Are offered by many financial institutions: Both types of accounts are available from a variety of financial institutions, including traditional banks, online banks, and brokerage firms. Cash Management Account vs. Brokerage Account: Key Differences While there are similarities between CMAs and brokerage accounts, there are also significant differences: Primary purpose: The primary purpose of a CMA is to manage daily cash flow and offer convenience and liquidity for banking needs, while a brokerage account is designed specifically for investing in financial securities. Access to funds: Funds in a CMA are typically easier to gain access to than those in a brokerage account. Withdrawals often can be made without penalties, unlike the fact that early withdrawal of certain investments in a brokerage account that may incur fees. Risk level: Cash in a CMA generally carries less risk, as it isn’t subject to market fluctuations like investments in a brokerage account are. However, this also means potentially lower returns. Account features: CMAs often come with features like debit cards, check writing, and ATM access, which are usually not offered with brokerage accounts. Choosing an Account Type Choosing between a cash management account and a brokerage account depends on your individual financial goals, risk tolerance, and banking needs. If you’re looking for an account that combines the features of checking, savings, and potentially investment accounts, and you value the convenience of having everything in one place, then a cash management account may be right for you. It’s also a good choice if you prefer easy access to your money and lower risk. The decision to open a CMA vs. a brokerage account ultimately comes down to your personal financial situation, your goals, and your comfort with risk. It’s always a good idea to speak with a financial advisor or conduct thorough research before making a decision. In either case, both types of accounts can play a role in a balanced financial plan. On the other hand, if your primary goal is to invest and grow your wealth over the long term, and you’re comfortable with the higher risks associated with investing in the stock market, then a brokerage account could be more suitable. It’s also worth considering that these two account types are not mutually exclusive. Many individuals may find it beneficial to have a cash management account and a brokerage account. You could use the CMA for day-to-day financial management and saving for short-term goals and use the brokerage account for long-term investing and wealth building. Do I Need a Large Amount of Money to Open a Cash Management Account or a Brokerage Account? Not necessarily. Many institutions offer cash management and brokerage accounts with low or no minimum balance requirements. However, certain premium accounts or specific investments within a brokerage account may require a higher minimum. Always check the account details with the specific institution. Can I Lose Money in a Cash Management Account? Cash management accounts are generally considered low-risk due to the nature of their features, and the savings portions are often insured by the Federal Deposit Insurance Corp. (FDIC). But if the institution where you hold your CMA goes bankrupt, you could lose money in amounts that exceed FDIC limits. Can I Use a Brokerage Account Like a Bank Account? While some brokerage accounts may offer features similar to a bank account, such as check writing or a debit card, they are primarily designed for investing. Unlike bank accounts, the value of your brokerage account can fluctuate based on the performance of your investments. Which Account Is Better for Saving for Retirement, a Cash Management Account or a Brokerage Account? While you can save for retirement in either type of account, a brokerage account may be more suitable for this purpose. Brokerage accounts allow for investing in a wider range of securities, which can potentially provide greater returns over the long term. However, it’s also worth considering specific retirement accounts like individual retirement accounts (IRAs) and employer-sponsored 401(k)s, which come with tax advantages. The Bottom Line Cash management accounts (CMAs) and brokerage accounts each offer distinct features and benefits. CMAs provide a consolidated stop for banking needs with check writing, savings, and sometimes investing options. They are a great choice if you value convenience, easy access to your money, and lower risk. On the other hand, brokerage accounts are primarily designed for investing in the financial markets and can offer potentially higher returns, albeit at a higher risk. Your choice between a CMA and a brokerage account, or potentially using both, should align with your financial goals, risk tolerance, and specific needs. Always conduct thorough research or consult with a financial advisor before making such decisions to ensure the best fit for your financial situation.	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(FDIC)", "https://www.investopedia.com/terms/f/fdic-insured-account.asp" ], [ "save for retirement", "https://www.investopedia.com/articles/retirement/06/tips35to44.asp" ], [ "individual retirement accounts (IRAs)", "https://www.investopedia.com/terms/i/ira.asp" ], [ "401(k)s", "https://www.investopedia.com/terms/1/401kplan.asp" ], [ "convenience, easy access to your money, and lower risk", "https://www.investopedia.com/articles/investing/103015/cash-vs-bonds-what-pick-times-uncertainty.asp" ], [ "risk", "https://www.investopedia.com/articles/basics/03/050203.asp" ], [ "should align with your financial goals", "https://www.investopedia.com/invest-for-short-term-and-long-term-goals-8347417" ] ]
https://www.investopedia.com/earn-up-to-300-dollars-with-a-td-bank-checking-account-bonus-by-april-30-2024-8638637	Earn Up to $300 With a TD Bank Checking Account Bonus by April 30, 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-important" 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"><p><strong>Update: </strong>This promotional offer has been extended to May 31, 2024. The promotion details, including the bonus amounts and requirements, remain the same.</p></div></div></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_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>New <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://checkingbonus.tdbank.com/Digital500.html" rel="nofollow">TD Bank Beyond Checking</a> customers can earn a $300 bonus for receiving $2,500 in qualifying direct deposits within the first 60 days.</li> <li>New <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://checkingbonus.tdbank.com/Digital500.html" rel="nofollow">TD Complete Checking</a> customers can earn a $200 bonus for receiving $500 in qualifying direct deposits within the first 60 days.</li> <li>The Beyond Checking bonus provides a 12% return on your deposit, while the Complete Checking bonus provides 40%. These promotions are fairly valuable among active bank bonuses we track, which have a median bonus amount of $300 and a median return on investment (ROI) of about 17%. </li> <li>These bonus offers expire on April 30, 2024.</li> </ul></div></div></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-tip" 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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The TD Beyond Checking account earns interest at a very low rate, while Complete Checking earns nothing.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="2"></span> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-checking-accounts-5070332">best high-interest checking accounts</a> offer much higher APYs and so do the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings accounts</a>, although you may not find any promotional bonuses among them. Weigh the bonus amounts here against the amount of interest you may earn, and remember that you can open multiple accounts if necessary.</p></div></div></div> <span class="heading-toc" id="toc-td-beyond-checking-300-how-to-get-it"></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"> TD Beyond Checking - $300: How To Get It </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <li><strong>Open a new <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://checkingbonus.tdbank.com/Digital500.html" rel="nofollow">TD Beyond Checking account</a> by April 30, 2024:</strong> TD Beyond Checking comes with more features and is more expensive than TD Complete Checking, at $25 per month. This fee is waived when you have $5,000 in monthly direct deposits or a $2,500 minimum daily balance. If you have or open other TD Bank accounts, a minimum daily combined balance of $25,000 across all accounts will also waive the monthly fee.</li> <li><strong>Receive $2,500 in qualifying direct deposits within the first 60 days:</strong> Qualifying direct deposits include paychecks, pensions, and government benefits. Peer-to-peer transfers and transfers between your personal accounts do not qualify.</li> <li><strong>Earn the $300 bonus within 180 days of account opening:</strong> If you meet the requirements, the bonus will be deposited into your TD Beyond checking account within 180 days.</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-td-complete-checking-200-how-to-get-it"></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"> TD Complete Checking - $200: How To Get It </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <li><strong>Open a new <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://checkingbonus.tdbank.com/Digital500.html" rel="nofollow">TD Complete Checking account</a> by April 30, 2024:</strong> The TD Complete Checking account is relatively simple compared to the TD Beyond Checking account, and it’s a bit easier to waive the account fee. The $15 monthly fee is waived for those 17 to 23 years old. If you are 18 or older, you can waive it by having $500 in monthly direct deposits, or by having a $500 minimum daily balance. You can also waive it if you have a $5,000 minimum daily combined balance across all of your TD Bank accounts.</li> <li><strong>Receive $500 in qualifying direct deposits within the first 60 days:</strong> Qualifying direct deposits include paychecks, pensions, and government benefits. Peer-to-peer transfers and transfers between your personal accounts do not qualify.</li> <li><strong>Earn the $200 bonus within 180 days of account opening:</strong> If you meet the requirements, the bonus will be deposited into your TD Complete checking account within 180 days.</li> </ul> <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-are-td-bank-bonuses-worth-it"></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"> Are TD Bank Bonuses Worth It? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/td-bank-review-4799703">TD Bank</a> only offers banking services in certain states, but these bonuses are worth exploring (if you’re eligible) because you have options at different fee levels and each account offers a relatively good value. </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_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>TD Bank provides banking services along the East Coast. Only residents of the following states can open a TD Bank account: Connecticut, Delaware, Florida, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and Washington, D.C.<span class="ql-inline-citation" data-cite="3"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The Beyond Checking account bonus of $300 is on par with the median value of <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> we track, while the ROI (12%) is on the low side. Among active personal checking account promotions we track, the current median ROI is about 17%, with some offers (like those from <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/citizens-bank-extends-400-dollar-checking-account-bonus-to-june-6-8636133">Citizens Bank</a>) reaching 60%. So this bonus is best for someone who has had their eye on this account or similar accounts, and wants it for the features. It’s a nice incentive to open an 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 Complete Checking account bonus is a bit lower ($200) but it’s much easier to get. With a 40% return on your deposit, it’s a better offer than most we’ve seen. The $500 deposit is about as low as it gets (other than rare bonuses that ask for a deposit of any amount, such as from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/huntington-bank-bonuses-7112528">Huntington Bank</a>). It could be a good account to open if you need a basic checking account, especially because the monthly fee is easier to waive than other accounts.<br/> </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_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>We track bank bonuses daily. Through our research, we’ve found the median bank bonus to be $300. We only write about bank bonuses that are at least as high as this median, and that are a 10% or better return on your deposit, to ensure you get a good deal.</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_24-0"> <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_25-0"> 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>	### Update: This promotional offer has been extended to May 31, 2024. The promotion details, including the bonus amounts and requirements, remain the same. ### Key Takeaways * New [TD Bank Beyond Checking](https://checkingbonus.tdbank.com/Digital500.html) customers can earn a $300 bonus for receiving $2,500 in qualifying direct deposits within the first 60 days. * New [TD Complete Checking](https://checkingbonus.tdbank.com/Digital500.html) customers can earn a $200 bonus for receiving $500 in qualifying direct deposits within the first 60 days. * The Beyond Checking bonus provides a 12% return on your deposit, while the Complete Checking bonus provides 40%. These promotions are fairly valuable among active bank bonuses we track, which have a median bonus amount of $300 and a median return on investment (ROI) of about 17%. * These bonus offers expire on April 30, 2024. ### The TD Beyond Checking account earns interest at a very low rate, while Complete Checking earns nothing. The [best high-interest checking accounts](https://www.investopedia.com/best-high-yield-checking-accounts-5070332) offer much higher APYs and so do the [best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633), although you may not find any promotional bonuses among them. Weigh the bonus amounts here against the amount of interest you may earn, and remember that you can open multiple accounts if necessary. ## TD Beyond Checking - $300: How To Get It * Open a new [TD Beyond Checking account](https://checkingbonus.tdbank.com/Digital500.html) by April 30, 2024: TD Beyond Checking comes with more features and is more expensive than TD Complete Checking, at $25 per month. This fee is waived when you have $5,000 in monthly direct deposits or a $2,500 minimum daily balance. If you have or open other TD Bank accounts, a minimum daily combined balance of $25,000 across all accounts will also waive the monthly fee. * Receive $2,500 in qualifying direct deposits within the first 60 days: Qualifying direct deposits include paychecks, pensions, and government benefits. Peer-to-peer transfers and transfers between your personal accounts do not qualify. * Earn the $300 bonus within 180 days of account opening: If you meet the requirements, the bonus will be deposited into your TD Beyond checking account within 180 days. ## TD Complete Checking - $200: How To Get It * Open a new [TD Complete Checking account](https://checkingbonus.tdbank.com/Digital500.html) by April 30, 2024: The TD Complete Checking account is relatively simple compared to the TD Beyond Checking account, and it’s a bit easier to waive the account fee. The $15 monthly fee is waived for those 17 to 23 years old. If you are 18 or older, you can waive it by having $500 in monthly direct deposits, or by having a $500 minimum daily balance. You can also waive it if you have a $5,000 minimum daily combined balance across all of your TD Bank accounts. * Receive $500 in qualifying direct deposits within the first 60 days: Qualifying direct deposits include paychecks, pensions, and government benefits. Peer-to-peer transfers and transfers between your personal accounts do not qualify. * Earn the $200 bonus within 180 days of account opening: If you meet the requirements, the bonus will be deposited into your TD Complete checking account within 180 days. ## Are TD Bank Bonuses Worth It? [TD Bank](https://www.investopedia.com/td-bank-review-4799703) only offers banking services in certain states, but these bonuses are worth exploring (if you’re eligible) because you have options at different fee levels and each account offers a relatively good value. ### TD Bank provides banking services along the East Coast. Only residents of the following states can open a TD Bank account: Connecticut, Delaware, Florida, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and Washington, D.C. The Beyond Checking account bonus of $300 is on par with the median value of [bank bonuses](https://www.investopedia.com/what-is-a-bank-sign-up-bonus-7969724) we track, while the ROI (12%) is on the low side. Among active personal checking account promotions we track, the current median ROI is about 17%, with some offers (like those from [Citizens Bank](https://www.investopedia.com/citizens-bank-extends-400-dollar-checking-account-bonus-to-june-6-8636133)) reaching 60%. So this bonus is best for someone who has had their eye on this account or similar accounts, and wants it for the features. It’s a nice incentive to open an account. The Complete Checking account bonus is a bit lower ($200) but it’s much easier to get. With a 40% return on your deposit, it’s a better offer than most we’ve seen. The $500 deposit is about as low as it gets (other than rare bonuses that ask for a deposit of any amount, such as from [Huntington Bank](https://www.investopedia.com/huntington-bank-bonuses-7112528)). It could be a good account to open if you need a basic checking account, especially because the monthly fee is easier to waive than other accounts. ### We track bank bonuses daily. Through our research, we’ve found the median bank bonus to be $300. We only write about bank bonuses that are at least as high as this median, and that are a 10% or better return on your deposit, to ensure you get a good deal. ## 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.	Update: This promotional offer has been extended to May 31, 2024. The promotion details, including the bonus amounts and requirements, remain the same. Key Takeaways New TD Bank Beyond Checking customers can earn a $300 bonus for receiving $2,500 in qualifying direct deposits within the first 60 days. New TD Complete Checking customers can earn a $200 bonus for receiving $500 in qualifying direct deposits within the first 60 days. The Beyond Checking bonus provides a 12% return on your deposit, while the Complete Checking bonus provides 40%. These promotions are fairly valuable among active bank bonuses we track, which have a median bonus amount of $300 and a median return on investment (ROI) of about 17%. These bonus offers expire on April 30, 2024. The TD Beyond Checking account earns interest at a very low rate, while Complete Checking earns nothing. The best high-interest checking accounts offer much higher APYs and so do the best high-yield savings accounts, although you may not find any promotional bonuses among them. Weigh the bonus amounts here against the amount of interest you may earn, and remember that you can open multiple accounts if necessary. TD Beyond Checking - $300: How To Get It Open a new TD Beyond Checking account by April 30, 2024: TD Beyond Checking comes with more features and is more expensive than TD Complete Checking, at $25 per month. This fee is waived when you have $5,000 in monthly direct deposits or a $2,500 minimum daily balance. If you have or open other TD Bank accounts, a minimum daily combined balance of $25,000 across all accounts will also waive the monthly fee. Receive $2,500 in qualifying direct deposits within the first 60 days: Qualifying direct deposits include paychecks, pensions, and government benefits. Peer-to-peer transfers and transfers between your personal accounts do not qualify. Earn the $300 bonus within 180 days of account opening: If you meet the requirements, the bonus will be deposited into your TD Beyond checking account within 180 days. TD Complete Checking - $200: How To Get It Open a new TD Complete Checking account by April 30, 2024: The TD Complete Checking account is relatively simple compared to the TD Beyond Checking account, and it’s a bit easier to waive the account fee. The $15 monthly fee is waived for those 17 to 23 years old. If you are 18 or older, you can waive it by having $500 in monthly direct deposits, or by having a $500 minimum daily balance. You can also waive it if you have a $5,000 minimum daily combined balance across all of your TD Bank accounts. Receive $500 in qualifying direct deposits within the first 60 days: Qualifying direct deposits include paychecks, pensions, and government benefits. Peer-to-peer transfers and transfers between your personal accounts do not qualify. Earn the $200 bonus within 180 days of account opening: If you meet the requirements, the bonus will be deposited into your TD Complete checking account within 180 days. Are TD Bank Bonuses Worth It? TD Bank only offers banking services in certain states, but these bonuses are worth exploring (if you’re eligible) because you have options at different fee levels and each account offers a relatively good value. TD Bank provides banking services along the East Coast. Only residents of the following states can open a TD Bank account: Connecticut, Delaware, Florida, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and Washington, D.C. The Beyond Checking account bonus of $300 is on par with the median value of bank bonuses we track, while the ROI (12%) is on the low side. Among active personal checking account promotions we track, the current median ROI is about 17%, with some offers (like those from Citizens Bank) reaching 60%. So this bonus is best for someone who has had their eye on this account or similar accounts, and wants it for the features. It’s a nice incentive to open an account. The Complete Checking account bonus is a bit lower ($200) but it’s much easier to get. With a 40% return on your deposit, it’s a better offer than most we’ve seen. The $500 deposit is about as low as it gets (other than rare bonuses that ask for a deposit of any amount, such as from Huntington Bank). It could be a good account to open if you need a basic checking account, especially because the monthly fee is easier to waive than other accounts. We track bank bonuses daily. Through our research, we’ve found the median bank bonus to be $300. We only write about bank bonuses that are at least as high as this median, and that are a 10% or better return on your deposit, to ensure you get a good deal. 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.	[ [ "TD Bank Beyond Checking", "https://checkingbonus.tdbank.com/Digital500.html" ], [ "TD Complete Checking", "https://checkingbonus.tdbank.com/Digital500.html" ], [ "best high-interest checking accounts", "https://www.investopedia.com/best-high-yield-checking-accounts-5070332" ], [ "best high-yield savings accounts", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "TD Beyond Checking account", "https://checkingbonus.tdbank.com/Digital500.html" ], [ "TD Complete Checking account", "https://checkingbonus.tdbank.com/Digital500.html" ], [ "TD Bank", "https://www.investopedia.com/td-bank-review-4799703" ], [ "bank bonuses", "https://www.investopedia.com/what-is-a-bank-sign-up-bonus-7969724" ], [ "Citizens Bank", "https://www.investopedia.com/citizens-bank-extends-400-dollar-checking-account-bonus-to-june-6-8636133" ], [ "Huntington Bank", "https://www.investopedia.com/huntington-bank-bonuses-7112528" ], [ "best bank account bonuses", "https://www.investopedia.com/best-bank-account-bonuses-5104710" ], [ "best checking account bonuses", "https://www.investopedia.com/best-checking-account-bonuses-7152530" ], [ "best savings account bonuses", "https://www.investopedia.com/best-savings-account-bonuses-7152450" ] ]
https://www.investopedia.com/united-club-infinite-card-offering-120-000-bonus-miles-5223337	United Club Infinite Card Offering 120,000 Bonus Miles to New Cardholders	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/united-club-card-review-4798980">United Club Infinite Card</a> from Chase has increased its sign-up bonus to 120,000 MileagePlus miles. New cardholders can earn the bonus after they spend $6,000 in the first three months from account opening. The card has a steep annual fee but provides impressive rewards and benefits for frequent United flyers. </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>For a limited time, the United Club Infinite Card is offering an increased sign-up bonus.</li><li>New cardholders can earn 120,000 bonus miles when they spend $6,000 or more in the first three months from account opening.</li><li>Cardholders can also get a long list of benefits from the card, but the $525 annual fee can be difficult to stomach for some.</li></ul></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-subheading__text"> Earn a Massive Bonus Plus Perks </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The United Club Infinite Card is the premium co-branded credit card for United Airlines, offering top-tier benefits for a hefty price. </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"> If you've been on the fence about getting the card, now might be the right time to finally apply. For a limited time, the card is offering 120,000 bonus miles after you spend $6,000 in the first three months from account opening. According to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-are-credit-card-points-and-miles-worth-5203918">Investopedia research</a>, United MileagePlus miles are worth 1.98 cents apiece on average, making the bonus worth roughly $2,376—though actual values can vary depending on your flight dates, cabin and more.<span class="ql-inline-citation" data-cite="1"></span> It's unclear when the new offer will end. </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 offer itself is enough to cover the card's eye-watering $525 annual fee. But if you regularly travel with United Airlines, you can get that much and more back through the card's rewards programs and benefits. Here's a summary of what you'll get: </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>Earn 4 miles per dollar spent on United purchases, 2 miles per dollar spent on all other travel and at restaurants, and 1 mile per dollar on all other purchases.</li><li>Complimentary United Club airport lounge membership.</li><li>Free first and second checked bags for you and a traveling companion.</li><li>Earn up to 4,000 Premier Qualifying Points (PQP)—that's 500 PQP per $12,000 spent on your card each calendar year.</li><li>Up to $100 application fee credit for Global Entry or TSA PreCheck.</li><li>25% back on United inflight purchases.</li><li>Save 10% on United Economy Saver Awards.</li><li>IHG Rewards Platinum Elite status.</li><li>Up to $75 in statement credits as reimbursement for IHG purchases made through December 31, 2022.</li><li>$70 discount on a CLEAR annual membership, plus 10,000 bonus miles if you sign up for a CLEAR membership before June 30, 2022.<span class="ql-inline-citation" data-cite="2"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> While the card's limited-time offer is impressive, it's important to determine whether the card is right for you based on long-term value. If you fly United Airlines regularly, whether for business or pleasure, the airport lounge access alone can make the card's annual fee worth it. But if you only fly with the airline when it's the cheapest available option then less expensive card options would likely make better sense. </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:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	The [United Club Infinite Card](https://www.investopedia.com/united-club-card-review-4798980) from Chase has increased its sign-up bonus to 120,000 MileagePlus miles. New cardholders can earn the bonus after they spend $6,000 in the first three months from account opening. The card has a steep annual fee but provides impressive rewards and benefits for frequent United flyers. ### Key Takeaways * For a limited time, the United Club Infinite Card is offering an increased sign-up bonus. * New cardholders can earn 120,000 bonus miles when they spend $6,000 or more in the first three months from account opening. * Cardholders can also get a long list of benefits from the card, but the $525 annual fee can be difficult to stomach for some. ### Earn a Massive Bonus Plus Perks The United Club Infinite Card is the premium co-branded credit card for United Airlines, offering top-tier benefits for a hefty price. If you've been on the fence about getting the card, now might be the right time to finally apply. For a limited time, the card is offering 120,000 bonus miles after you spend $6,000 in the first three months from account opening. According to [Investopedia research](https://www.investopedia.com/what-are-credit-card-points-and-miles-worth-5203918), United MileagePlus miles are worth 1.98 cents apiece on average, making the bonus worth roughly $2,376—though actual values can vary depending on your flight dates, cabin and more. It's unclear when the new offer will end. The offer itself is enough to cover the card's eye-watering $525 annual fee. But if you regularly travel with United Airlines, you can get that much and more back through the card's rewards programs and benefits. Here's a summary of what you'll get: * Earn 4 miles per dollar spent on United purchases, 2 miles per dollar spent on all other travel and at restaurants, and 1 mile per dollar on all other purchases. * Complimentary United Club airport lounge membership. * Free first and second checked bags for you and a traveling companion. * Earn up to 4,000 Premier Qualifying Points (PQP)—that's 500 PQP per $12,000 spent on your card each calendar year. * Up to $100 application fee credit for Global Entry or TSA PreCheck. * 25% back on United inflight purchases. * Save 10% on United Economy Saver Awards. * IHG Rewards Platinum Elite status. * Up to $75 in statement credits as reimbursement for IHG purchases made through December 31, 2022. * $70 discount on a CLEAR annual membership, plus 10,000 bonus miles if you sign up for a CLEAR membership before June 30, 2022. While the card's limited-time offer is impressive, it's important to determine whether the card is right for you based on long-term value. If you fly United Airlines regularly, whether for business or pleasure, the airport lounge access alone can make the card's annual fee worth it. But if you only fly with the airline when it's the cheapest available option then less expensive card options would likely make better sense. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	The United Club Infinite Card from Chase has increased its sign-up bonus to 120,000 MileagePlus miles. New cardholders can earn the bonus after they spend $6,000 in the first three months from account opening. The card has a steep annual fee but provides impressive rewards and benefits for frequent United flyers. Key Takeaways For a limited time, the United Club Infinite Card is offering an increased sign-up bonus.New cardholders can earn 120,000 bonus miles when they spend $6,000 or more in the first three months from account opening.Cardholders can also get a long list of benefits from the card, but the $525 annual fee can be difficult to stomach for some. Earn a Massive Bonus Plus Perks The United Club Infinite Card is the premium co-branded credit card for United Airlines, offering top-tier benefits for a hefty price. If you've been on the fence about getting the card, now might be the right time to finally apply. For a limited time, the card is offering 120,000 bonus miles after you spend $6,000 in the first three months from account opening. According to Investopedia research, United MileagePlus miles are worth 1.98 cents apiece on average, making the bonus worth roughly $2,376—though actual values can vary depending on your flight dates, cabin and more. It's unclear when the new offer will end. The offer itself is enough to cover the card's eye-watering $525 annual fee. But if you regularly travel with United Airlines, you can get that much and more back through the card's rewards programs and benefits. Here's a summary of what you'll get: Earn 4 miles per dollar spent on United purchases, 2 miles per dollar spent on all other travel and at restaurants, and 1 mile per dollar on all other purchases.Complimentary United Club airport lounge membership.Free first and second checked bags for you and a traveling companion.Earn up to 4,000 Premier Qualifying Points (PQP)—that's 500 PQP per $12,000 spent on your card each calendar year.Up to $100 application fee credit for Global Entry or TSA PreCheck.25% back on United inflight purchases.Save 10% on United Economy Saver Awards.IHG Rewards Platinum Elite status.Up to $75 in statement credits as reimbursement for IHG purchases made through December 31, 2022.$70 discount on a CLEAR annual membership, plus 10,000 bonus miles if you sign up for a CLEAR membership before June 30, 2022. While the card's limited-time offer is impressive, it's important to determine whether the card is right for you based on long-term value. If you fly United Airlines regularly, whether for business or pleasure, the airport lounge access alone can make the card's annual fee worth it. But if you only fly with the airline when it's the cheapest available option then less expensive card options would likely make better sense. Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "United Club Infinite Card", "https://www.investopedia.com/united-club-card-review-4798980" ], [ "Investopedia research", "https://www.investopedia.com/what-are-credit-card-points-and-miles-worth-5203918" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/apple-s-5-most-profitable-lines-of-business-4684130	Apple's 5 Most Profitable Lines of Business	<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"> Founded in 1976, Apple (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl">AAPL</a>) became the first U.S. corporation to surpass $1 trillion in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketcapitalization.asp">market capitalization</a> in 2018.<span class="ql-inline-citation" data-cite="12"></span> The company's spectacular growth in sales, profits, and share price were historically driven by solid sales of its iPhone products. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> But as sales of the popular <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/smartphone.asp">smartphone</a> and other technology hardware devices slowed down, the company made aggressive efforts to transform itself into one of the world's leading providers of digital services. </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"> But what are the company's most popular and most successful business <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/segment.asp">segments</a>? This article examines Apple's most profitable business lines and how they contribute to its success.<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>Apple was the first American company whose market capitalization reached $1 trillion.</li><li>The company's main business segments are the iPhone, Services, Mac, iPad, as well as its Wearables, Home, and Accessories unit.</li><li>Apple continues to make aggressive efforts to transform itself into one of the world's leading providers of digital services.</li><li>Its iPhone unit is the main driver for growth in sales, profits, and share price.</li><li>Sales for the iPhone 13 are expected to eclipse those of previous models despite slowdowns due to the COVID-19 pandemic.</li></ul></div></div></div> <span class="heading-toc" id="toc-apples-turnaround"></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"> Apple's Turnaround </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Even though Apple's fiscal year 2019 was characterized by a series of ups and downs, it successfully boosted its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revenue.asp">revenue</a> from its services division. But earnings from its most popular products, such as iPhones and MacBook laptops, fell somewhat below 2018 levels. For the first fiscal quarter of 2020, Apple forecast revenue between $85.5 billion and $89.5 billion.<span class="ql-inline-citation" data-cite="6"></span> The company announced revenue of $91.8 billion and profit of $22.2 billion—an all-time record for both net income and revenue.<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_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> In the 2019 fiscal year, Apple posted sales of $260.2 billion on a net income of $55.2 billion.<span class="ql-inline-citation" data-cite="7"></span> In the first quarter of 2019, earnings came in at $4.18 on a per-share basis.<span class="ql-inline-citation" data-cite="8"></span> This was a record high for the company. But in the first fiscal quarter of 2020, earnings per share were up to $4.99.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Here is a more detailed look at Apple's five most profitable business lines as they perform today. </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-iphone"></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"> iPhone </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Apple’s core product is the iPhone. The popular smartphone is among the top five smartphone vendors in the world.<span class="ql-inline-citation" data-cite="16"></span> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/demand.asp">Demand</a> remained strong after the company released the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/does-apple-s-aapl-iphone-13-even-matter-5199193">iPhone 13</a>, which the company states is "setting a new standard for performance and empowering our customers to create and connect in new ways. Sales for this model reportedly exceeded those for the iPhone 12, which still "skyrocketed" as of December 2021.<span class="ql-inline-citation" data-cite="3"></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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> The company reported net sales for the iPhone unit of $192 billion for the 2021 fiscal year compared to $137.8 reported in the year before. Sales hit $38.9 billion during the fourth quarter—up 47% from the same quarter of 2020, which earned $26.4 billion.<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_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The company blamed the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/072715/apples-key-weaknesses.asp">ongoing challenges</a> of the COVID-19 pandemic for lower-than-expected iPhone sales.<span class="ql-inline-citation" data-cite="4"></span> Previous declines in iPhone sales were attributed to a slowdown in China, a longer iPhone replacement cycle, and heightened competition in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/apple-global-smartphone-market-share-more-50-first-time/">global smartphone market</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-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 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>Apple reportedly had to cut production of the iPhone 13 because of ongoing issues with supply reductions from its manufacturing partners.<span class="ql-inline-citation" data-cite="13"></span></p></div></div></div> <span class="heading-toc" id="toc-services"></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"> Services </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The company's services business is led by the App Store and Apple Music. The segment's revenue also comes from selling a range of services, such as AppleCare, Apple Pay, iCloud storage services, AppleCare warranties, and subscriptions to services like Apple Music, Apple Arcade, Apple TV+, and the Apple Card, which competes with other financial payment giants.<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_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Apple’s Services segment posted revenue of $68.4 billion during the 2021 fiscal year and $18.3 billion for the fourth quarter. This is compared to $53.8 billion for the previous year and $14.5 during Q4-2020.<span class="ql-inline-citation" data-cite="2"></span> This represented an all-time high for the unit.<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_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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The end of Apple's fiscal year doesn't include sales for the holiday season and the three most lucrative months of the year–October, November, and December. This period is a very important period for Apple.</p></div></div></div> <span class="heading-toc" id="toc-mac"></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"> Mac </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Apple’s personal computer business is built around the Mac and includes its MacBook laptops and the iconic iMac desktop computers. This unit generated sales of $35.1 billion ($9.2 billion for the fourth quarter of 2021), which is an increase from the $28.6 billion reported in 2020 ($9 billion in Q4-2020).<span class="ql-inline-citation" data-cite="2"></span><br> </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"> Mac’s contribution to Apple's growth has consistently fallen as the personal computer industry experiences slowing demand worldwide. Keep in mind, though, that Apple’s personal computer business is very important for the company from a strategic perspective. That's because it's part of a broad, interlinked product family running on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apple-ios.asp">iOS operating system</a>. </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-ipad"></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"> iPad </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> When Apple launched its iPad in 2010, it quickly became the first commercially successful tablet computer to hit the market. In the first three months after it was released, the device sold more than three million units.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Although worldwide demand for tablets is waning, Apple continues to dominate this part of 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>.<span class="ql-inline-citation" data-cite="14"></span> This unit drew in sales of $31.9 billion during the 2021 fiscal year and $8.3 billion during the year's fourth quarter. That's compared to $23.7 billion and $6.8 billion for the 2020 fiscal year and Q4-2020, respectively.<span class="ql-inline-citation" data-cite="2"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <span class="heading-toc" id="toc-wearables-home-and-accessories"></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"> Wearables, Home, and Accessories </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Apple’s Wearables, Home, and Accessories segment is made up of devices such as AirPods, Apple Watch, and HomePods. The segment posted $38.4 billion in revenue during 2021 and $8.8 billion for the year's fourth quarter. That's compared to $30.6 billion and $7.9 for the same periods in 2020, respectively.<span class="ql-inline-citation" data-cite="2"></span><br> </br></p></div>	Founded in 1976, Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl)) became the first U.S. corporation to surpass $1 trillion in [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp) in 2018. The company's spectacular growth in sales, profits, and share price were historically driven by solid sales of its iPhone products. But as sales of the popular [smartphone](https://www.investopedia.com/terms/s/smartphone.asp) and other technology hardware devices slowed down, the company made aggressive efforts to transform itself into one of the world's leading providers of digital services. But what are the company's most popular and most successful business [segments](https://www.investopedia.com/terms/s/segment.asp)? This article examines Apple's most profitable business lines and how they contribute to its success. ### Key Takeaways * Apple was the first American company whose market capitalization reached $1 trillion. * The company's main business segments are the iPhone, Services, Mac, iPad, as well as its Wearables, Home, and Accessories unit. * Apple continues to make aggressive efforts to transform itself into one of the world's leading providers of digital services. * Its iPhone unit is the main driver for growth in sales, profits, and share price. * Sales for the iPhone 13 are expected to eclipse those of previous models despite slowdowns due to the COVID-19 pandemic. ## Apple's Turnaround Even though Apple's fiscal year 2019 was characterized by a series of ups and downs, it successfully boosted its [revenue](https://www.investopedia.com/terms/r/revenue.asp) from its services division. But earnings from its most popular products, such as iPhones and MacBook laptops, fell somewhat below 2018 levels. For the first fiscal quarter of 2020, Apple forecast revenue between $85.5 billion and $89.5 billion. The company announced revenue of $91.8 billion and profit of $22.2 billion—an all-time record for both net income and revenue. In the 2019 fiscal year, Apple posted sales of $260.2 billion on a net income of $55.2 billion. In the first quarter of 2019, earnings came in at $4.18 on a per-share basis. This was a record high for the company. But in the first fiscal quarter of 2020, earnings per share were up to $4.99. Here is a more detailed look at Apple's five most profitable business lines as they perform today. ## iPhone Apple’s core product is the iPhone. The popular smartphone is among the top five smartphone vendors in the world. [Demand](https://www.investopedia.com/terms/d/demand.asp) remained strong after the company released the [iPhone 13](https://www.investopedia.com/does-apple-s-aapl-iphone-13-even-matter-5199193), which the company states is "setting a new standard for performance and empowering our customers to create and connect in new ways. Sales for this model reportedly exceeded those for the iPhone 12, which still "skyrocketed" as of December 2021. The company reported net sales for the iPhone unit of $192 billion for the 2021 fiscal year compared to $137.8 reported in the year before. Sales hit $38.9 billion during the fourth quarter—up 47% from the same quarter of 2020, which earned $26.4 billion. The company blamed the [ongoing challenges](https://www.investopedia.com/articles/investing/072715/apples-key-weaknesses.asp) of the COVID-19 pandemic for lower-than-expected iPhone sales. Previous declines in iPhone sales were attributed to a slowdown in China, a longer iPhone replacement cycle, and heightened competition in the [global smartphone market](https://www.investopedia.com/news/apple-global-smartphone-market-share-more-50-first-time/). ### Apple reportedly had to cut production of the iPhone 13 because of ongoing issues with supply reductions from its manufacturing partners. ## Services The company's services business is led by the App Store and Apple Music. The segment's revenue also comes from selling a range of services, such as AppleCare, Apple Pay, iCloud storage services, AppleCare warranties, and subscriptions to services like Apple Music, Apple Arcade, Apple TV+, and the Apple Card, which competes with other financial payment giants. Apple’s Services segment posted revenue of $68.4 billion during the 2021 fiscal year and $18.3 billion for the fourth quarter. This is compared to $53.8 billion for the previous year and $14.5 during Q4-2020. This represented an all-time high for the unit. ### The end of Apple's fiscal year doesn't include sales for the holiday season and the three most lucrative months of the year–October, November, and December. This period is a very important period for Apple. ## Mac Apple’s personal computer business is built around the Mac and includes its MacBook laptops and the iconic iMac desktop computers. This unit generated sales of $35.1 billion ($9.2 billion for the fourth quarter of 2021), which is an increase from the $28.6 billion reported in 2020 ($9 billion in Q4-2020). Mac’s contribution to Apple's growth has consistently fallen as the personal computer industry experiences slowing demand worldwide. Keep in mind, though, that Apple’s personal computer business is very important for the company from a strategic perspective. That's because it's part of a broad, interlinked product family running on the [iOS operating system](https://www.investopedia.com/terms/a/apple-ios.asp). ## iPad When Apple launched its iPad in 2010, it quickly became the first commercially successful tablet computer to hit the market. In the first three months after it was released, the device sold more than three million units. Although worldwide demand for tablets is waning, Apple continues to dominate this part of the [market](https://www.investopedia.com/terms/m/market.asp). This unit drew in sales of $31.9 billion during the 2021 fiscal year and $8.3 billion during the year's fourth quarter. That's compared to $23.7 billion and $6.8 billion for the 2020 fiscal year and Q4-2020, respectively. ## Wearables, Home, and Accessories Apple’s Wearables, Home, and Accessories segment is made up of devices such as AirPods, Apple Watch, and HomePods. The segment posted $38.4 billion in revenue during 2021 and $8.8 billion for the year's fourth quarter. That's compared to $30.6 billion and $7.9 for the same periods in 2020, respectively.	Founded in 1976, Apple (AAPL) became the first U.S. corporation to surpass $1 trillion in market capitalization in 2018. The company's spectacular growth in sales, profits, and share price were historically driven by solid sales of its iPhone products. But as sales of the popular smartphone and other technology hardware devices slowed down, the company made aggressive efforts to transform itself into one of the world's leading providers of digital services. But what are the company's most popular and most successful business segments? This article examines Apple's most profitable business lines and how they contribute to its success. Key Takeaways Apple was the first American company whose market capitalization reached $1 trillion.The company's main business segments are the iPhone, Services, Mac, iPad, as well as its Wearables, Home, and Accessories unit.Apple continues to make aggressive efforts to transform itself into one of the world's leading providers of digital services.Its iPhone unit is the main driver for growth in sales, profits, and share price.Sales for the iPhone 13 are expected to eclipse those of previous models despite slowdowns due to the COVID-19 pandemic. Apple's Turnaround Even though Apple's fiscal year 2019 was characterized by a series of ups and downs, it successfully boosted its revenue from its services division. But earnings from its most popular products, such as iPhones and MacBook laptops, fell somewhat below 2018 levels. For the first fiscal quarter of 2020, Apple forecast revenue between $85.5 billion and $89.5 billion. The company announced revenue of $91.8 billion and profit of $22.2 billion—an all-time record for both net income and revenue. In the 2019 fiscal year, Apple posted sales of $260.2 billion on a net income of $55.2 billion. In the first quarter of 2019, earnings came in at $4.18 on a per-share basis. This was a record high for the company. But in the first fiscal quarter of 2020, earnings per share were up to $4.99. Here is a more detailed look at Apple's five most profitable business lines as they perform today. iPhone Apple’s core product is the iPhone. The popular smartphone is among the top five smartphone vendors in the world. Demand remained strong after the company released the iPhone 13, which the company states is "setting a new standard for performance and empowering our customers to create and connect in new ways. Sales for this model reportedly exceeded those for the iPhone 12, which still "skyrocketed" as of December 2021. The company reported net sales for the iPhone unit of $192 billion for the 2021 fiscal year compared to $137.8 reported in the year before. Sales hit $38.9 billion during the fourth quarter—up 47% from the same quarter of 2020, which earned $26.4 billion. The company blamed the ongoing challenges of the COVID-19 pandemic for lower-than-expected iPhone sales. Previous declines in iPhone sales were attributed to a slowdown in China, a longer iPhone replacement cycle, and heightened competition in the global smartphone market. Apple reportedly had to cut production of the iPhone 13 because of ongoing issues with supply reductions from its manufacturing partners. Services The company's services business is led by the App Store and Apple Music. The segment's revenue also comes from selling a range of services, such as AppleCare, Apple Pay, iCloud storage services, AppleCare warranties, and subscriptions to services like Apple Music, Apple Arcade, Apple TV+, and the Apple Card, which competes with other financial payment giants. Apple’s Services segment posted revenue of $68.4 billion during the 2021 fiscal year and $18.3 billion for the fourth quarter. This is compared to $53.8 billion for the previous year and $14.5 during Q4-2020. This represented an all-time high for the unit. The end of Apple's fiscal year doesn't include sales for the holiday season and the three most lucrative months of the year–October, November, and December. This period is a very important period for Apple. Mac Apple’s personal computer business is built around the Mac and includes its MacBook laptops and the iconic iMac desktop computers. This unit generated sales of $35.1 billion ($9.2 billion for the fourth quarter of 2021), which is an increase from the $28.6 billion reported in 2020 ($9 billion in Q4-2020). Mac’s contribution to Apple's growth has consistently fallen as the personal computer industry experiences slowing demand worldwide. Keep in mind, though, that Apple’s personal computer business is very important for the company from a strategic perspective. That's because it's part of a broad, interlinked product family running on the iOS operating system. iPad When Apple launched its iPad in 2010, it quickly became the first commercially successful tablet computer to hit the market. In the first three months after it was released, the device sold more than three million units. Although worldwide demand for tablets is waning, Apple continues to dominate this part of the market. This unit drew in sales of $31.9 billion during the 2021 fiscal year and $8.3 billion during the year's fourth quarter. That's compared to $23.7 billion and $6.8 billion for the 2020 fiscal year and Q4-2020, respectively. Wearables, Home, and Accessories Apple’s Wearables, Home, and Accessories segment is made up of devices such as AirPods, Apple Watch, and HomePods. The segment posted $38.4 billion in revenue during 2021 and $8.8 billion for the year's fourth quarter. That's compared to $30.6 billion and $7.9 for the same periods in 2020, respectively.	[ [ "AAPL", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl" ], [ "market capitalization", "https://www.investopedia.com/terms/m/marketcapitalization.asp" ], [ "smartphone", "https://www.investopedia.com/terms/s/smartphone.asp" ], [ "segments", "https://www.investopedia.com/terms/s/segment.asp" ], [ "revenue", "https://www.investopedia.com/terms/r/revenue.asp" ], [ "Demand", "https://www.investopedia.com/terms/d/demand.asp" ], [ "iPhone 13", "https://www.investopedia.com/does-apple-s-aapl-iphone-13-even-matter-5199193" ], [ "ongoing challenges", "https://www.investopedia.com/articles/investing/072715/apples-key-weaknesses.asp" ], [ "global smartphone market", "https://www.investopedia.com/news/apple-global-smartphone-market-share-more-50-first-time/" ], [ "iOS operating system", "https://www.investopedia.com/terms/a/apple-ios.asp" ], [ "market", "https://www.investopedia.com/terms/m/market.asp" ] ]
https://www.investopedia.com/take-two-stock-sinks-following-reports-of-possible-grand-theft-auto-vi-delay-8620062	Take-Two Stock Sinks Following Report of Possible 'Grand Theft Auto VI' Delay	<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 Takeaway</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Take-Two Interactive Software shares tumbled Monday following a report suggesting its "Grand Theft Auto VI" video game may be delayed.</li><li>Gaming site <em>Kotaku</em> reported the new Take-Two game could be delayed until late 2025, or possibly 2026.</li><li>Bank of America analysts downgraded Take-Two in December, citing doubts the game would be released on time.</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"> Take-Two Interactive Software (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TTWO">TTWO</a>) shares fell over 4% Monday following a report suggesting the release of its "Grand Theft Auto VI" or "GTA 6" video game could be delayed. </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"> Gaming website <em>Kotaku</em> on Friday reported that production delays at the company’s subsidiary, Rockstar Games, which is developing "GTA 6," could delay the game's launch until late 2025 or even until 2026. It was previously expected that the new game would be out by early next spring.<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"> In December, Bank of America <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/take-two-drops-as-bofa-downgrades-stock-on-concerns-of-grand-theft-auto-vi-delay-8412185">downgraded</a> Take-Two to "neutral" from "buy," citing doubts that "GTA 6" would be available on time. That came just days after the release of the game’s trailer, when Rockstar said it would be “coming in 2025.” </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"> Take-Two did not immediately respond to a request for comment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Shares of Take-Two finished 4.2% lower at $146.14 Monday. They've lost over 8% of their value so far in 2024. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_13-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:72.3%;"> <img alt="TTWO" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/Cia0CxejspoCjOZ-Thg2tR4Iyxo=/1499x0/filters:no_upscale():max_bytes(150000):strip_icc()/TTWO_2024-03-25_16-04-55-fc53af53fce94a65b46f838918b7a9f5.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/aaBSWLo3p6Wg2fB2PKcQSUlgkyQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TTWO_2024-03-25_16-04-55-fc53af53fce94a65b46f838918b7a9f5.png" data-srcset="https://www.investopedia.com/thmb/8DT4Fusu5nh2bZwIqnN25Oc4oNE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/TTWO_2024-03-25_16-04-55-fc53af53fce94a65b46f838918b7a9f5.png 750w" data-tracking-container="true" height="1085" id="mntl-sc-block-image_1-0" width="1499"/> <noscript> <img alt="TTWO" class="img--noscript universal-image__image" height="1085" sizes="750px" src="https://www.investopedia.com/thmb/aaBSWLo3p6Wg2fB2PKcQSUlgkyQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TTWO_2024-03-25_16-04-55-fc53af53fce94a65b46f838918b7a9f5.png" srcset="https://www.investopedia.com/thmb/8DT4Fusu5nh2bZwIqnN25Oc4oNE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/TTWO_2024-03-25_16-04-55-fc53af53fce94a65b46f838918b7a9f5.png 750w" width="1499"/> </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:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	### Key Takeaway * Take-Two Interactive Software shares tumbled Monday following a report suggesting its "Grand Theft Auto VI" video game may be delayed. * Gaming site Kotaku reported the new Take-Two game could be delayed until late 2025, or possibly 2026. * Bank of America analysts downgraded Take-Two in December, citing doubts the game would be released on time. Take-Two Interactive Software ([TTWO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TTWO)) shares fell over 4% Monday following a report suggesting the release of its "Grand Theft Auto VI" or "GTA 6" video game could be delayed. Gaming website Kotaku on Friday reported that production delays at the company’s subsidiary, Rockstar Games, which is developing "GTA 6," could delay the game's launch until late 2025 or even until 2026. It was previously expected that the new game would be out by early next spring. In December, Bank of America [downgraded](https://www.investopedia.com/take-two-drops-as-bofa-downgrades-stock-on-concerns-of-grand-theft-auto-vi-delay-8412185) Take-Two to "neutral" from "buy," citing doubts that "GTA 6" would be available on time. That came just days after the release of the game’s trailer, when Rockstar said it would be “coming in 2025.” Take-Two did not immediately respond to a request for comment. Shares of Take-Two finished 4.2% lower at $146.14 Monday. They've lost over 8% of their value so far in 2024. ![TTWO]() ![TTWO](https://www.investopedia.com/thmb/aaBSWLo3p6Wg2fB2PKcQSUlgkyQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TTWO_2024-03-25_16-04-55-fc53af53fce94a65b46f838918b7a9f5.png) TradingView Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	Key Takeaway Take-Two Interactive Software shares tumbled Monday following a report suggesting its "Grand Theft Auto VI" video game may be delayed.Gaming site Kotaku reported the new Take-Two game could be delayed until late 2025, or possibly 2026.Bank of America analysts downgraded Take-Two in December, citing doubts the game would be released on time. Take-Two Interactive Software (TTWO) shares fell over 4% Monday following a report suggesting the release of its "Grand Theft Auto VI" or "GTA 6" video game could be delayed. Gaming website Kotaku on Friday reported that production delays at the company’s subsidiary, Rockstar Games, which is developing "GTA 6," could delay the game's launch until late 2025 or even until 2026. It was previously expected that the new game would be out by early next spring. In December, Bank of America downgraded Take-Two to "neutral" from "buy," citing doubts that "GTA 6" would be available on time. That came just days after the release of the game’s trailer, when Rockstar said it would be “coming in 2025.” Take-Two did not immediately respond to a request for comment. Shares of Take-Two finished 4.2% lower at $146.14 Monday. They've lost over 8% of their value so far in 2024. TradingView Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "TTWO", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=TTWO" ], [ "downgraded", "https://www.investopedia.com/take-two-drops-as-bofa-downgrades-stock-on-concerns-of-grand-theft-auto-vi-delay-8412185" ], [ "TTWO", "https://www.investopedia.com/thmb/aaBSWLo3p6Wg2fB2PKcQSUlgkyQ=/1500x0/filters:no_upscale(" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/articles/personal-finance/081514/what-do-credit-score-ranges-mean.asp	Credit Score Ranges: What Do They Mean?	<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"> Your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> ranges tell lenders what type of borrower you are. Credit scores are calculated with a formula that uses five variables: payment history, amounts owed, length of credit history, credit mix, and new credit. </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"> Your credit score range may affect the interest rate you pay to a lender and even make the difference between a loan being approved or declined. Learn more about credit score ranges and what they mean.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Credit score ranges help lenders determine the risk of lending to a borrower.</li><li>Credit scores are based on factors such as payment history, overall debt levels, and the number of credit accounts.</li><li>You credit score can be a deciding factor on whether you are approved for a loan and at what interest rate.</li><li>A FICO score between 740 and 850 is considered exceptional while scores between 700 to 750 are considered very good.</li></ul></div></div></div> <span class="heading-toc" id="toc-credit-score-basics"></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"> Credit Score Basics </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Your credit score is a number that represents the risk a lender takes when you borrow money. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ficoscore.asp">FICO score</a> is a well-known measure created by the Fair Isaac Corporation and used by credit agencies to indicate a borrower’s risk.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Another credit score is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/vantagescore.asp">VantageScore</a>, although the FICO score is more commonly used. Both FICO and VantageScore range from 300 to 850, although the ways in which each parses its scores into different classifications vary.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Your credit score calculation represents your credit risk at a moment in time based on information found on your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a>. The higher the credit score, the lower the risk to the lender.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Here are the FICO credit score ranges and what they mean. </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-exceptional-credit-score-800-to-850"></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"> Exceptional Credit Score: 800 to 850 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> A credit score in the range of 800 to 850 means the borrower is consistently responsible when it comes to managing their borrowing. Borrowers with these scores are more likely to qualify for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-excellent-credit-4797495">lowest interest rates</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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> People with this score have a long history of no late payments, as well as low balances on credit cards. Consumers with excellent credit scores may receive lower interest rates on mortgages, credit cards, loans, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lineofcredit.asp">lines of credit</a>, because they are deemed to be at low risk for defaulting on their agreements.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-very-good-credit-score-740-to-799"></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"> Very Good Credit Score: 740 to 799 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> A credit score between 740 and 799 means the borrower is generally financially responsible when it comes to money and credit management.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Most of their payments, including loans, credit cards, utilities, and rental payments, are made on time. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-card-balance.asp">Credit card balances</a> are relatively low compared with their credit account limits. </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-good-credit-score-670-to-739"></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"> Good Credit Score: 670 to 739 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Having a credit score between 670 and 739 places a borrower near or slightly above the average of U.S. consumers, as the national average FICO score was 714 in 2022.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> While borrower in this credit score range may still earn competitive interest rates, they are unlikely to command the ideal rates of those in the two higher categories, and it may be harder for them to qualify for some types of credit. For instance, if a borrower is looking for an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecuredloan.asp">unsecured loan</a> with this score, it’s vital that they shop around in order to find the options that best suit their needs with the fewest drawbacks. </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-fair-credit-score-580-to-669"></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"> Fair Credit Score: 580 to 669 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Borrowers with credit scores ranging from 580 to 669 are thought to be in the “fair” category.<span class="ql-inline-citation" data-cite="4"></span> They may have some dings on their credit history, but there are no major <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/delinquent.asp">delinquencies</a>. They are still likely to be extended credit by lenders but not at very competitive rates.<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> <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-note" 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 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>Even if their options are limited, borrows with fair credit scores in need of financing can still find<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-fair-credit-4798008">options</a>.</p></div></div></div> <span class="heading-toc" id="toc-poor-credit-score-under-580"></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"> Poor Credit Score: Under 580 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> An individual with a score between 300 and 579 has a significantly damaged credit history.<span class="ql-inline-citation" data-cite="4"></span> This may be the result of multiple <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/062315/what-are-differences-between-delinquency-and-default.asp">defaults on different credit products</a> from several different lenders. However, a poor score may also be the result of a bankruptcy, which will remain on a credit record for seven years for Chapter 13 and 10 years for Chapter 11.<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_38-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_39-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_40-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>You can improve your credit score by paying down debt, making timely payments, and avoiding opening new credit.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Borrowers with credit scores that fall in this range have very little chance of obtaining new credit.<span class="ql-inline-citation" data-cite="7"></span> If your score falls in it, talk to a financial professional about steps to take to repair your credit. </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"> Additionally, so long as you can afford to pay a monthly fee, one of the best credit repair companies may be able to get the negative marks on your credit score removed for you. If you attempt to obtain an unsecured loan with this score, be sure to compare every lender you’re considering in order to determine <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349">the least risky options</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-how-do-you-build-credit-with-no-credit-history"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Build Credit With No Credit History?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you have not established credit year, you will likely a very low credit score. You can start to build credit in several ways, such as using a secured credit card. These cards require a down payment that serves as your credit line, but then as you make payments over time, you build a credit history with the three major credit bureaus.</p><p>You may also consider becoming an authorized user on a parent or guardian's credit card or applying for student credit card, which has lower requirements and a smaller credit limit.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_47-0"><span class="heading-toc" id="toc-what-are-the-5-levels-of-credit-scores"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the 5 levels of Credit Scores?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The five levels of FICO credit scores are excellent, very good, good, fair, and poor. Your credit score range will determine whether you qualify for loans and at which rates.</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-is-it-possible-to-get-a-850-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is it Possible to Get a 850 Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can get a 850 credit score, although this score is fairly rare. About 1.2% of Americans who have credit have a perfect 850 FICO score.<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_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"> Your credit score is based on several factors and can be used to determine whether you will qualify to borrow money as well as the terms, including the interest rate of the loan. Consistently paying your bills on time and in full will help prevent damage to your credit score in the future. Given the importance of having a good credit score, it could be worth it to invest in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-monitoring-services-4846982">credit monitoring service</a> to better protect your information. </p></div>	Your [credit score](https://www.investopedia.com/terms/c/credit_score.asp) ranges tell lenders what type of borrower you are. Credit scores are calculated with a formula that uses five variables: payment history, amounts owed, length of credit history, credit mix, and new credit. Your credit score range may affect the interest rate you pay to a lender and even make the difference between a loan being approved or declined. Learn more about credit score ranges and what they mean. ### Key Takeaways * Credit score ranges help lenders determine the risk of lending to a borrower. * Credit scores are based on factors such as payment history, overall debt levels, and the number of credit accounts. * You credit score can be a deciding factor on whether you are approved for a loan and at what interest rate. * A FICO score between 740 and 850 is considered exceptional while scores between 700 to 750 are considered very good. ## Credit Score Basics Your credit score is a number that represents the risk a lender takes when you borrow money. A [FICO score](https://www.investopedia.com/terms/f/ficoscore.asp) is a well-known measure created by the Fair Isaac Corporation and used by credit agencies to indicate a borrower’s risk. Another credit score is the [VantageScore](https://www.investopedia.com/terms/v/vantagescore.asp), although the FICO score is more commonly used. Both FICO and VantageScore range from 300 to 850, although the ways in which each parses its scores into different classifications vary. Your credit score calculation represents your credit risk at a moment in time based on information found on your [credit report](https://www.investopedia.com/terms/c/creditreport.asp). The higher the credit score, the lower the risk to the lender. Here are the FICO credit score ranges and what they mean. ## Exceptional Credit Score: 800 to 850 A credit score in the range of 800 to 850 means the borrower is consistently responsible when it comes to managing their borrowing. Borrowers with these scores are more likely to qualify for the [lowest interest rates](https://www.investopedia.com/best-personal-loans-for-excellent-credit-4797495). People with this score have a long history of no late payments, as well as low balances on credit cards. Consumers with excellent credit scores may receive lower interest rates on mortgages, credit cards, loans, and [lines of credit](https://www.investopedia.com/terms/l/lineofcredit.asp), because they are deemed to be at low risk for defaulting on their agreements. ## Very Good Credit Score: 740 to 799 A credit score between 740 and 799 means the borrower is generally financially responsible when it comes to money and credit management. Most of their payments, including loans, credit cards, utilities, and rental payments, are made on time. [Credit card balances](https://www.investopedia.com/terms/c/credit-card-balance.asp) are relatively low compared with their credit account limits. ## Good Credit Score: 670 to 739 Having a credit score between 670 and 739 places a borrower near or slightly above the average of U.S. consumers, as the national average FICO score was 714 in 2022. While borrower in this credit score range may still earn competitive interest rates, they are unlikely to command the ideal rates of those in the two higher categories, and it may be harder for them to qualify for some types of credit. For instance, if a borrower is looking for an [unsecured loan](https://www.investopedia.com/terms/u/unsecuredloan.asp) with this score, it’s vital that they shop around in order to find the options that best suit their needs with the fewest drawbacks. ## Fair Credit Score: 580 to 669 Borrowers with credit scores ranging from 580 to 669 are thought to be in the “fair” category. They may have some dings on their credit history, but there are no major [delinquencies](https://www.investopedia.com/terms/d/delinquent.asp). They are still likely to be extended credit by lenders but not at very competitive rates. ### Even if their options are limited, borrows with fair credit scores in need of financing can still find[options](https://www.investopedia.com/best-personal-loans-for-fair-credit-4798008). ## Poor Credit Score: Under 580 An individual with a score between 300 and 579 has a significantly damaged credit history. This may be the result of multiple [defaults on different credit products](https://www.investopedia.com/ask/answers/062315/what-are-differences-between-delinquency-and-default.asp) from several different lenders. However, a poor score may also be the result of a bankruptcy, which will remain on a credit record for seven years for Chapter 13 and 10 years for Chapter 11. ### You can improve your credit score by paying down debt, making timely payments, and avoiding opening new credit. Borrowers with credit scores that fall in this range have very little chance of obtaining new credit. If your score falls in it, talk to a financial professional about steps to take to repair your credit. Additionally, so long as you can afford to pay a monthly fee, one of the best credit repair companies may be able to get the negative marks on your credit score removed for you. If you attempt to obtain an unsecured loan with this score, be sure to compare every lender you’re considering in order to determine [the least risky options](https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349). ## How Do You Build Credit With No Credit History? If you have not established credit year, you will likely a very low credit score. You can start to build credit in several ways, such as using a secured credit card. These cards require a down payment that serves as your credit line, but then as you make payments over time, you build a credit history with the three major credit bureaus. You may also consider becoming an authorized user on a parent or guardian's credit card or applying for student credit card, which has lower requirements and a smaller credit limit. ## What Are the 5 levels of Credit Scores? The five levels of FICO credit scores are excellent, very good, good, fair, and poor. Your credit score range will determine whether you qualify for loans and at which rates. ## Is it Possible to Get a 850 Credit Score? You can get a 850 credit score, although this score is fairly rare. About 1.2% of Americans who have credit have a perfect 850 FICO score. ## The Bottom Line Your credit score is based on several factors and can be used to determine whether you will qualify to borrow money as well as the terms, including the interest rate of the loan. Consistently paying your bills on time and in full will help prevent damage to your credit score in the future. Given the importance of having a good credit score, it could be worth it to invest in a [credit monitoring service](https://www.investopedia.com/best-credit-monitoring-services-4846982) to better protect your information.	Your credit score ranges tell lenders what type of borrower you are. Credit scores are calculated with a formula that uses five variables: payment history, amounts owed, length of credit history, credit mix, and new credit. Your credit score range may affect the interest rate you pay to a lender and even make the difference between a loan being approved or declined. Learn more about credit score ranges and what they mean. Key Takeaways Credit score ranges help lenders determine the risk of lending to a borrower.Credit scores are based on factors such as payment history, overall debt levels, and the number of credit accounts.You credit score can be a deciding factor on whether you are approved for a loan and at what interest rate.A FICO score between 740 and 850 is considered exceptional while scores between 700 to 750 are considered very good. Credit Score Basics Your credit score is a number that represents the risk a lender takes when you borrow money. A FICO score is a well-known measure created by the Fair Isaac Corporation and used by credit agencies to indicate a borrower’s risk. Another credit score is the VantageScore, although the FICO score is more commonly used. Both FICO and VantageScore range from 300 to 850, although the ways in which each parses its scores into different classifications vary. Your credit score calculation represents your credit risk at a moment in time based on information found on your credit report. The higher the credit score, the lower the risk to the lender. Here are the FICO credit score ranges and what they mean. Exceptional Credit Score: 800 to 850 A credit score in the range of 800 to 850 means the borrower is consistently responsible when it comes to managing their borrowing. Borrowers with these scores are more likely to qualify for the lowest interest rates. People with this score have a long history of no late payments, as well as low balances on credit cards. Consumers with excellent credit scores may receive lower interest rates on mortgages, credit cards, loans, and lines of credit, because they are deemed to be at low risk for defaulting on their agreements. Very Good Credit Score: 740 to 799 A credit score between 740 and 799 means the borrower is generally financially responsible when it comes to money and credit management. Most of their payments, including loans, credit cards, utilities, and rental payments, are made on time. Credit card balances are relatively low compared with their credit account limits. Good Credit Score: 670 to 739 Having a credit score between 670 and 739 places a borrower near or slightly above the average of U.S. consumers, as the national average FICO score was 714 in 2022. While borrower in this credit score range may still earn competitive interest rates, they are unlikely to command the ideal rates of those in the two higher categories, and it may be harder for them to qualify for some types of credit. For instance, if a borrower is looking for an unsecured loan with this score, it’s vital that they shop around in order to find the options that best suit their needs with the fewest drawbacks. Fair Credit Score: 580 to 669 Borrowers with credit scores ranging from 580 to 669 are thought to be in the “fair” category. They may have some dings on their credit history, but there are no major delinquencies. They are still likely to be extended credit by lenders but not at very competitive rates. Even if their options are limited, borrows with fair credit scores in need of financing can still findoptions. Poor Credit Score: Under 580 An individual with a score between 300 and 579 has a significantly damaged credit history. This may be the result of multiple defaults on different credit products from several different lenders. However, a poor score may also be the result of a bankruptcy, which will remain on a credit record for seven years for Chapter 13 and 10 years for Chapter 11. You can improve your credit score by paying down debt, making timely payments, and avoiding opening new credit. Borrowers with credit scores that fall in this range have very little chance of obtaining new credit. If your score falls in it, talk to a financial professional about steps to take to repair your credit. Additionally, so long as you can afford to pay a monthly fee, one of the best credit repair companies may be able to get the negative marks on your credit score removed for you. If you attempt to obtain an unsecured loan with this score, be sure to compare every lender you’re considering in order to determine the least risky options. How Do You Build Credit With No Credit History? If you have not established credit year, you will likely a very low credit score. You can start to build credit in several ways, such as using a secured credit card. These cards require a down payment that serves as your credit line, but then as you make payments over time, you build a credit history with the three major credit bureaus.You may also consider becoming an authorized user on a parent or guardian's credit card or applying for student credit card, which has lower requirements and a smaller credit limit. What Are the 5 levels of Credit Scores? The five levels of FICO credit scores are excellent, very good, good, fair, and poor. Your credit score range will determine whether you qualify for loans and at which rates. Is it Possible to Get a 850 Credit Score? You can get a 850 credit score, although this score is fairly rare. About 1.2% of Americans who have credit have a perfect 850 FICO score. The Bottom Line Your credit score is based on several factors and can be used to determine whether you will qualify to borrow money as well as the terms, including the interest rate of the loan. Consistently paying your bills on time and in full will help prevent damage to your credit score in the future. Given the importance of having a good credit score, it could be worth it to invest in a credit monitoring service to better protect your information.	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https://www.investopedia.com/life-insurance-disabled-people-5220199	Life Insurance for the Disabled	<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"> Life insurance guarantees a sum of money to be paid to named beneficiaries when the insured dies in exchange for the premiums paid by the policyholder during their lifetime. With more than a quarter of U.S. adults living with a disability and needing insurance, the industry offers a number of options.<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>Having a disability does not disqualify you from getting life insurance.</li><li>Some policies do not require a physical exam.</li><li>Parents may be able to obtain life insurance for disabled children by adding them to their own policies.</li><li>As with any insurance policy, the higher the risk, the higher the cost.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The primary purpose of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-companies-4845858">life insurance</a> is to provide for one’s family after death to pay off debt, cover funeral expenses, or leave a nest egg for beneficiaries. Buying life insurance can be a challenge for people with disabilities, but having a disability does not disqualify a person from obtaining life insurance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> As with any insurance policy, the higher the risk, the higher the cost: the more severe the disability, the higher the premiums and the fewer the choices.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="3"></span> To underwrite a policy—which means determining the insurability of the individual and the risk—insurance companies weigh the following factors: </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-the-nature-of-the-disability"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> The Nature of the Disability </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Some disabilities, such as loss of vision or hearing, have little effect on life expectancy. However, depending on the type of disability, how well it’s managed, and its likely impact on the lifespan of the insured, a disability or chronic condition can make it more challenging (i.e., more expensive) to get life insurance.<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-medical-treatments-and-medical-history"></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"> Medical Treatments and Medical History </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> A life insurance company will take into account current and past medical treatments; medications you’re taking; and the surgeries or hospitalizations you’ve had. They gather this information through interviews, a questionnaire, and a review of the applicant’s medical history and prescription information. </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>The primary purpose of life insurance is to provide for one’s family after death to pay off debt, cover funeral expenses, or leave a nest egg for beneficiaries.</p></div></div></div> <span class="heading-toc" id="toc-employment"></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"> Employment </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Being employed will count in the applicant’s favor. Life insurance companies view steady employment as a general indicator of health. Regular employment also means regular income that will reflect the applicant’s ability to make regular payments. <br/> </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-habits-and-hobbies"></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"> Habits and Hobbies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> As with anyone seeking life insurance, smoking, drinking, and recreational drug use including marijuana will affect an applicant’s insurability and the cost of their premium, as will any risky hobbies. Many (but not all) life insurance policies require blood and urine analysis. <br/> </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-the-plans"></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"> The Plans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Term life insurance and permanent life insurance are the two main types of life insurance policies. Many different types of life insurance are available to meet all sorts of needs and preferences. Depending on the short- or long-term needs of the person to be insured, the major choice is whether to select <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lifeinsurance.asp">temporary or permanent life insurance</a>.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <strong>Types of life insurance of special interest to the disabled:</strong><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Though <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/guaranteed-issue-life-insurance.asp">guaranteed-issue whole life insurance</a> carries a higher price tag and death benefit cap, a medical exam is not required for this type of policy, making it easily accessible.<span class="ql-inline-citation" data-cite="3"></span> It can be useful to pay for final medical bills, funeral expenses, and other related costs. <br/> </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"> For those with high-risk disabilities affecting their life expectancy, an impaired risk life insurance policy is usually the better choice.<span class="ql-inline-citation" data-cite="3"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-what-to-know-about-insurance-riders"></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"> What to Know About Insurance Riders </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Though insurance riders aren't specific to people with disabilities, they offer flexibility that can prove especially useful to the disabled. Insurance riders allow policyholders to customize their insurance policies to meet their specific needs. Some riders must be added when the policy is initiated, while others can be added afterward.<span class="ql-inline-citation" data-cite="4"></span> Here are a few: </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-child-rider"></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"> Child Rider </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Many life insurance policies offer policies that cover children as well as the parent. The parent of a child with a disability may be able to have their child included on their policy. The actual terms of child riders vary greatly as to how long the child is covered, what health restrictions there may be, whether a medical exam is required, and other factors. </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"> Child riders are generally written to expire when the children become adults. At that point, in some cases, the rider can be converted into a permanent life insurance policy. The terms and costs will vary depending on the terms of the rider, the health of the child, and other factors.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-accelerated-benefit-riders"></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"> Accelerated Benefit Riders </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> These add-ons to a term life insurance policy allow the insured person—disabled or not—to use a portion of the death benefit before they die. This can be especially useful for covering medical bills or other eligible end-of-life expenses such as hiring a home health aide or paying for hospice or nursing-home care. </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"> Different riders cover different circumstances. Terminal illness riders cover expenses related to illnesses that are incurable and allow policyholders to access a portion of the payout if diagnosed with a qualifying critical illness.<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_44-0"></div> <span class="heading-toc" id="toc-chronic-illness-riders"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-heading__text"> Chronic Illness Riders </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/010416/critical-illness-insurance-who-needs-it.asp">Chronic illness riders</a> pay out benefits while the policyholder is still alive but no longer able to perform at least two of the six recognized activities for daily living—eating, bathing, getting dressed, toileting, transferring, and continence. </p> <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-process"></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 Process </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Insurance underwriters will examine written medical records and conduct a medical exam checking blood pressure, heart rate, and weight, as well as testing blood and urine.<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_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> By law, the medical exam cannot be different from the medical exam the insurer conducts on non-disabled people.<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_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> The application for a policy will be approved or approved with certain stipulations—for instance, a waiting period before the policy becomes active. This is to prevent people from buying life insurance when they know that they are mortally ill and have only a short time to live. </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-how-applicants-can-help-their-case"></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"> How Applicants Can Help Their Case </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Being denied by one insurance company can make it more difficult to be approved by other companies. Here are some steps applicants can take to boost their chances of being approved and, if approved, obtain lower premiums and better terms. <br/> </p> <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"> Check medical records </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Applicants should request a copy of their medical records from their healthcare providers and review them for accuracy. Perhaps a medical issue in the past has been addressed and cleared up. If that’s the case, the applicant can provide a note with the application explaining that.<br/> </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"> Keep appointments </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> If the applicant’s disability is a condition that requires regular checkups and scheduled medications, the more they adhere to their treatment plans and appointments, the lower the perceived risk of insuring them. This is especially true if the applicant has a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-for-diabetics-5088961">chronic condition such as diabetes</a>.<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"> Consider working with an experienced agent </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Working with an insurance agent who has experience with clients with disabilities can be helpful. Such agents will know which companies write the best policies for the disabled and can test the waters for their clients. They can do this by giving insurers a client’s anonymized medical profile to get the insurance company’s assessment of the client’s insurability. A favorable response will help the agent decide to move to a formal application. </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-can-people-with-disabilities-buy-life-insurance"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can People With Disabilities Buy Life Insurance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, in most cases, people with disabilities can find some form of life insurance. Your eligibility and rates will depend on the type of disability, the severity of your condition, and your overall health, among other factors. Having a disability could mean higher premiums and fewer plan options.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-do-insurance-companies-always-require-a-physical-exam"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Insurance Companies Always Require a Physical Exam?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. Policies are available that don't require a physical exam. Two types of life insurance policy—simplified issue or guaranteed issue—are available with no need for a medical exam. Your premiums may be higher and coverage may be capped at a specific amount.<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_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-how-does-a-life-insurance-medical-exam-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does a Life Insurance Medical Exam Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Medical exams are free and provided by your insurance company at their expense. A licensed medical technician will come to your home or your workplace to perform the exam. You’ll also get a copy of the results. The exam usually takes about 30 minutes.<span class="ql-inline-citation" data-cite="9"></span><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_73-0"><span class="heading-toc" id="toc-how-can-a-disabled-person-pick-the-best-life-insurance"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can a Disabled Person Pick the Best Life Insurance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Learn as much as possible about the different types of life insurance, including the kinds that don't require a medical exam and what the insurance company requires for each policy. Inform yourself about the benefits of different policies and how they differ so you can make the decision that's right for you.<br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_75-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> Life insurance plays an important role in someone's financial protection. In recent years, the insurance industry has greatly expanded its life insurance options for the disabled and shown much greater flexibility in writing policies than was true in the past. As with any financial decision, it pays to do your research. There are life insurance companies that offer policies designed for people with certain disabilities, such as autism, Down syndrome, or cerebral palsy.<span class="ql-inline-citation" data-cite="3"></span> </p></div>	Life insurance guarantees a sum of money to be paid to named beneficiaries when the insured dies in exchange for the premiums paid by the policyholder during their lifetime. With more than a quarter of U.S. adults living with a disability and needing insurance, the industry offers a number of options. ### Key Takeaways * Having a disability does not disqualify you from getting life insurance. * Some policies do not require a physical exam. * Parents may be able to obtain life insurance for disabled children by adding them to their own policies. * As with any insurance policy, the higher the risk, the higher the cost. The primary purpose of [life insurance](https://www.investopedia.com/best-life-insurance-companies-4845858) is to provide for one’s family after death to pay off debt, cover funeral expenses, or leave a nest egg for beneficiaries. Buying life insurance can be a challenge for people with disabilities, but having a disability does not disqualify a person from obtaining life insurance. As with any insurance policy, the higher the risk, the higher the cost: the more severe the disability, the higher the premiums and the fewer the choices. To underwrite a policy—which means determining the insurability of the individual and the risk—insurance companies weigh the following factors: ## The Nature of the Disability Some disabilities, such as loss of vision or hearing, have little effect on life expectancy. However, depending on the type of disability, how well it’s managed, and its likely impact on the lifespan of the insured, a disability or chronic condition can make it more challenging (i.e., more expensive) to get life insurance. ## Medical Treatments and Medical History A life insurance company will take into account current and past medical treatments; medications you’re taking; and the surgeries or hospitalizations you’ve had. They gather this information through interviews, a questionnaire, and a review of the applicant’s medical history and prescription information. ### The primary purpose of life insurance is to provide for one’s family after death to pay off debt, cover funeral expenses, or leave a nest egg for beneficiaries. ## Employment Being employed will count in the applicant’s favor. Life insurance companies view steady employment as a general indicator of health. Regular employment also means regular income that will reflect the applicant’s ability to make regular payments. ## Habits and Hobbies As with anyone seeking life insurance, smoking, drinking, and recreational drug use including marijuana will affect an applicant’s insurability and the cost of their premium, as will any risky hobbies. Many (but not all) life insurance policies require blood and urine analysis. ## The Plans Term life insurance and permanent life insurance are the two main types of life insurance policies. Many different types of life insurance are available to meet all sorts of needs and preferences. Depending on the short- or long-term needs of the person to be insured, the major choice is whether to select [temporary or permanent life insurance](https://www.investopedia.com/terms/l/lifeinsurance.asp). Types of life insurance of special interest to the disabled: Though [guaranteed-issue whole life insurance](https://www.investopedia.com/terms/g/guaranteed-issue-life-insurance.asp) carries a higher price tag and death benefit cap, a medical exam is not required for this type of policy, making it easily accessible. It can be useful to pay for final medical bills, funeral expenses, and other related costs. For those with high-risk disabilities affecting their life expectancy, an impaired risk life insurance policy is usually the better choice. ## What to Know About Insurance Riders Though insurance riders aren't specific to people with disabilities, they offer flexibility that can prove especially useful to the disabled. Insurance riders allow policyholders to customize their insurance policies to meet their specific needs. Some riders must be added when the policy is initiated, while others can be added afterward. Here are a few: ## Child Rider Many life insurance policies offer policies that cover children as well as the parent. The parent of a child with a disability may be able to have their child included on their policy. The actual terms of child riders vary greatly as to how long the child is covered, what health restrictions there may be, whether a medical exam is required, and other factors. Child riders are generally written to expire when the children become adults. At that point, in some cases, the rider can be converted into a permanent life insurance policy. The terms and costs will vary depending on the terms of the rider, the health of the child, and other factors. ## Accelerated Benefit Riders These add-ons to a term life insurance policy allow the insured person—disabled or not—to use a portion of the death benefit before they die. This can be especially useful for covering medical bills or other eligible end-of-life expenses such as hiring a home health aide or paying for hospice or nursing-home care. Different riders cover different circumstances. Terminal illness riders cover expenses related to illnesses that are incurable and allow policyholders to access a portion of the payout if diagnosed with a qualifying critical illness. ## Chronic Illness Riders [Chronic illness riders](https://www.investopedia.com/articles/personal-finance/010416/critical-illness-insurance-who-needs-it.asp) pay out benefits while the policyholder is still alive but no longer able to perform at least two of the six recognized activities for daily living—eating, bathing, getting dressed, toileting, transferring, and continence. ## The Process Insurance underwriters will examine written medical records and conduct a medical exam checking blood pressure, heart rate, and weight, as well as testing blood and urine. By law, the medical exam cannot be different from the medical exam the insurer conducts on non-disabled people. The application for a policy will be approved or approved with certain stipulations—for instance, a waiting period before the policy becomes active. This is to prevent people from buying life insurance when they know that they are mortally ill and have only a short time to live. ## How Applicants Can Help Their Case Being denied by one insurance company can make it more difficult to be approved by other companies. Here are some steps applicants can take to boost their chances of being approved and, if approved, obtain lower premiums and better terms. ### Check medical records Applicants should request a copy of their medical records from their healthcare providers and review them for accuracy. Perhaps a medical issue in the past has been addressed and cleared up. If that’s the case, the applicant can provide a note with the application explaining that. ### Keep appointments If the applicant’s disability is a condition that requires regular checkups and scheduled medications, the more they adhere to their treatment plans and appointments, the lower the perceived risk of insuring them. This is especially true if the applicant has a [chronic condition such as diabetes](https://www.investopedia.com/best-life-insurance-for-diabetics-5088961). ### Consider working with an experienced agent Working with an insurance agent who has experience with clients with disabilities can be helpful. Such agents will know which companies write the best policies for the disabled and can test the waters for their clients. They can do this by giving insurers a client’s anonymized medical profile to get the insurance company’s assessment of the client’s insurability. A favorable response will help the agent decide to move to a formal application. ## Can People With Disabilities Buy Life Insurance? Yes, in most cases, people with disabilities can find some form of life insurance. Your eligibility and rates will depend on the type of disability, the severity of your condition, and your overall health, among other factors. Having a disability could mean higher premiums and fewer plan options. ## Do Insurance Companies Always Require a Physical Exam? No. Policies are available that don't require a physical exam. Two types of life insurance policy—simplified issue or guaranteed issue—are available with no need for a medical exam. Your premiums may be higher and coverage may be capped at a specific amount. ## How Does a Life Insurance Medical Exam Work? Medical exams are free and provided by your insurance company at their expense. A licensed medical technician will come to your home or your workplace to perform the exam. You’ll also get a copy of the results. The exam usually takes about 30 minutes. ## How Can a Disabled Person Pick the Best Life Insurance? Learn as much as possible about the different types of life insurance, including the kinds that don't require a medical exam and what the insurance company requires for each policy. Inform yourself about the benefits of different policies and how they differ so you can make the decision that's right for you. ## The Bottom Line Life insurance plays an important role in someone's financial protection. In recent years, the insurance industry has greatly expanded its life insurance options for the disabled and shown much greater flexibility in writing policies than was true in the past. As with any financial decision, it pays to do your research. There are life insurance companies that offer policies designed for people with certain disabilities, such as autism, Down syndrome, or cerebral palsy.	Life insurance guarantees a sum of money to be paid to named beneficiaries when the insured dies in exchange for the premiums paid by the policyholder during their lifetime. With more than a quarter of U.S. adults living with a disability and needing insurance, the industry offers a number of options. Key Takeaways Having a disability does not disqualify you from getting life insurance.Some policies do not require a physical exam.Parents may be able to obtain life insurance for disabled children by adding them to their own policies.As with any insurance policy, the higher the risk, the higher the cost. The primary purpose of life insurance is to provide for one’s family after death to pay off debt, cover funeral expenses, or leave a nest egg for beneficiaries. Buying life insurance can be a challenge for people with disabilities, but having a disability does not disqualify a person from obtaining life insurance. As with any insurance policy, the higher the risk, the higher the cost: the more severe the disability, the higher the premiums and the fewer the choices. To underwrite a policy—which means determining the insurability of the individual and the risk—insurance companies weigh the following factors: The Nature of the Disability Some disabilities, such as loss of vision or hearing, have little effect on life expectancy. However, depending on the type of disability, how well it’s managed, and its likely impact on the lifespan of the insured, a disability or chronic condition can make it more challenging (i.e., more expensive) to get life insurance. Medical Treatments and Medical History A life insurance company will take into account current and past medical treatments; medications you’re taking; and the surgeries or hospitalizations you’ve had. They gather this information through interviews, a questionnaire, and a review of the applicant’s medical history and prescription information. The primary purpose of life insurance is to provide for one’s family after death to pay off debt, cover funeral expenses, or leave a nest egg for beneficiaries. Employment Being employed will count in the applicant’s favor. Life insurance companies view steady employment as a general indicator of health. Regular employment also means regular income that will reflect the applicant’s ability to make regular payments. Habits and Hobbies As with anyone seeking life insurance, smoking, drinking, and recreational drug use including marijuana will affect an applicant’s insurability and the cost of their premium, as will any risky hobbies. Many (but not all) life insurance policies require blood and urine analysis. The Plans Term life insurance and permanent life insurance are the two main types of life insurance policies. Many different types of life insurance are available to meet all sorts of needs and preferences. Depending on the short- or long-term needs of the person to be insured, the major choice is whether to select temporary or permanent life insurance. Types of life insurance of special interest to the disabled: Though guaranteed-issue whole life insurance carries a higher price tag and death benefit cap, a medical exam is not required for this type of policy, making it easily accessible. It can be useful to pay for final medical bills, funeral expenses, and other related costs. For those with high-risk disabilities affecting their life expectancy, an impaired risk life insurance policy is usually the better choice. What to Know About Insurance Riders Though insurance riders aren't specific to people with disabilities, they offer flexibility that can prove especially useful to the disabled. Insurance riders allow policyholders to customize their insurance policies to meet their specific needs. Some riders must be added when the policy is initiated, while others can be added afterward. Here are a few: Child Rider Many life insurance policies offer policies that cover children as well as the parent. The parent of a child with a disability may be able to have their child included on their policy. The actual terms of child riders vary greatly as to how long the child is covered, what health restrictions there may be, whether a medical exam is required, and other factors. Child riders are generally written to expire when the children become adults. At that point, in some cases, the rider can be converted into a permanent life insurance policy. The terms and costs will vary depending on the terms of the rider, the health of the child, and other factors. Accelerated Benefit Riders These add-ons to a term life insurance policy allow the insured person—disabled or not—to use a portion of the death benefit before they die. This can be especially useful for covering medical bills or other eligible end-of-life expenses such as hiring a home health aide or paying for hospice or nursing-home care. Different riders cover different circumstances. Terminal illness riders cover expenses related to illnesses that are incurable and allow policyholders to access a portion of the payout if diagnosed with a qualifying critical illness. Chronic Illness Riders Chronic illness riders pay out benefits while the policyholder is still alive but no longer able to perform at least two of the six recognized activities for daily living—eating, bathing, getting dressed, toileting, transferring, and continence. The Process Insurance underwriters will examine written medical records and conduct a medical exam checking blood pressure, heart rate, and weight, as well as testing blood and urine. By law, the medical exam cannot be different from the medical exam the insurer conducts on non-disabled people. The application for a policy will be approved or approved with certain stipulations—for instance, a waiting period before the policy becomes active. This is to prevent people from buying life insurance when they know that they are mortally ill and have only a short time to live. How Applicants Can Help Their Case Being denied by one insurance company can make it more difficult to be approved by other companies. Here are some steps applicants can take to boost their chances of being approved and, if approved, obtain lower premiums and better terms. Check medical records Applicants should request a copy of their medical records from their healthcare providers and review them for accuracy. Perhaps a medical issue in the past has been addressed and cleared up. If that’s the case, the applicant can provide a note with the application explaining that. Keep appointments If the applicant’s disability is a condition that requires regular checkups and scheduled medications, the more they adhere to their treatment plans and appointments, the lower the perceived risk of insuring them. This is especially true if the applicant has a chronic condition such as diabetes. Consider working with an experienced agent Working with an insurance agent who has experience with clients with disabilities can be helpful. Such agents will know which companies write the best policies for the disabled and can test the waters for their clients. They can do this by giving insurers a client’s anonymized medical profile to get the insurance company’s assessment of the client’s insurability. A favorable response will help the agent decide to move to a formal application. Can People With Disabilities Buy Life Insurance? Yes, in most cases, people with disabilities can find some form of life insurance. Your eligibility and rates will depend on the type of disability, the severity of your condition, and your overall health, among other factors. Having a disability could mean higher premiums and fewer plan options. Do Insurance Companies Always Require a Physical Exam? No. Policies are available that don't require a physical exam. Two types of life insurance policy—simplified issue or guaranteed issue—are available with no need for a medical exam. Your premiums may be higher and coverage may be capped at a specific amount. How Does a Life Insurance Medical Exam Work? Medical exams are free and provided by your insurance company at their expense. A licensed medical technician will come to your home or your workplace to perform the exam. You’ll also get a copy of the results. The exam usually takes about 30 minutes. How Can a Disabled Person Pick the Best Life Insurance? Learn as much as possible about the different types of life insurance, including the kinds that don't require a medical exam and what the insurance company requires for each policy. Inform yourself about the benefits of different policies and how they differ so you can make the decision that's right for you. The Bottom Line Life insurance plays an important role in someone's financial protection. In recent years, the insurance industry has greatly expanded its life insurance options for the disabled and shown much greater flexibility in writing policies than was true in the past. As with any financial decision, it pays to do your research. There are life insurance companies that offer policies designed for people with certain disabilities, such as autism, Down syndrome, or cerebral palsy.	[ [ "life insurance", "https://www.investopedia.com/best-life-insurance-companies-4845858" ], [ "temporary or permanent life insurance", "https://www.investopedia.com/terms/l/lifeinsurance.asp" ], [ "guaranteed-issue whole life insurance", "https://www.investopedia.com/terms/g/guaranteed-issue-life-insurance.asp" ], [ "Chronic illness riders", "https://www.investopedia.com/articles/personal-finance/010416/critical-illness-insurance-who-needs-it.asp" ], [ "chronic condition such as diabetes", "https://www.investopedia.com/best-life-insurance-for-diabetics-5088961" ] ]
https://www.investopedia.com/best-car-loans-for-bad-credit-7372351	Best Car Loans for Bad Credit	<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"> It can be difficult to get approved for a car loan with bad credit. But while your options may be limited, some lenders specialize in working with borrowers with bad credit. Here are our top choices for the best car loans for bad credit, based on borrower requirements, rates, fees, and loan terms. </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 Car Loans for Bad Credit 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 for Most Borrowers:</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://og.services.apex.prod.autopay.com/api/2.0/lead/inbound/organization/DOTDASH/channel/DOTDASH_A/event/LEAD_REFERRED_FOR_REDIRECT/version/1.0.0?id=THEIR_UNIQUE_IDENTIFER" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> AUTOPAY</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 Only Used Car Loans:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="pub_param_1=${DOC_ID}&pub_param_2=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup \| Summary List" href="https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=carmax&bwid_id=6385e804ca097c71ee1e23c1&pub_param_1=%7BPARAM%7D&pub_param_2=%7BPARAM%7D" rel="nofollow noskim noopener nocaes" target="_blank"> CarMax</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best for Full Car Buying Experience:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="subid1=${DOC_ID}&subid2=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup \| Summary List" href="https://carvana.sjv.io/c/2104074/908951/12225?subid1=4846394&subid2=n9c8ce6e1b0b84329a1aec356f39b772c18" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Carvana</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 High Maximum Accepted Mileage:</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.openroadlending.com/applyone/?aid=899&opt_1=best-auto-loan-rates-4173489" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> OpenRoad Lending</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-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>Thinking about applying with a co-borrower, or just want to see a broader selection? 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-auto-refinance-loans-5069118">best overall auto loan rates</a>.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> </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="false" 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 Car Loans for Bad Credit</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 Car Loans for Bad Credit" 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 Car Loans for Bad Credit</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-AUTOPAY" 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-AUTOPAY" data-tracking-container="true" data-tracking-id="PRM Roundup \| Table of Contents" href="#toc-best-for-most-borrowers-autopay" rel="nocaes"> <span class="link__wrapper">AUTOPAY</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-CarMax" 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-CarMax" data-tracking-container="true" data-tracking-id="PRM Roundup \| Table of Contents" href="#toc-best-for-only-used-car-loans-carmax" rel="nocaes"> <span class="link__wrapper">CarMax</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-Carvana" 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-Carvana" data-tracking-container="true" data-tracking-id="PRM Roundup \| Table of Contents" href="#toc-best-for-full-car-buying-experience-carvana" rel="nocaes"> <span class="link__wrapper">Carvana</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-OpenRoad Lending" 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-OpenRoad Lending" data-tracking-container="true" data-tracking-id="PRM Roundup \| Table of Contents" href="#toc-best-for-high-maximum-accepted-mileage-openroad-lending" rel="nocaes"> <span class="link__wrapper">OpenRoad Lending</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 (1)</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-Final Verdict" data-tracking-container="true" data-tracking-id="PRM Roundup \| Table of Contents" href="#toc-final-verdict" id="mntl-toc__list-item-link_1-0" 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_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-How to Choose" data-tracking-container="true" data-tracking-id="PRM Roundup \| Table of Contents" href="#toc-guide-to-choosing-the-best-car-loans-for-bad-credit" id="mntl-toc__list-item-link_1-0-1" 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_1-0-2"> <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-FAQ" data-tracking-container="true" data-tracking-id="PRM Roundup \| Table of Contents" href="#toc-faq-e2ea6a1e-c6eb-460b-8029-76a4333f473e" id="mntl-toc__list-item-link_1-0-2" 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_1-0-3"> <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-for-most-borrowers-autopay"></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 for Most Borrowers</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> AUTOPAY</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: 92px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="AutoPay" 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/52p5kikdi2NHO5WyCy8OmTt0Nzo=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Autopay-ec4375470de24d2f8aca313b8f153804.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="AutoPay" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/52p5kikdi2NHO5WyCy8OmTt0Nzo=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Autopay-ec4375470de24d2f8aca313b8f153804.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> AutoPay</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_3-0-1"> <li><strong>APR Range:</strong> 4.67% and up</li><li><strong>Loan Amounts:</strong> $2,500–$100,000</li><li><strong>Loan Terms</strong>: 2–8 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_3-0-2"> <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-type="other" data-tracking-container="true" href="https://og.services.apex.prod.autopay.com/api/2.0/lead/inbound/organization/DOTDASH/channel/DOTDASH_A/event/LEAD_REFERRED_FOR_REDIRECT/version/1.0.0?id=THEIR_UNIQUE_IDENTIFER" 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">Pros & Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-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_3-0-4"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Minimum credit score of 500</p></li> <li><p>Works with several lenders to help you find a loan</p></li> <li><p>Offers pre-qualification with a soft credit check</p></li> <li><p>Allows co-signers</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>Low transparency about rates</p></li> <li><p>Unclear eligibility requirements</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 is-active is-initial-load js-single-tab-control" data-tab-index="2"> <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="2"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-6"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/autopay-auto-loans-review-7643912">AUTOPAY</a> is a marketplace that offers a wide range of financing options, including loans for new and used vehicles, refinance loans (including a cash-out option), and lease buyouts. According to customer support, borrowers are required to have a minimum credit score of just 500 and a monthly income of at least $2,500. </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"> If you're concerned about the impact of a hard inquiry when applying for a loan, you'll be able to compare rates from the marketplace's partner lenders with just a soft credit check. If you can't get approved on your own or your rate would be too high, you can apply with a co-signer. </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"> AUTOPAY’s loan amounts and repayment terms are flexible, but it doesn't disclose a maximum rate, making it difficult for bad-credit borrowers to get an idea of what to expect without going through the pre-qualification process. There's also no information on its website about how long it takes to get an application approved or a loan funded. </p><!-- 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">Borrower 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_3-0-10"> <li>Loans are available in all 50 states, the District of Columbia, and Puerto Rico.</li><li>Minimum credit score: 500 (according to customer support)</li><li>MInimum monthly income: $2,500 (according to customer support)</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="4"> <span class="tabbed-sc-block__text">Vehicle Qualifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="4"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-12"> <li>Maximum accepted mileage: 150,000 miles</li><li>Maximum accepted age of the vehicle: 10 years old</li><li>Maximum loan-to-value ratio: Not disclosed</li><li>Private-party vehicle purchases: Allowed</li> </ul><!-- 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-only-used-car-loans-carmax"></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 Only Used Car Loans</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> CarMax</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-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_3-0-13" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="CarMax" 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/O2aW29V9L8TE-7VezC07KkHzf8Q=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Carmax-bbebfa12d8c148a6a542e10b4215321d.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-1" width="1500"/> <noscript> <img alt="CarMax" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/O2aW29V9L8TE-7VezC07KkHzf8Q=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Carmax-bbebfa12d8c148a6a542e10b4215321d.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>CarMax</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_3-0-14"> <li><strong>APR Range:</strong> Not disclosed</li><li><strong>Loan Amounts:</strong> $5,000–$100,000</li><li><strong>Loan Terms</strong>: 3–6 years</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup \| ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-15"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-1"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="pub_param_1=${DOC_ID}&pub_param_2=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-type="other" data-tracking-container="true" href="https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=carmax&bwid_id=6385e804ca097c71ee1e23c1&pub_param_1=%7BPARAM%7D&pub_param_2=%7BPARAM%7D" id="button_1-0-1" rel="noskim noopener nofollow 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">Pros & Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-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_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 minimum credit score requirement</p></li> <li><p>Convenient purchase and financing experience</p></li> <li><p>Offers a three-day window to find better financing</p></li> <li><p>Offers pre-qualification with a soft credit check</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>Unclear eligibility requirements</p></li> <li><p>Requires you to buy a CarMax vehicle</p></li> <li><p>APRs can be high</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 is-active is-initial-load js-single-tab-control" data-tab-index="2"> <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="2"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-19"> CarMax is a used-car retailer that operates nearly 250 stores nationwide, making it worth checking out if you’re in the market for a pre-owned vehicle. In addition to in-house financing, CarMax also works with other major lenders to help you find the right loan for you. It has no minimum credit score requirement, inviting anyone to apply for financing. </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"> Unfortunately, the lender is not transparent about the specific borrower requirements and vehicle requirements, so you'll need to go through the pre-qualification process to get an idea of what's available. Fortunately, you can apply with a co-signer if the terms you get on your own aren't great. </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"> Another major feature that sets CarMax apart is that you can continue shopping for a loan for up to three days after your purchase. If you find something better, you can replace your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/carmax-auto-loan-review-7642717">CarMax loan</a> at no cost. The lender's APR is competitive at the low end, but its maximum APR is likely to be quite high (based on sample quotes). </p><!-- 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">Borrower 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>Does not disclose a minimum credit score or income requirements</li><li>Vehicles and loans are available in 41 states, excluding Alaska, Arkansas, Hawaii, Montana, North Dakota, South Dakota, Vermont, Wyoming, and West Virginia.</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="4"> <span class="tabbed-sc-block__text">Vehicle Qualifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="4"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-25"> <li>Maximum loan-to-value ratio: Not disclosed</li><li>Maximum accepted mileage: Not disclosed</li><li>Maximum accepted age of the vehicle: None (vehicle must be purchased through CarMax)</li><li>Private-party vehicle purchases: Not allowed</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="5"> <span class="tabbed-sc-block__text">Customer Reviews</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="5"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-27"> <li>“I've been satisfied with the products that I've gotten there. I've bought, and my family has bought more than one car from them, and I've got friends who have, so I think it's pretty well-run. And I've been happy with the warranties on the repairs two cars ago.”</li><li>“...Over the years I started buying from CarMax, maybe about 15 years ago, and had used the same salesman, usually. But this time it was during COVID when I got the car and they were trying to do everything that they could online. They would have even brought the car to me. If I picked it online they would have driven it to me and had me fill [out] the paperwork in my house. But because I was in a different state, they didn't do that.”</li><li>“If I was going to do something differently, I'd probably check and see if [my] credit union had lower interest rates. … But that's the only thing I would do differently, is … go for something with a lower interest rate.”</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_3-0-28"> <em>Customer reviews were collected from an independent Investopedia survey of 1,016 current, past, and prospective auto loan borrowers.</em> </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-full-car-buying-experience-carvana"></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 Full Car Buying Experience</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Carvana</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 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_3-0-29" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Carvana" 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/jlAToQS7VdGiN-vrWIvD-rLAxLs=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Carvana-2fe03d13b669495ab4a5198f4d69896b.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-2" width="1500"/> <noscript> <img alt="Carvana" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/jlAToQS7VdGiN-vrWIvD-rLAxLs=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Carvana-2fe03d13b669495ab4a5198f4d69896b.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> Carvana</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_3-0-30"> <li><strong>APR Range:</strong> Not disclosed</li><li><strong>Loan Amounts:</strong> Not disclosed</li><li><strong>Loan Terms</strong>: 3–6 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_3-0-31"> <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="subid1=${DOC_ID}&subid2=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-type="other" data-tracking-container="true" href="https://carvana.sjv.io/c/2104074/908951/12225?subid1=4846394&subid2=n9c8ce6e1b0b84329a1aec356f39b772c18" 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">Pros & Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-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_3-0-33"> <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>Works with borrowers with all types of credit</p></li> <li><p>Offers a seven-day money-back guarantee</p></li> <li><p>Offers pre-qualification with a soft credit check</p></li> <li><p>Application process is 100% online</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>Requires a down payment</p></li> <li><p>Must buy a used car through Carvana</p></li> <li><p>Co-signers not allowed 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 is-active is-initial-load js-single-tab-control" data-tab-index="2"> <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="2"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-35"> Carvana is an online used-car retailer that can guide you through the full car-buying experience. The catch is that you have to buy a vehicle with Carvana to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/carvana-auto-loans-review-7965774">use its financing</a>. The lender doesn't offer a lot of transparency around credit requirements, but it does offer financing for all credit levels, and you can get an idea of your eligibility and potential terms with its pre-qualification process. </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"> Carvana doesn't specify loan amounts or APRs, but it's safe to assume that you can finance any vehicle you buy through the retailer, as long as you meet the eligibility criteria. You should expect to pay the higher end of the APR range if you have poor credit. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-37"> If you're not satisfied with your vehicle or the financing terms, Carvana offers a seven-day money-back guarantee.<span class="ql-inline-citation" data-cite="5"></span> However, there are some limits based on how far you drive during that time, or if you make modifications or get in an accident. </p><!-- 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">Borrower 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_3-0-39"> <li>Minimum credit score is not disclosed</li><li>Minimum income: $4,000</li><li>Carvana does not operate in Alaska or Hawaii.</li><li>Co-signers are not allowed in Alaska, District of Columbia, Hawaii, Idaho, Illinois, Louisiana, Montana, Nebraska, North Dakota, South Dakota, and Wyoming.</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="4"> <span class="tabbed-sc-block__text">Vehicle Qualifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="4"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-41"> <li>Vehicle must be purchased through Carvana.</li><li>Maximum accepted mileage: 140,000 miles</li><li>Maximum accepted age of the vehicle: Varies</li><li>Maximum loan-to-value ratio: Not disclosed</li><li>Private-party vehicle purchases: Not allowed</li> </ul><!-- 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-high-maximum-accepted-mileage-openroad-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_1-0-3"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best for High Maximum Accepted Mileage</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> OpenRoad 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_1-0-3"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-3"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-3"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-3x2 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-low-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup \| ProductCard - Logo" id="mntl-sc-block_3-0-42" style="--imgWidth: 844px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="OpenRoad 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/mY3JtoavOKV1_P-1mpdWu50Gm7M=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Open_Road_Lending-37f22388fed54364bf8922b784cee9b9.jpg" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0-3" width="1500"/> <noscript> <img alt="OpenRoad Lending" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/mY3JtoavOKV1_P-1mpdWu50Gm7M=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Open_Road_Lending-37f22388fed54364bf8922b784cee9b9.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> OpenRoad 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-low-res --> <div class="tabbed-sc-block-intro__content"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-43"> <li><strong>APR Range:</strong> 1.99% and up</li><li><strong>Loan Amounts:</strong> $7,500–$100,000</li><li><strong>Loan Terms</strong>: 3–7 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_3-0-44"> <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-type="other" data-tracking-container="true" href="https://www.openroadlending.com/applyone/?aid=899&opt_1=best-auto-loan-rates-4173489" 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">Pros & Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-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_3-0-46"> <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>Maximum accepted mileage of 160,000 miles</p></li> <li><p>Allows co-signers</p></li> <li><p>Offers pre-qualification with a soft credit check</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 offers refinance loans</p></li> <li><p>Website is outdated</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 is-active is-initial-load js-single-tab-control" data-tab-index="2"> <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="2"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-48"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/openroad-lending-auto-loan-review-7642719">OpenRoad Lending</a> offers car loan refinancing, including cash-out options, with impressive starting rates. Loan amounts and repayment terms are relatively flexible, though some lenders offer lower loan amounts and more repayment options. Its loans are available to people with bad credit, with scores as low as 500 (according to customer support). </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-49"> OpenRoad is a great choice if you want to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-refinance-loans-5069118">refinance a vehicle</a> with a lot of time on the road, because it allows you to finance vehicles with more miles (160,000) than any other bad credit lender we reviewed (according to customer support). </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"> Unfortunately, the lender doesn't disclose its maximum interest rate, making it difficult to know what to expect if your credit isn’t in the best shape. And while you may receive a pre-qualification offer in the mail, you can't get pre-qualified online to compare rates—you’ll have to submit a complete application. If you can't get approved on your own, however, you can add a co-signer to improve your odds. </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_3-0-51"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>Some of the information found on OpenRoad Lending's website may be outdated and even conflicting in some areas, including when it comes to starting rates, loan amounts, income and mileage requirements, and more. It even includes information about purchase loans for new and used vehicles despite no longer offering these products. As a result, you won't really know what to expect unless you submit an application.</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">Borrower 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_3-0-53"> <li>Minimum credit score: 500 (according to customer support)</li><li>Minimum monthly income: $1,500 (income from Uber or similar taxi services is not eligible)</li><li>States available: 46 states (not available in Alaska, Hawaii, North Dakota, Nevada, and Wisconsin).</li><li>Self-employed borrowers are ineligible.</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="4"> <span class="tabbed-sc-block__text">Vehicle Qualifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="4"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-55"> <li>Maximum accepted mileage: 160,000 miles (according to customer support)</li> <li>Maximum accepted age of the vehicle: Not disclosed</li> <li>Maximum loan-to-value ratio: 125% in most cases; exceptions up to 180% can be made (according to customer support)</li> <li>Private-party vehicle purchases: Not allowed</li> <li>The following vehicles are ineligible: commercial vehicles and vehicles for business use; Oldsmobile, Daewoo, Smart Car, and Isuzu models; vehicles that are no longer being manufactured; <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-motorcycle-loans-5080905">motorcycles</a>; <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-rv-loan-rates-5082108">recreational vehicles</a>; trucks or vehicles larger than 3/4 ton.</li> </ul><!-- 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"> For the most part, options for bad credit auto loans are far from ideal. However, if you don't have a co-signer who can help you get approved for a low rate, these lenders can help you get the vehicle you need. </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"> For most auto loan needs, consider AUTOPAY. However, if you're planning to buy a vehicle through CarMax or Carvana, it’s worth considering their financing options. For refinancing a high-mileage car, you may also want to apply with OpenRoad Lending as you shop around. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-guide-to-choosing-the-best-car-loans-for-bad-credit"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-3"> <span class="mntl-sc-block-heading__text"> Guide to Choosing the Best Car Loans for Bad Credit </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_4-0-4"> <span class="mntl-sc-block-subheading__text"> What Is Bad Credit for an Auto 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_4-0-5"> According to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ficoscore.asp">FICO</a>, a poor credit score ranges from 300 to 579.<span class="ql-inline-citation" data-cite="1"></span> But credit scores aren’t all that matter. Depending on the lender, there may be additional credit requirements aside from a minimum score, such as not having any recent bankruptcies on your credit reports.<span class="ql-inline-citation" data-cite="2"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <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_4-0-6"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-2"> <p>In some cases, you may be able to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-with-no-credit-check-7101289">get approved for a loan without a credit check</a> at all, but these loans are often prohibitively expensive. Make sure you read the fine print or speak with a representative from the lender before you apply for any loan. </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 --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-7"> <span class="mntl-sc-block-subheading__text"> FICO Score Ranges </span> </h3><!-- end: comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <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_4-0-8"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 239px;"></colgroup> <colgroup span="1" style="width: 259px;"></colgroup> <thead> <tr> <th> <b>Rating</b></th> <th> <b>Score Range</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>Excellent/Exceptional</td> <td>800–850</td> </tr> <tr> <td>Very Good </td> <td>740–799 </td> </tr> <tr> <td>Good </td> <td>670–739 </td> </tr> <tr> <td>Fair </td> <td>580–669 </td> </tr> <tr> <td>Poor </td> <td>300–579 </td> </tr> <tr> <td>No Credit </td> <td>Not enough data to score </td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-9"> <em>Source: myFICO</em><span class="ql-inline-citation" data-cite="1"></span> </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_4-0-10"> <span class="mntl-sc-block-subheading__text"> Comparing Bad-Credit Car Loans </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_4-0-11"> As you shop around for an auto loan with bad credit, here are some of the features to keep an eye on: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-12"> <li>Loan options (new car loans, used car loans, refinance, cash-out refinance, private-party loans, etc.)</li> <li>Pre-qualification options</li> <li><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> (including whether the lender is transparent about them)</li> <li>Origination fees and prepayment penalties</li> <li>Vehicle mileage and age requirements</li> <li>Vehicle model restrictions</li> <li>Minimum and maximum loan amounts, including the maximum <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loantovalue.asp">loan-to-value ratio (LTV)</a></li> <li>Credit and income requirements</li> <li>Whether the lender allows co-signers</li> <li>State restrictions</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_4-0-13"> <span class="mntl-sc-block-subheading__text"> Alternatives to Bad Credit Car Loans </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"> Depending on your situation, you may have access to other options for financing your vehicle purchase: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-15"> <li><strong>Take out a personal loan: </strong><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">Personal loans</a> can be expensive if you have bad credit—interest rates can be as high as 36% or more in some cases.<span class="ql-inline-citation" data-cite="3"></span> But unlike auto loans, personal loans don't require you to use your car as collateral (as long as they’re unsecured loans), so you won't risk repossession if you can't pay.</li> <li><strong>Borrow from a family member or friend: </strong>If possible, consider asking a loved one to lend you the money you need to buy a car. Just make sure you draw up a loan agreement to make it official, and make it a priority to pay back the debt on time or early.</li> <li><strong>Ask a loved one to co-sign your application: </strong>If you can't get a loan from a family member or friend, consider asking someone to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/082115/what-are-cosigners-liable-responsible.asp">co-sign your application</a>. If they have good or excellent credit, it can improve your odds of getting favorable terms. Just make sure to make your payments on time to avoid damaging both of your credit profiles.</li> <li><strong>Improve your credit before you apply: </strong>If buying a car isn't an urgent need, consider working on <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-improve-your-credit-score-4590097">improving your credit</a> before you shop around for a loan. Even if you can't wait until you reach good or excellent territory with your credit score, your efforts can pay off in the form of more options and lower rates.</li> <li><strong>Put more money down: </strong>Some traditional auto lenders may be willing to work with bad-credit borrowers if they make a sizable down payment on the vehicle purchase.<span class="ql-inline-citation" data-cite="4"></span> </li> </ul><!-- 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_4-0-16"> <span class="heading-toc" id="toc-faq-e2ea6a1e-c6eb-460b-8029-76a4333f473e"></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 Do You Get a Car Loan With 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-0"> <div class="faq-accordion__item-answer"> <p>Car loans for people with bad credit are less common than <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">car loans for good-credit borrowers</a>, but they do exist. Take your time to research your options online before you visit the dealership to get an idea of what's available.</p><p>You may also consider <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buy-here-pay-here.asp">buy here, pay here (BHPH) financing</a>, which some dealerships offer. Before you do so, however, make sure to read the terms and conditions, as these loans can be incredibly expensive.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-1" tabindex="-1"> <h3 class="accordion__title">Where Can You Get a Bad Credit Car Loan?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-1"> <div class="faq-accordion__item-answer"> <p>You can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-a-car-loan-with-bad-credit-5186761">get a car loan with bad credit</a> through certain dealerships, as well as from online lenders that specialize in these types of loans. If you're a member of a credit union, you may also consider contacting a loan officer to see if you qualify for an auto loan.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-2" tabindex="-1"> <h3 class="accordion__title">Can You Get Guaranteed Approval for Bad Credit Car Loans?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-2"> <div class="faq-accordion__item-answer"> <p>Some lenders may offer guaranteed approval, even without a credit check. But while easy car loans for bad credit like this are tempting, make sure you know what the costs will be, as well as limitations and restrictions, to ensure it's a good idea. We typically recommend staying away from loans like these, and sticking with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">traditional auto loans</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349">personal loans for bad credit</a>.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-3" tabindex="-1"> <h3 class="accordion__title">What's the Lowest Credit Score You Can Have for a Car Loan?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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>There's no minimum credit score required to get a car loan in general. Individual lenders may have minimum requirements to qualify, but they don’t usually specify the exact score they require. Regardless of where your credit stands, it's a good idea to shop around and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prequalification.asp">get pre-qualified with as many lenders as possible</a> to ensure you get the best offer available to you.</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_4-0-17"> <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_4-0-18"> Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. </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="Young boy in the back of a car looks out of the window on a sunny day" class="primary-image__image mntl-primary-image--blurry" height="5413" onload="(function(e){e.classList.add('loaded')})(this)" sizes="750px" src="https://www.investopedia.com/thmb/Wmd6ytqC33Hk1sNfzuyyeDStgUw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-car-loans-for-bad-credit-of-2023-7372351-f9d8acc0b82b417fab0dcac4651c4e1b.jpg" srcset="https://www.investopedia.com/thmb/A628TOxG95rX_L5o9DdScMFMDmo=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-car-loans-for-bad-credit-of-2023-7372351-f9d8acc0b82b417fab0dcac4651c4e1b.jpg 750w" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhCgAHAPYAAAMDAQMFAgQEAgUHBAYGBAcIAwYIBQgIBgoLBgsMBw0IBAwNCA0MCAwRDQcZGQ8UEBUNChITDRAWDBMWDxQRChUUEBgaFRseFR4fGh4gFSEhFyQmGyQnHCUoFyYpHioqHiEzGzcrHy0uIDEvIzMxJDU2KDs1JTs1Jzg4LDhSNT5GSEc6KkU/MU0/MlE9JEZDNElGNVhEOVZXN2RBIU9tSWprS2yGY4OGe4+PdZqOfpORgqKioKalo6ioqKqqqqurq62ssba2uLm9wLu/wuTb1gMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDAQMDASwAAAAACgAHAEYIUQBhvDhhQoOIEhMiXFgQIkGNDhJAxCiQgIgLH0OE/OARpMcOBBUEAHAQQIWFBw1WsBiBIsMGEh88cIAwowUOHTluKKAg4wADAjZS0BgABIOBgAA7')" width="8119"/> <noscript> <img alt="Young boy in the back of a car looks out of the window on a sunny day" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="5413" sizes="750px" src="https://www.investopedia.com/thmb/Wmd6ytqC33Hk1sNfzuyyeDStgUw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-car-loans-for-bad-credit-of-2023-7372351-f9d8acc0b82b417fab0dcac4651c4e1b.jpg" srcset="https://www.investopedia.com/thmb/A628TOxG95rX_L5o9DdScMFMDmo=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-car-loans-for-bad-credit-of-2023-7372351-f9d8acc0b82b417fab0dcac4651c4e1b.jpg 750w" width="8119"/> </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>Catherine Falls Commercial / 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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But while your options may be limited, some lenders specialize in working with borrowers with bad credit. Here are our top choices for the best car loans for bad credit, based on borrower requirements, rates, fees, and loan terms. ## Best Car Loans for Bad Credit of 2024 * Best for Most Borrowers: [AUTOPAY](https://og.services.apex.prod.autopay.com/api/2.0/lead/inbound/organization/DOTDASH/channel/DOTDASH_A/event/LEAD_REFERRED_FOR_REDIRECT/version/1.0.0?id=THEIR_UNIQUE_IDENTIFER) * Best for Only Used Car Loans: [CarMax](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=carmax&bwid_id=6385e804ca097c71ee1e23c1&pub_param_1=%7BPARAM%7D&pub_param_2=%7BPARAM%7D) * Best for Full Car Buying Experience: [Carvana](https://carvana.sjv.io/c/2104074/908951/12225?subid1=4846394&subid2=n9c8ce6e1b0b84329a1aec356f39b772c18) * Best for High Maximum Accepted Mileage: [OpenRoad Lending](https://www.openroadlending.com/applyone/?aid=899&opt_1=best-auto-loan-rates-4173489) Thinking about applying with a co-borrower, or just want to see a broader selection? Check out our picks for the [best overall auto loan rates](https://www.investopedia.com/best-auto-refinance-loans-5069118). Best Car Loans for Bad Credit Expand Best Car Loans for Bad Credit * [Our Top Picks](#summary-list) * [AUTOPAY](#toc-best-for-most-borrowers-autopay) * [CarMax](#toc-best-for-only-used-car-loans-carmax) * [Carvana](#toc-best-for-full-car-buying-experience-carvana) * [OpenRoad Lending](#toc-best-for-high-maximum-accepted-mileage-openroad-lending) * See More (1) * [Final Verdict](#toc-final-verdict) * [How to Choose](#toc-guide-to-choosing-the-best-car-loans-for-bad-credit) * [FAQ](#toc-faq-e2ea6a1e-c6eb-460b-8029-76a4333f473e) * [Methodology](#toc-methodology) ### Best for Most Borrowers : AUTOPAY --- ![AutoPay]() ![AutoPay](https://www.investopedia.com/thmb/52p5kikdi2NHO5WyCy8OmTt0Nzo=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Autopay-ec4375470de24d2f8aca313b8f153804.jpg) AutoPay * APR Range: 4.67% and up * Loan Amounts: $2,500–$100,000 * Loan Terms: 2–8 years [Learn More](https://og.services.apex.prod.autopay.com/api/2.0/lead/inbound/organization/DOTDASH/channel/DOTDASH_A/event/LEAD_REFERRED_FOR_REDIRECT/version/1.0.0?id=THEIR_UNIQUE_IDENTIFER) Pros & Cons Pros * Minimum credit score of 500 * Works with several lenders to help you find a loan * Offers pre-qualification with a soft credit check * Allows co-signers Cons * Low transparency about rates * Unclear eligibility requirements Why We Chose It [AUTOPAY](https://www.investopedia.com/autopay-auto-loans-review-7643912) is a marketplace that offers a wide range of financing options, including loans for new and used vehicles, refinance loans (including a cash-out option), and lease buyouts. According to customer support, borrowers are required to have a minimum credit score of just 500 and a monthly income of at least $2,500. If you're concerned about the impact of a hard inquiry when applying for a loan, you'll be able to compare rates from the marketplace's partner lenders with just a soft credit check. If you can't get approved on your own or your rate would be too high, you can apply with a co-signer. AUTOPAY’s loan amounts and repayment terms are flexible, but it doesn't disclose a maximum rate, making it difficult for bad-credit borrowers to get an idea of what to expect without going through the pre-qualification process. There's also no information on its website about how long it takes to get an application approved or a loan funded. Borrower Qualifications * Loans are available in all 50 states, the District of Columbia, and Puerto Rico. * Minimum credit score: 500 (according to customer support) * MInimum monthly income: $2,500 (according to customer support) Vehicle Qualifications * Maximum accepted mileage: 150,000 miles * Maximum accepted age of the vehicle: 10 years old * Maximum loan-to-value ratio: Not disclosed * Private-party vehicle purchases: Allowed ### Best for Only Used Car Loans : CarMax --- ![CarMax]() ![CarMax](https://www.investopedia.com/thmb/O2aW29V9L8TE-7VezC07KkHzf8Q=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Carmax-bbebfa12d8c148a6a542e10b4215321d.jpg) CarMax * APR Range: Not disclosed * Loan Amounts: $5,000–$100,000 * Loan Terms: 3–6 years [Learn More](https://www.bestmoney.com/car-loans/investopedia?utm_source=investopedia&ts=investopedia&p=carmax&bwid_id=6385e804ca097c71ee1e23c1&pub_param_1=%7BPARAM%7D&pub_param_2=%7BPARAM%7D) Pros & Cons Pros * No minimum credit score requirement * Convenient purchase and financing experience * Offers a three-day window to find better financing * Offers pre-qualification with a soft credit check Cons * Unclear eligibility requirements * Requires you to buy a CarMax vehicle * APRs can be high Why We Chose It CarMax is a used-car retailer that operates nearly 250 stores nationwide, making it worth checking out if you’re in the market for a pre-owned vehicle. In addition to in-house financing, CarMax also works with other major lenders to help you find the right loan for you. It has no minimum credit score requirement, inviting anyone to apply for financing. Unfortunately, the lender is not transparent about the specific borrower requirements and vehicle requirements, so you'll need to go through the pre-qualification process to get an idea of what's available. Fortunately, you can apply with a co-signer if the terms you get on your own aren't great. Another major feature that sets CarMax apart is that you can continue shopping for a loan for up to three days after your purchase. If you find something better, you can replace your [CarMax loan](https://www.investopedia.com/carmax-auto-loan-review-7642717) at no cost. The lender's APR is competitive at the low end, but its maximum APR is likely to be quite high (based on sample quotes). Borrower Qualifications * Does not disclose a minimum credit score or income requirements * Vehicles and loans are available in 41 states, excluding Alaska, Arkansas, Hawaii, Montana, North Dakota, South Dakota, Vermont, Wyoming, and West Virginia. Vehicle Qualifications * Maximum loan-to-value ratio: Not disclosed * Maximum accepted mileage: Not disclosed * Maximum accepted age of the vehicle: None (vehicle must be purchased through CarMax) * Private-party vehicle purchases: Not allowed Customer Reviews\* * “I've been satisfied with the products that I've gotten there. I've bought, and my family has bought more than one car from them, and I've got friends who have, so I think it's pretty well-run. And I've been happy with the warranties on the repairs two cars ago.” * “...Over the years I started buying from CarMax, maybe about 15 years ago, and had used the same salesman, usually. But this time it was during COVID when I got the car and they were trying to do everything that they could online. They would have even brought the car to me. If I picked it online they would have driven it to me and had me fill [out] the paperwork in my house. But because I was in a different state, they didn't do that.” * “If I was going to do something differently, I'd probably check and see if [my] credit union had lower interest rates. … But that's the only thing I would do differently, is … go for something with a lower interest rate.” \Customer reviews were collected from an independent Investopedia survey of 1,016 current, past, and prospective auto loan borrowers.* ### Best for Full Car Buying Experience : Carvana --- ![Carvana]() ![Carvana](https://www.investopedia.com/thmb/jlAToQS7VdGiN-vrWIvD-rLAxLs=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Carvana-2fe03d13b669495ab4a5198f4d69896b.jpg) Carvana * APR Range: Not disclosed * Loan Amounts: Not disclosed * Loan Terms: 3–6 years [Learn More](https://carvana.sjv.io/c/2104074/908951/12225?subid1=4846394&subid2=n9c8ce6e1b0b84329a1aec356f39b772c18) Pros & Cons Pros * Works with borrowers with all types of credit * Offers a seven-day money-back guarantee * Offers pre-qualification with a soft credit check * Application process is 100% online Cons * Requires a down payment * Must buy a used car through Carvana * Co-signers not allowed in all states Why We Chose It Carvana is an online used-car retailer that can guide you through the full car-buying experience. The catch is that you have to buy a vehicle with Carvana to [use its financing](https://www.investopedia.com/carvana-auto-loans-review-7965774). The lender doesn't offer a lot of transparency around credit requirements, but it does offer financing for all credit levels, and you can get an idea of your eligibility and potential terms with its pre-qualification process. Carvana doesn't specify loan amounts or APRs, but it's safe to assume that you can finance any vehicle you buy through the retailer, as long as you meet the eligibility criteria. You should expect to pay the higher end of the APR range if you have poor credit. If you're not satisfied with your vehicle or the financing terms, Carvana offers a seven-day money-back guarantee. However, there are some limits based on how far you drive during that time, or if you make modifications or get in an accident. Borrower Qualifications * Minimum credit score is not disclosed * Minimum income: $4,000 * Carvana does not operate in Alaska or Hawaii. * Co-signers are not allowed in Alaska, District of Columbia, Hawaii, Idaho, Illinois, Louisiana, Montana, Nebraska, North Dakota, South Dakota, and Wyoming. Vehicle Qualifications * Vehicle must be purchased through Carvana. * Maximum accepted mileage: 140,000 miles * Maximum accepted age of the vehicle: Varies * Maximum loan-to-value ratio: Not disclosed * Private-party vehicle purchases: Not allowed ### Best for High Maximum Accepted Mileage : OpenRoad Lending --- ![OpenRoad Lending]() ![OpenRoad Lending](https://www.investopedia.com/thmb/mY3JtoavOKV1_P-1mpdWu50Gm7M=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Open_Road_Lending-37f22388fed54364bf8922b784cee9b9.jpg) OpenRoad Lending * APR Range: 1.99% and up * Loan Amounts: $7,500–$100,000 * Loan Terms: 3–7 years [Learn More](https://www.openroadlending.com/applyone/?aid=899&opt_1=best-auto-loan-rates-4173489) Pros & Cons Pros * Maximum accepted mileage of 160,000 miles * Allows co-signers * Offers pre-qualification with a soft credit check Cons * Only offers refinance loans * Website is outdated Why We Chose It [OpenRoad Lending](https://www.investopedia.com/openroad-lending-auto-loan-review-7642719) offers car loan refinancing, including cash-out options, with impressive starting rates. Loan amounts and repayment terms are relatively flexible, though some lenders offer lower loan amounts and more repayment options. Its loans are available to people with bad credit, with scores as low as 500 (according to customer support). OpenRoad is a great choice if you want to [refinance a vehicle](https://www.investopedia.com/best-auto-refinance-loans-5069118) with a lot of time on the road, because it allows you to finance vehicles with more miles (160,000) than any other bad credit lender we reviewed (according to customer support). Unfortunately, the lender doesn't disclose its maximum interest rate, making it difficult to know what to expect if your credit isn’t in the best shape. And while you may receive a pre-qualification offer in the mail, you can't get pre-qualified online to compare rates—you’ll have to submit a complete application. If you can't get approved on your own, however, you can add a co-signer to improve your odds. Some of the information found on OpenRoad Lending's website may be outdated and even conflicting in some areas, including when it comes to starting rates, loan amounts, income and mileage requirements, and more. It even includes information about purchase loans for new and used vehicles despite no longer offering these products. As a result, you won't really know what to expect unless you submit an application. Borrower Qualifications * Minimum credit score: 500 (according to customer support) * Minimum monthly income: $1,500 (income from Uber or similar taxi services is not eligible) * States available: 46 states (not available in Alaska, Hawaii, North Dakota, Nevada, and Wisconsin). * Self-employed borrowers are ineligible. Vehicle Qualifications * Maximum accepted mileage: 160,000 miles (according to customer support) * Maximum accepted age of the vehicle: Not disclosed * Maximum loan-to-value ratio: 125% in most cases; exceptions up to 180% can be made (according to customer support) * Private-party vehicle purchases: Not allowed * The following vehicles are ineligible: commercial vehicles and vehicles for business use; Oldsmobile, Daewoo, Smart Car, and Isuzu models; vehicles that are no longer being manufactured; [motorcycles](https://www.investopedia.com/best-motorcycle-loans-5080905); [recreational vehicles](https://www.investopedia.com/best-rv-loan-rates-5082108); trucks or vehicles larger than 3/4 ton. ## Final Verdict For the most part, options for bad credit auto loans are far from ideal. However, if you don't have a co-signer who can help you get approved for a low rate, these lenders can help you get the vehicle you need. For most auto loan needs, consider AUTOPAY. However, if you're planning to buy a vehicle through CarMax or Carvana, it’s worth considering their financing options. For refinancing a high-mileage car, you may also want to apply with OpenRoad Lending as you shop around. ## Guide to Choosing the Best Car Loans for Bad Credit ### What Is Bad Credit for an Auto Loan? According to [FICO](https://www.investopedia.com/terms/f/ficoscore.asp), a poor credit score ranges from 300 to 579. But credit scores aren’t all that matter. Depending on the lender, there may be additional credit requirements aside from a minimum score, such as not having any recent bankruptcies on your credit reports. In some cases, you may be able to [get approved for a loan without a credit check](https://www.investopedia.com/best-personal-loans-with-no-credit-check-7101289) at all, but these loans are often prohibitively expensive. Make sure you read the fine print or speak with a representative from the lender before you apply for any loan. ### FICO Score Ranges \| Rating \| Score Range\* \| \| --- \| --- \| \| Excellent/Exceptional \| 800–850 \| \| Very Good \| 740–799 \| \| Good \| 670–739 \| \| Fair \| 580–669 \| \| Poor \| 300–579 \| \| No Credit \| Not enough data to score \| \Source: myFICO* ### Comparing Bad-Credit Car Loans As you shop around for an auto loan with bad credit, here are some of the features to keep an eye on: * Loan options (new car loans, used car loans, refinance, cash-out refinance, private-party loans, etc.) * Pre-qualification options * [Interest rates](https://www.investopedia.com/terms/i/interestrate.asp) (including whether the lender is transparent about them) * Origination fees and prepayment penalties * Vehicle mileage and age requirements * Vehicle model restrictions * Minimum and maximum loan amounts, including the maximum [loan-to-value ratio (LTV)](https://www.investopedia.com/terms/l/loantovalue.asp) * Credit and income requirements * Whether the lender allows co-signers * State restrictions ### Alternatives to Bad Credit Car Loans Depending on your situation, you may have access to other options for financing your vehicle purchase: * Take out a personal loan: [Personal loans](https://www.investopedia.com/best-personal-loans-4773300) can be expensive if you have bad credit—interest rates can be as high as 36% or more in some cases. But unlike auto loans, personal loans don't require you to use your car as collateral (as long as they’re unsecured loans), so you won't risk repossession if you can't pay. * Borrow from a family member or friend: If possible, consider asking a loved one to lend you the money you need to buy a car. Just make sure you draw up a loan agreement to make it official, and make it a priority to pay back the debt on time or early. * Ask a loved one to co-sign your application: If you can't get a loan from a family member or friend, consider asking someone to [co-sign your application](https://www.investopedia.com/articles/personal-finance/082115/what-are-cosigners-liable-responsible.asp). If they have good or excellent credit, it can improve your odds of getting favorable terms. Just make sure to make your payments on time to avoid damaging both of your credit profiles. * Improve your credit before you apply: If buying a car isn't an urgent need, consider working on [improving your credit](https://www.investopedia.com/how-to-improve-your-credit-score-4590097) before you shop around for a loan. Even if you can't wait until you reach good or excellent territory with your credit score, your efforts can pay off in the form of more options and lower rates. * Put more money down: Some traditional auto lenders may be willing to work with bad-credit borrowers if they make a sizable down payment on the vehicle purchase. ## Frequently Asked Questions * ### How Do You Get a Car Loan With Bad Credit? Car loans for people with bad credit are less common than [car loans for good-credit borrowers](https://www.investopedia.com/best-auto-loan-rates-4846394), but they do exist. Take your time to research your options online before you visit the dealership to get an idea of what's available. You may also consider [buy here, pay here (BHPH) financing](https://www.investopedia.com/terms/b/buy-here-pay-here.asp), which some dealerships offer. Before you do so, however, make sure to read the terms and conditions, as these loans can be incredibly expensive. * ### Where Can You Get a Bad Credit Car Loan? You can [get a car loan with bad credit](https://www.investopedia.com/how-to-get-a-car-loan-with-bad-credit-5186761) through certain dealerships, as well as from online lenders that specialize in these types of loans. If you're a member of a credit union, you may also consider contacting a loan officer to see if you qualify for an auto loan. * ### Can You Get Guaranteed Approval for Bad Credit Car Loans? Some lenders may offer guaranteed approval, even without a credit check. But while easy car loans for bad credit like this are tempting, make sure you know what the costs will be, as well as limitations and restrictions, to ensure it's a good idea. We typically recommend staying away from loans like these, and sticking with [traditional auto loans](https://www.investopedia.com/best-auto-loan-rates-4846394) and [personal loans for bad credit](https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349). * ### What's the Lowest Credit Score You Can Have for a Car Loan? There's no minimum credit score required to get a car loan in general. Individual lenders may have minimum requirements to qualify, but they don’t usually specify the exact score they require. Regardless of where your credit stands, it's a good idea to shop around and [get pre-qualified with as many lenders as possible](https://www.investopedia.com/terms/p/prequalification.asp) to ensure you get the best offer available to you. ## Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. ![Young boy in the back of a car looks out of the window on a sunny day](https://www.investopedia.com/thmb/Wmd6ytqC33Hk1sNfzuyyeDStgUw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-car-loans-for-bad-credit-of-2023-7372351-f9d8acc0b82b417fab0dcac4651c4e1b.jpg) ![Young boy in the back of a car looks out of the window on a sunny day](https://www.investopedia.com/thmb/Wmd6ytqC33Hk1sNfzuyyeDStgUw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-car-loans-for-bad-credit-of-2023-7372351-f9d8acc0b82b417fab0dcac4651c4e1b.jpg) Catherine Falls Commercial / 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. Carvana. "[What Are the Limits of the 7-Day Money Back Guarantee?](https://www.carvana.com/help/purchasing-a-car/what-are-the-limits-of-the-7-day-money-back-guarantee)" 2. myFICO. "[What Is a Credit Score?](https://www.myfico.com/credit-education/credit-scores)" 3. Carvana. "[I Have Filed for Bankruptcy. Can I Apply for Carvana Financing?](https://www.carvana.com/help/payment-and-financing/i-have-filed-for-bankruptcy-can-i-apply-for-carvana-financing)" 4. Lending Club. "[Personal Loans Rates and Fees](https://www.lendingclub.com/loans/personal-loans/rates-fees)." 5. Progressive. "[How Much Should You Put Down on a Car?](https://www.progressive.com/answers/car-down-payment/)" Related Articles [![Mother and son examining new car in dealership]() ![Mother and son examining new car in dealership](https://www.investopedia.com/thmb/j8Lw49s1l-YYnx2WYtRRKjHfUF4=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-auto-loans-for-fair-credit-of-2023-7486579-1cd0386e642a41a083a27049a2646f5b.jpg) Best Auto Loans for Fair Credit of 2024](https://www.investopedia.com/best-auto-loans-for-fair-credit-7486579) [![person driving car]() ![person driving car](https://www.investopedia.com/thmb/256jrUDaPTmM5uDfB4nECR4EJpM=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-private-party-car-loans-of-2023-7372372-d2b02117b865444e9f1a6601975956e5.jpg) Best Private Party Car Loans](https://www.investopedia.com/best-private-party-car-loans-7372372) [![Private party auto sale]() ![Private party auto sale](https://www.investopedia.com/thmb/AUotVccJSSYIFvqNE6vP0t8hZtg=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1321856816-84ec23c02e21414aa8d82d81bc233970.jpg) Private Party Auto Loan: What It Is, How It Works, How to Get One](https://www.investopedia.com/what-is-a-private-party-auto-loan-financing-your-car-purchase-from-individuals-8599916) [![Compare Best Auto Loan Rates, Lenders, & Financing for April 2024 - Rates From 1.99%]() ![Compare Best Auto Loan Rates, Lenders, & Financing for April 2024 - Rates From 1.99%](https://www.investopedia.com/thmb/cVlcr_BBpz-4ZzV3eKWTOZggD1g=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Best-auto-loan-rates-4846394_final-b7456e74b9574f56b09258598d31164e.png) Compare Best Auto Loan Rates, Lenders, & Financing for May 2024 - Rates From 1.99%](https://www.investopedia.com/best-auto-loan-rates-4846394) [![Friends Sitting In Car]() ![Friends Sitting In Car](https://www.investopedia.com/thmb/mbg7NkE-_-Vs3OxkQmqFSDfsYj0=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-used-car-loans-of-2023-7373705-7a29f527417847138b92cecb34c33586.jpg) Best Used Car Loans for 2024](https://www.investopedia.com/best-used-car-loans-7373705) [![Happy young woman dancing with friends in car]() ![Happy young woman dancing with friends in car](https://www.investopedia.com/thmb/iJZxd-nQCw4KS9CBs8NFz9hyxc0=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-auto-refinance-loans-of-2023-5069118-d825bdb159404e5a90af4ef92135405e.jpg) Best Auto Refinance Loans for May 2024](https://www.investopedia.com/best-auto-refinance-loans-5069118) Related Terms [Private Party Auto Loan: What It Is, How It Works, How to Get One](https://www.investopedia.com/what-is-a-private-party-auto-loan-financing-your-car-purchase-from-individuals-8599916) 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](https://www.investopedia.com/what-is-a-private-party-auto-loan-financing-your-car-purchase-from-individuals-8599916) [What Is a Business Auto Loan? How to Finance Company Vehicles](https://www.investopedia.com/what-is-a-business-auto-loan-how-to-finance-company-vehicles-8600491) 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](https://www.investopedia.com/what-is-a-business-auto-loan-how-to-finance-company-vehicles-8600491) [Emergency Loan: Types, Eligibility, Pros and Cons](https://www.investopedia.com/emergency-loan-types-eligibility-pros-and-cons-8637206) 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](https://www.investopedia.com/emergency-loan-types-eligibility-pros-and-cons-8637206) [Private Student Loans: What They Are, How They Work](https://www.investopedia.com/private-student-loans-8638542) Private student loans are offered through third-party lenders, and they don't come with the protections afforded to federal student loan borrowers. [more](https://www.investopedia.com/private-student-loans-8638542) [Pre-Approval: Definition, Meaning, How It Works, and Types](https://www.investopedia.com/terms/p/preapproval.asp) A pre-approval is a preliminary evaluation of a potential borrower by a lender to determine whether they can be given a pre-qualification offer. [more](https://www.investopedia.com/terms/p/preapproval.asp) [Pre-Qualification: What it Means, Special Considerations](https://www.investopedia.com/terms/p/prequalification.asp) Pre-qualification evaluates the creditworthiness of a potential borrower by a creditor to provide a pre-approval. [more](https://www.investopedia.com/terms/p/prequalification.asp)	It can be difficult to get approved for a car loan with bad credit. But while your options may be limited, some lenders specialize in working with borrowers with bad credit. Here are our top choices for the best car loans for bad credit, based on borrower requirements, rates, fees, and loan terms. Best Car Loans for Bad Credit of 2024 Best for Most Borrowers: AUTOPAY Best for Only Used Car Loans: CarMax Best for Full Car Buying Experience: Carvana Best for High Maximum Accepted Mileage: OpenRoad Lending Thinking about applying with a co-borrower, or just want to see a broader selection? Check out our picks for the best overall auto loan rates. Best Car Loans for Bad Credit Expand Best Car Loans for Bad Credit Our Top Picks AUTOPAY CarMax Carvana OpenRoad Lending See More (1) Final Verdict How to Choose FAQ Methodology Best for Most Borrowers : AUTOPAY AutoPay APR Range: 4.67% and upLoan Amounts: $2,500–$100,000Loan Terms: 2–8 years Learn More Pros & Cons Pros Minimum credit score of 500 Works with several lenders to help you find a loan Offers pre-qualification with a soft credit check Allows co-signers Cons Low transparency about rates Unclear eligibility requirements Why We Chose It AUTOPAY is a marketplace that offers a wide range of financing options, including loans for new and used vehicles, refinance loans (including a cash-out option), and lease buyouts. According to customer support, borrowers are required to have a minimum credit score of just 500 and a monthly income of at least $2,500. If you're concerned about the impact of a hard inquiry when applying for a loan, you'll be able to compare rates from the marketplace's partner lenders with just a soft credit check. If you can't get approved on your own or your rate would be too high, you can apply with a co-signer. AUTOPAY’s loan amounts and repayment terms are flexible, but it doesn't disclose a maximum rate, making it difficult for bad-credit borrowers to get an idea of what to expect without going through the pre-qualification process. There's also no information on its website about how long it takes to get an application approved or a loan funded. Borrower Qualifications Loans are available in all 50 states, the District of Columbia, and Puerto Rico.Minimum credit score: 500 (according to customer support)MInimum monthly income: $2,500 (according to customer support) Vehicle Qualifications Maximum accepted mileage: 150,000 milesMaximum accepted age of the vehicle: 10 years oldMaximum loan-to-value ratio: Not disclosedPrivate-party vehicle purchases: Allowed Best for Only Used Car Loans : CarMax CarMax APR Range: Not disclosedLoan Amounts: $5,000–$100,000Loan Terms: 3–6 years Learn More Pros & Cons Pros No minimum credit score requirement Convenient purchase and financing experience Offers a three-day window to find better financing Offers pre-qualification with a soft credit check Cons Unclear eligibility requirements Requires you to buy a CarMax vehicle APRs can be high Why We Chose It CarMax is a used-car retailer that operates nearly 250 stores nationwide, making it worth checking out if you’re in the market for a pre-owned vehicle. In addition to in-house financing, CarMax also works with other major lenders to help you find the right loan for you. It has no minimum credit score requirement, inviting anyone to apply for financing. Unfortunately, the lender is not transparent about the specific borrower requirements and vehicle requirements, so you'll need to go through the pre-qualification process to get an idea of what's available. Fortunately, you can apply with a co-signer if the terms you get on your own aren't great. Another major feature that sets CarMax apart is that you can continue shopping for a loan for up to three days after your purchase. If you find something better, you can replace your CarMax loan at no cost. The lender's APR is competitive at the low end, but its maximum APR is likely to be quite high (based on sample quotes). Borrower Qualifications Does not disclose a minimum credit score or income requirementsVehicles and loans are available in 41 states, excluding Alaska, Arkansas, Hawaii, Montana, North Dakota, South Dakota, Vermont, Wyoming, and West Virginia. Vehicle Qualifications Maximum loan-to-value ratio: Not disclosedMaximum accepted mileage: Not disclosedMaximum accepted age of the vehicle: None (vehicle must be purchased through CarMax)Private-party vehicle purchases: Not allowed Customer Reviews* “I've been satisfied with the products that I've gotten there. I've bought, and my family has bought more than one car from them, and I've got friends who have, so I think it's pretty well-run. And I've been happy with the warranties on the repairs two cars ago.”“...Over the years I started buying from CarMax, maybe about 15 years ago, and had used the same salesman, usually. But this time it was during COVID when I got the car and they were trying to do everything that they could online. They would have even brought the car to me. If I picked it online they would have driven it to me and had me fill [out] the paperwork in my house. But because I was in a different state, they didn't do that.”“If I was going to do something differently, I'd probably check and see if [my] credit union had lower interest rates. … But that's the only thing I would do differently, is … go for something with a lower interest rate.” Customer reviews were collected from an independent Investopedia survey of 1,016 current, past, and prospective auto loan borrowers. Best for Full Car Buying Experience : Carvana Carvana APR Range: Not disclosedLoan Amounts: Not disclosedLoan Terms: 3–6 years Learn More Pros & Cons Pros Works with borrowers with all types of credit Offers a seven-day money-back guarantee Offers pre-qualification with a soft credit check Application process is 100% online Cons Requires a down payment Must buy a used car through Carvana Co-signers not allowed in all states Why We Chose It Carvana is an online used-car retailer that can guide you through the full car-buying experience. The catch is that you have to buy a vehicle with Carvana to use its financing. The lender doesn't offer a lot of transparency around credit requirements, but it does offer financing for all credit levels, and you can get an idea of your eligibility and potential terms with its pre-qualification process. Carvana doesn't specify loan amounts or APRs, but it's safe to assume that you can finance any vehicle you buy through the retailer, as long as you meet the eligibility criteria. You should expect to pay the higher end of the APR range if you have poor credit. If you're not satisfied with your vehicle or the financing terms, Carvana offers a seven-day money-back guarantee. However, there are some limits based on how far you drive during that time, or if you make modifications or get in an accident. Borrower Qualifications Minimum credit score is not disclosedMinimum income: $4,000Carvana does not operate in Alaska or Hawaii.Co-signers are not allowed in Alaska, District of Columbia, Hawaii, Idaho, Illinois, Louisiana, Montana, Nebraska, North Dakota, South Dakota, and Wyoming. Vehicle Qualifications Vehicle must be purchased through Carvana.Maximum accepted mileage: 140,000 milesMaximum accepted age of the vehicle: VariesMaximum loan-to-value ratio: Not disclosedPrivate-party vehicle purchases: Not allowed Best for High Maximum Accepted Mileage : OpenRoad Lending OpenRoad Lending APR Range: 1.99% and upLoan Amounts: $7,500–$100,000Loan Terms: 3–7 years Learn More Pros & Cons Pros Maximum accepted mileage of 160,000 miles Allows co-signers Offers pre-qualification with a soft credit check Cons Only offers refinance loans Website is outdated Why We Chose It OpenRoad Lending offers car loan refinancing, including cash-out options, with impressive starting rates. Loan amounts and repayment terms are relatively flexible, though some lenders offer lower loan amounts and more repayment options. Its loans are available to people with bad credit, with scores as low as 500 (according to customer support). OpenRoad is a great choice if you want to refinance a vehicle with a lot of time on the road, because it allows you to finance vehicles with more miles (160,000) than any other bad credit lender we reviewed (according to customer support). Unfortunately, the lender doesn't disclose its maximum interest rate, making it difficult to know what to expect if your credit isn’t in the best shape. And while you may receive a pre-qualification offer in the mail, you can't get pre-qualified online to compare rates—you’ll have to submit a complete application. If you can't get approved on your own, however, you can add a co-signer to improve your odds. Some of the information found on OpenRoad Lending's website may be outdated and even conflicting in some areas, including when it comes to starting rates, loan amounts, income and mileage requirements, and more. It even includes information about purchase loans for new and used vehicles despite no longer offering these products. As a result, you won't really know what to expect unless you submit an application. Borrower Qualifications Minimum credit score: 500 (according to customer support)Minimum monthly income: $1,500 (income from Uber or similar taxi services is not eligible)States available: 46 states (not available in Alaska, Hawaii, North Dakota, Nevada, and Wisconsin).Self-employed borrowers are ineligible. Vehicle Qualifications Maximum accepted mileage: 160,000 miles (according to customer support) Maximum accepted age of the vehicle: Not disclosed Maximum loan-to-value ratio: 125% in most cases; exceptions up to 180% can be made (according to customer support) Private-party vehicle purchases: Not allowed The following vehicles are ineligible: commercial vehicles and vehicles for business use; Oldsmobile, Daewoo, Smart Car, and Isuzu models; vehicles that are no longer being manufactured; motorcycles; recreational vehicles; trucks or vehicles larger than 3/4 ton. Final Verdict For the most part, options for bad credit auto loans are far from ideal. However, if you don't have a co-signer who can help you get approved for a low rate, these lenders can help you get the vehicle you need. For most auto loan needs, consider AUTOPAY. However, if you're planning to buy a vehicle through CarMax or Carvana, it’s worth considering their financing options. For refinancing a high-mileage car, you may also want to apply with OpenRoad Lending as you shop around. Guide to Choosing the Best Car Loans for Bad Credit What Is Bad Credit for an Auto Loan? According to FICO, a poor credit score ranges from 300 to 579. But credit scores aren’t all that matter. Depending on the lender, there may be additional credit requirements aside from a minimum score, such as not having any recent bankruptcies on your credit reports. In some cases, you may be able to get approved for a loan without a credit check at all, but these loans are often prohibitively expensive. Make sure you read the fine print or speak with a representative from the lender before you apply for any loan. FICO Score Ranges Rating Score Range Excellent/Exceptional 800–850 Very Good 740–799 Good 670–739 Fair 580–669 Poor 300–579 No Credit Not enough data to score *Source: myFICO Comparing Bad-Credit Car Loans As you shop around for an auto loan with bad credit, here are some of the features to keep an eye on: Loan options (new car loans, used car loans, refinance, cash-out refinance, private-party loans, etc.) Pre-qualification options Interest rates (including whether the lender is transparent about them) Origination fees and prepayment penalties Vehicle mileage and age requirements Vehicle model restrictions Minimum and maximum loan amounts, including the maximum loan-to-value ratio (LTV) Credit and income requirements Whether the lender allows co-signers State restrictions Alternatives to Bad Credit Car Loans Depending on your situation, you may have access to other options for financing your vehicle purchase: Take out a personal loan: Personal loans can be expensive if you have bad credit—interest rates can be as high as 36% or more in some cases. But unlike auto loans, personal loans don't require you to use your car as collateral (as long as they’re unsecured loans), so you won't risk repossession if you can't pay. Borrow from a family member or friend: If possible, consider asking a loved one to lend you the money you need to buy a car. Just make sure you draw up a loan agreement to make it official, and make it a priority to pay back the debt on time or early. Ask a loved one to co-sign your application: If you can't get a loan from a family member or friend, consider asking someone to co-sign your application. If they have good or excellent credit, it can improve your odds of getting favorable terms. Just make sure to make your payments on time to avoid damaging both of your credit profiles. Improve your credit before you apply: If buying a car isn't an urgent need, consider working on improving your credit before you shop around for a loan. Even if you can't wait until you reach good or excellent territory with your credit score, your efforts can pay off in the form of more options and lower rates. Put more money down: Some traditional auto lenders may be willing to work with bad-credit borrowers if they make a sizable down payment on the vehicle purchase. Frequently Asked Questions How Do You Get a Car Loan With Bad Credit? Car loans for people with bad credit are less common than car loans for good-credit borrowers, but they do exist. Take your time to research your options online before you visit the dealership to get an idea of what's available.You may also consider buy here, pay here (BHPH) financing, which some dealerships offer. Before you do so, however, make sure to read the terms and conditions, as these loans can be incredibly expensive. Where Can You Get a Bad Credit Car Loan? You can get a car loan with bad credit through certain dealerships, as well as from online lenders that specialize in these types of loans. If you're a member of a credit union, you may also consider contacting a loan officer to see if you qualify for an auto loan. Can You Get Guaranteed Approval for Bad Credit Car Loans? Some lenders may offer guaranteed approval, even without a credit check. But while easy car loans for bad credit like this are tempting, make sure you know what the costs will be, as well as limitations and restrictions, to ensure it's a good idea. We typically recommend staying away from loans like these, and sticking with traditional auto loans and personal loans for bad credit. What's the Lowest Credit Score You Can Have for a Car Loan? There's no minimum credit score required to get a car loan in general. Individual lenders may have minimum requirements to qualify, but they don’t usually specify the exact score they require. Regardless of where your credit stands, it's a good idea to shop around and get pre-qualified with as many lenders as possible to ensure you get the best offer available to you. Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. Catherine Falls Commercial / 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. Carvana. "What Are the Limits of the 7-Day Money Back Guarantee?" myFICO. "What Is a Credit Score?" Carvana. "I Have Filed for Bankruptcy. Can I Apply for Carvana Financing?" Lending Club. "Personal Loans Rates and Fees." Progressive. "How Much Should You Put Down on a Car?" Related Articles Best Auto Loans for Fair Credit of 2024 Best Private Party Car Loans Private Party Auto Loan: What It Is, How It Works, How to Get One Compare Best Auto Loan Rates, Lenders, & Financing for May 2024 - Rates From 1.99% Best Used Car Loans for 2024 Best Auto Refinance Loans for May 2024 Related Terms 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 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 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 Pre-Approval: Definition, Meaning, How It Works, and Types A pre-approval is a preliminary evaluation of a potential borrower by a lender to determine whether they can be given a pre-qualification offer. more Pre-Qualification: What it Means, Special Considerations Pre-qualification evaluates the creditworthiness of a potential borrower by a creditor to provide a pre-approval. more	[ [ "AUTOPAY", "https://og.services.apex.prod.autopay.com/api/2.0/lead/inbound/organization/DOTDASH/channel/DOTDASH_A/event/LEAD_REFERRED_FOR_REDIRECT/version/1.0.0?id=THEIR_UNIQUE_IDENTIFER" ], [ "CarMax", 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https://www.investopedia.com/mortgage/mortgage-rates/payment-structure/	Mortgage Payment Structure Explained With 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"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> A mortgage is a long-term loan designed to help you buy a house. In addition to repaying the principal, you also have to make interest payments to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lender</a>. The home and land around it serve as collateral. But if you are looking to own a home, you need to know more than these generalities. This concept also applies to businesses, especially concerning fixed costs and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shutdown_points.asp">shutdown points</a>. </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>Mortgage payments are made up of your principal and interest payments.</li><li>If you make a down payment of less than 20%, you will be required to take out private mortgage insurance, which increases your monthly payment.</li><li>Some payments also include real estate or property taxes.</li><li>A borrower pays more interest in the early part of the mortgage, while the latter part favors the principal balance.</li><li>Making a larger down payment will immediately boost the equity in your home.</li></ul></div></div></div> <span class="heading-toc" id="toc-mortgages"></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"> Mortgages </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Just about everyone who buys a house has a mortgage. <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">Mortgage rates</a> are frequently mentioned on the evening news, and speculation about which direction rates will move has become a standard part of the financial culture. </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 modern mortgage came into being in 1934 when the government—to help the country overcome the Great Depression—created a mortgage program that minimized the required down payment on a home, increasing the amount potential homeowners could borrow. Before that, a 50% down payment was required.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> In general, a 20% down payment is desirable, mostly because if your down payment is less than 20%, you are required to take out private mortgage insurance (PMI), making your monthly payments higher. Desirable, however, is not necessarily achievable. There are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/110415/7-solutions-homeowners-struggling-their-mortgage.asp">mortgage programs</a> available that allow significantly lower down payments, but if you can manage that 20%, you definitely should.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The main factors determining your monthly mortgage payments are the size and term of the loan. Size is the amount of money you borrow and the term is the length of time you have to pay it back. Generally, the longer your term, the lower your monthly payment. That’s why 30-year mortgages are the most popular. Once you know the size of the loan you need for your new home, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-calculator-5084794">a mortgage calculator</a> is an easy way to compare mortgage types and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/credit-loans-mortgages/090916/how-do-mortgage-lenders-get-paid-and-make-money.asp">various lenders</a>.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-piti-mortgage-payment-components"></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"> PITI: Mortgage Payment Components </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> There are four factors that play a role in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/calculate-your-mortgage-payment-5225171">the calculation of a mortgage payment</a>: principal, interest, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/tax/09/calculate-property-tax.asp">taxes</a>, and insurance (PITI). As we look at them, we’ll use a $100,000 mortgage as an example. </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"> Principal </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> A portion of each mortgage payment is dedicated to repayment of the principal balance. Loans are structured so the amount of principal returned to the borrower starts out low and increases with each mortgage payment. The payments in the first years are applied more to interest than principal, while the payments in the final years reverse that scenario. For our $100,000 mortgage, the principal is $100,000.<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_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"> Interest </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Interest is the lender’s reward for taking a risk and loaning you money. The interest rate on a mortgage has a direct impact on the size of a mortgage payment: Higher interest rates mean higher mortgage payments. </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"> Higher interest rates generally reduce the amount of money you can borrow, and lower interest rates increase it. If the interest rate on our $100,000 mortgage is 6%, the combined principal and interest monthly payment on a 30-year mortgage would be about $599.55—$500 interest + $99.55 principal. The same loan with a 9% interest rate results in a monthly payment of $804.62.<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_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"> Taxes </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Real estate or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/property-tax-4689690">property taxes</a> are assessed by government agencies and used to fund public services such as schools, police forces, and fire departments. Taxes are calculated by the government on a per-year basis, but you can pay these taxes as part of your monthly payments. The amount due is divided by the total number of monthly mortgage payments in a given year. The lender collects the payments and holds them in escrow until the taxes have to be paid.<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_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"> Insurance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Like real estate taxes, insurance payments are made with each mortgage payment and held in escrow until the bill is due. There are comparisons made in this process to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/levelpremiumlife.asp">level premium insurance</a>. </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"> Two types of insurance coverage may be included in a mortgage payment. One is property insurance, which protects the home and its contents from fire, theft, and other disasters. The other is PMI, which is mandatory for people who buy a home with a down payment of less than 20% of the cost. This type of insurance protects the lender if the borrower is unable to repay the loan. </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"> Because it minimizes the default risk on the loan, PMI also enables lenders to sell the loan to investors, who can have some assurance that their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/050115/mortgage-vs-student-loan-vs-saving.asp">debt</a> investment will be paid back to them. PMI coverage can be dropped once the borrower has at least 20% equity in the home.<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_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> While principal, interest, taxes, and insurance make up the typical mortgage, some people opt for mortgages that do not include taxes or insurance as part of the monthly payment. With this type of loan, you have a lower monthly payment, but you must pay the taxes and insurance. </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 mntl-sc-block-tool mntl-block mntl-sc-block--mortgage-loan-calculator" id="mntl-sc-block_37-0"><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_38-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_39-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_40-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-mortgage-protection-insurance-5094135">Mortgage insurance</a> may be canceled once the balance reaches 78% of the original value.</p></div></div></div> <span class="heading-toc" id="toc-the-amortization-schedule"></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 Amortization Schedule </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> A mortgage’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/051914/mortgage-amortization-strategies.asp">amortization</a> schedule provides a detailed look at what portion of each mortgage payment is dedicated to each component of PITI. As noted earlier, the first year's mortgage payments consist primarily of interest payments, while later payments consist primarily of principal.<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_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> In our example of a $100,000, 30-year mortgage, the amortization schedule has 360 payments. The partial schedule shown below demonstrates how the balance between principal and interest payments reverses over time, moving toward greater application to the principal. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_46-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 148px;"></colgroup> <colgroup span="1" style="width: 148px;"></colgroup> <colgroup span="1" style="width: 148px;"></colgroup> <colgroup span="1" style="width: 148px;"></colgroup> <tbody data-check="-1"> <tr> <td><strong>Payment</strong></td> <td><strong>Principal</strong></td> <td><strong>Interest</strong></td> <td><strong>Principal Balance</strong></td> </tr> <tr> <td>1</td> <td>$99.55</td> <td>$500.00</td> <td>$99,900.45</td> </tr> <tr> <td>12</td> <td>$105.16</td> <td>$494.39</td> <td>$98,772.00</td> </tr> <tr> <td>180</td> <td>$243.09</td> <td>$356.46</td> <td>$71,048.96</td> </tr> <tr> <td>360</td> <td>$597.00</td> <td>$2.99</td> <td>$0</td> </tr> </tbody> </table> </div></figure> <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"> As the chart shows, each payment is $599.55, but the amount dedicated to principal and interest changes. At the start of your mortgage, the rate at which you gain equity in your home is much slower. This is why it can be good to make extra principal payments if the mortgage permits you to do so without a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prepaymentpenalty.asp">prepayment penalty</a>. They reduce your principal which, in turn, reduces the interest due on each future payment, moving you toward your ultimate goal: paying off the mortgage.<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_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, the interest is the part that's tax-deductible to the extent permitted by law; if you itemize your deductions instead of taking the standard deduction.<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_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 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>FHA-backed mortgages, which allow people with low credit scores to become homeowners, only require a minimum 3.5% down payment.</p></div></div></div> <span class="heading-toc" id="toc-your-first-mortgage-payment"></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"> Your First Mortgage Payment </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> The first mortgage payment is due one full month after the last day of the month in which the home purchase closed. Unlike rent, due on the first day of the month for that month, mortgage payments are paid in arrears, on the first day of the month but for the previous month. </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"> Say a closing occurs on Jan. 25. The closing costs will include the accrued interest until the end of January. The first full mortgage payment, which is for February, is then due March 1. For example, let’s assume you take an initial mortgage of $240,000 on a $300,000 purchase with a 20% down payment. </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"> Your monthly payment is $1,077.71 under a 30-year fixed-rate mortgage with a 3.5% interest rate. This calculation only includes principal and interest but does not include property taxes and insurance. </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"> Your daily interest is $23.01. This is calculated by first multiplying the $240,000 loan by the 3.5% interest rate, then dividing by 365. If the mortgage closes on Jan. 25, you owe $161.10 for the seven days of accrued interest for the remainder of the month. The next monthly payment, the full monthly payment of $1,077.71, is due on March 1 and covers the February mortgage payment. </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"> You should have all this information in advance. Under the TILA-RESPA Integrated Disclosure rule, two forms must be provided to you three days before the scheduled closing date—the loan estimate and closing disclosure.<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_64-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> The amount of accrued interest and other closing costs are laid out in the closing disclosure form. You can see the loan amount, interest rate, monthly payments, and other costs and compare these to the provided initial estimate.<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_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-is-a-mortgage-payment-calculated"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Is a Mortgage Payment Calculated?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A mortgage payment is calculated using principal, interest, taxes, and insurance. If you want to find out how much your monthly payment will be there are several good online mortgage calculators.</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-when-do-mortgage-payments-start"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Do Mortgage Payments Start?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>When you buy a home, mortgage payments begin on the first of the month after you have lived in the home for 30 days. If you buy a home in October, your first payment on your mortgage will be due on Dec. 1, even if you purchased your home on Oct. 1 or Oct. 31.<br/></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-what-is-mortgage-insurance"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Mortgage Insurance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are two kinds of insurance associated with a mortgage payment. The first one is property insurance, which protects the home and everything in it, more or less, from man-made and natural disasters. The second kind of mortgage insurance is PMI and if you bought your home with a downpayment of less than 20%, you will have to pay this insurance to protect the lender, if you suddenly can't pay your loan back.<br/></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"> A mortgage is an essential tool for buying a house, allowing you to become a homeowner without making a large down payment; however, when you take on a mortgage, it’s important to understand the structure of your payments, which cover not only the principal (the amount you borrowed) but also interest, taxes, and insurance. It tells you how long it will take you to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/05/052205.asp#:~:text=A%20mortgage%20is%20a%20loan,term%20is%2015%2D30%20years.">pay off </a>your mortgage and how expensive it will be to finance your home purchase. </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>	A mortgage is a long-term loan designed to help you buy a house. In addition to repaying the principal, you also have to make interest payments to the [lender](https://www.investopedia.com/terms/l/lender.asp). The home and land around it serve as collateral. But if you are looking to own a home, you need to know more than these generalities. This concept also applies to businesses, especially concerning fixed costs and [shutdown points](https://www.investopedia.com/terms/s/shutdown_points.asp). ### Key Takeaways * Mortgage payments are made up of your principal and interest payments. * If you make a down payment of less than 20%, you will be required to take out private mortgage insurance, which increases your monthly payment. * Some payments also include real estate or property taxes. * A borrower pays more interest in the early part of the mortgage, while the latter part favors the principal balance. * Making a larger down payment will immediately boost the equity in your home. ## Mortgages Just about everyone who buys a house has a mortgage. [Mortgage rates](https://www.investopedia.com/articles/personal-finance/042015/pros-and-cons-15year-mortgage.asp) are frequently mentioned on the evening news, and speculation about which direction rates will move has become a standard part of the financial culture. The modern mortgage came into being in 1934 when the government—to help the country overcome the Great Depression—created a mortgage program that minimized the required down payment on a home, increasing the amount potential homeowners could borrow. Before that, a 50% down payment was required. In general, a 20% down payment is desirable, mostly because if your down payment is less than 20%, you are required to take out private mortgage insurance (PMI), making your monthly payments higher. Desirable, however, is not necessarily achievable. There are [mortgage programs](https://www.investopedia.com/articles/personal-finance/110415/7-solutions-homeowners-struggling-their-mortgage.asp) available that allow significantly lower down payments, but if you can manage that 20%, you definitely should. The main factors determining your monthly mortgage payments are the size and term of the loan. Size is the amount of money you borrow and the term is the length of time you have to pay it back. Generally, the longer your term, the lower your monthly payment. That’s why 30-year mortgages are the most popular. Once you know the size of the loan you need for your new home, [a mortgage calculator](https://www.investopedia.com/mortgage-calculator-5084794) is an easy way to compare mortgage types and [various lenders](https://www.investopedia.com/articles/credit-loans-mortgages/090916/how-do-mortgage-lenders-get-paid-and-make-money.asp). ## PITI: Mortgage Payment Components There are four factors that play a role in [the calculation of a mortgage payment](https://www.investopedia.com/calculate-your-mortgage-payment-5225171): principal, interest, [taxes](https://www.investopedia.com/articles/tax/09/calculate-property-tax.asp), and insurance (PITI). As we look at them, we’ll use a $100,000 mortgage as an example. ### Principal A portion of each mortgage payment is dedicated to repayment of the principal balance. Loans are structured so the amount of principal returned to the borrower starts out low and increases with each mortgage payment. The payments in the first years are applied more to interest than principal, while the payments in the final years reverse that scenario. For our $100,000 mortgage, the principal is $100,000. ### Interest Interest is the lender’s reward for taking a risk and loaning you money. The interest rate on a mortgage has a direct impact on the size of a mortgage payment: Higher interest rates mean higher mortgage payments. Higher interest rates generally reduce the amount of money you can borrow, and lower interest rates increase it. If the interest rate on our $100,000 mortgage is 6%, the combined principal and interest monthly payment on a 30-year mortgage would be about $599.55—$500 interest + $99.55 principal. The same loan with a 9% interest rate results in a monthly payment of $804.62. ### Taxes Real estate or [property taxes](https://www.investopedia.com/property-tax-4689690) are assessed by government agencies and used to fund public services such as schools, police forces, and fire departments. Taxes are calculated by the government on a per-year basis, but you can pay these taxes as part of your monthly payments. The amount due is divided by the total number of monthly mortgage payments in a given year. The lender collects the payments and holds them in escrow until the taxes have to be paid. ### Insurance Like real estate taxes, insurance payments are made with each mortgage payment and held in escrow until the bill is due. There are comparisons made in this process to [level premium insurance](https://www.investopedia.com/terms/l/levelpremiumlife.asp). Two types of insurance coverage may be included in a mortgage payment. One is property insurance, which protects the home and its contents from fire, theft, and other disasters. The other is PMI, which is mandatory for people who buy a home with a down payment of less than 20% of the cost. This type of insurance protects the lender if the borrower is unable to repay the loan. Because it minimizes the default risk on the loan, PMI also enables lenders to sell the loan to investors, who can have some assurance that their [debt](https://www.investopedia.com/articles/personal-finance/050115/mortgage-vs-student-loan-vs-saving.asp) investment will be paid back to them. PMI coverage can be dropped once the borrower has at least 20% equity in the home. While principal, interest, taxes, and insurance make up the typical mortgage, some people opt for mortgages that do not include taxes or insurance as part of the monthly payment. With this type of loan, you have a lower monthly payment, but you must pay the taxes and insurance. ### [Mortgage insurance](https://www.investopedia.com/best-mortgage-protection-insurance-5094135) may be canceled once the balance reaches 78% of the original value. ## The Amortization Schedule A mortgage’s [amortization](https://www.investopedia.com/articles/personal-finance/051914/mortgage-amortization-strategies.asp) schedule provides a detailed look at what portion of each mortgage payment is dedicated to each component of PITI. As noted earlier, the first year's mortgage payments consist primarily of interest payments, while later payments consist primarily of principal. In our example of a $100,000, 30-year mortgage, the amortization schedule has 360 payments. The partial schedule shown below demonstrates how the balance between principal and interest payments reverses over time, moving toward greater application to the principal. \| Payment \| Principal \| Interest \| Principal Balance \| \| --- \| --- \| --- \| --- \| \| 1 \| $99.55 \| $500.00 \| $99,900.45 \| \| 12 \| $105.16 \| $494.39 \| $98,772.00 \| \| 180 \| $243.09 \| $356.46 \| $71,048.96 \| \| 360 \| $597.00 \| $2.99 \| $0 \| As the chart shows, each payment is $599.55, but the amount dedicated to principal and interest changes. At the start of your mortgage, the rate at which you gain equity in your home is much slower. This is why it can be good to make extra principal payments if the mortgage permits you to do so without a [prepayment penalty](https://www.investopedia.com/terms/p/prepaymentpenalty.asp). They reduce your principal which, in turn, reduces the interest due on each future payment, moving you toward your ultimate goal: paying off the mortgage. On the other hand, the interest is the part that's tax-deductible to the extent permitted by law; if you itemize your deductions instead of taking the standard deduction. ### FHA-backed mortgages, which allow people with low credit scores to become homeowners, only require a minimum 3.5% down payment. ## Your First Mortgage Payment The first mortgage payment is due one full month after the last day of the month in which the home purchase closed. Unlike rent, due on the first day of the month for that month, mortgage payments are paid in arrears, on the first day of the month but for the previous month. Say a closing occurs on Jan. 25. The closing costs will include the accrued interest until the end of January. The first full mortgage payment, which is for February, is then due March 1. For example, let’s assume you take an initial mortgage of $240,000 on a $300,000 purchase with a 20% down payment. Your monthly payment is $1,077.71 under a 30-year fixed-rate mortgage with a 3.5% interest rate. This calculation only includes principal and interest but does not include property taxes and insurance. Your daily interest is $23.01. This is calculated by first multiplying the $240,000 loan by the 3.5% interest rate, then dividing by 365. If the mortgage closes on Jan. 25, you owe $161.10 for the seven days of accrued interest for the remainder of the month. The next monthly payment, the full monthly payment of $1,077.71, is due on March 1 and covers the February mortgage payment. You should have all this information in advance. Under the TILA-RESPA Integrated Disclosure rule, two forms must be provided to you three days before the scheduled closing date—the loan estimate and closing disclosure. The amount of accrued interest and other closing costs are laid out in the closing disclosure form. You can see the loan amount, interest rate, monthly payments, and other costs and compare these to the provided initial estimate. ## How Is a Mortgage Payment Calculated? A mortgage payment is calculated using principal, interest, taxes, and insurance. If you want to find out how much your monthly payment will be there are several good online mortgage calculators. ## When Do Mortgage Payments Start? When you buy a home, mortgage payments begin on the first of the month after you have lived in the home for 30 days. If you buy a home in October, your first payment on your mortgage will be due on Dec. 1, even if you purchased your home on Oct. 1 or Oct. 31. ## What Is Mortgage Insurance? There are two kinds of insurance associated with a mortgage payment. The first one is property insurance, which protects the home and everything in it, more or less, from man-made and natural disasters. The second kind of mortgage insurance is PMI and if you bought your home with a downpayment of less than 20%, you will have to pay this insurance to protect the lender, if you suddenly can't pay your loan back. ## The Bottom Line A mortgage is an essential tool for buying a house, allowing you to become a homeowner without making a large down payment; however, when you take on a mortgage, it’s important to understand the structure of your payments, which cover not only the principal (the amount you borrowed) but also interest, taxes, and insurance. It tells you how long it will take you to [pay off](https://www.investopedia.com/ask/answers/05/052205.asp#:~:text=A%20mortgage%20is%20a%20loan,term%20is%2015%2D30%20years.) your mortgage and how expensive it will be to finance your home purchase.	A mortgage is a long-term loan designed to help you buy a house. In addition to repaying the principal, you also have to make interest payments to the lender. The home and land around it serve as collateral. But if you are looking to own a home, you need to know more than these generalities. This concept also applies to businesses, especially concerning fixed costs and shutdown points. Key Takeaways Mortgage payments are made up of your principal and interest payments.If you make a down payment of less than 20%, you will be required to take out private mortgage insurance, which increases your monthly payment.Some payments also include real estate or property taxes.A borrower pays more interest in the early part of the mortgage, while the latter part favors the principal balance.Making a larger down payment will immediately boost the equity in your home. Mortgages Just about everyone who buys a house has a mortgage. Mortgage rates are frequently mentioned on the evening news, and speculation about which direction rates will move has become a standard part of the financial culture. The modern mortgage came into being in 1934 when the government—to help the country overcome the Great Depression—created a mortgage program that minimized the required down payment on a home, increasing the amount potential homeowners could borrow. Before that, a 50% down payment was required. In general, a 20% down payment is desirable, mostly because if your down payment is less than 20%, you are required to take out private mortgage insurance (PMI), making your monthly payments higher. Desirable, however, is not necessarily achievable. There are mortgage programs available that allow significantly lower down payments, but if you can manage that 20%, you definitely should. The main factors determining your monthly mortgage payments are the size and term of the loan. Size is the amount of money you borrow and the term is the length of time you have to pay it back. Generally, the longer your term, the lower your monthly payment. That’s why 30-year mortgages are the most popular. Once you know the size of the loan you need for your new home, a mortgage calculator is an easy way to compare mortgage types and various lenders. PITI: Mortgage Payment Components There are four factors that play a role in the calculation of a mortgage payment: principal, interest, taxes, and insurance (PITI). As we look at them, we’ll use a $100,000 mortgage as an example. Principal A portion of each mortgage payment is dedicated to repayment of the principal balance. Loans are structured so the amount of principal returned to the borrower starts out low and increases with each mortgage payment. The payments in the first years are applied more to interest than principal, while the payments in the final years reverse that scenario. For our $100,000 mortgage, the principal is $100,000. Interest Interest is the lender’s reward for taking a risk and loaning you money. The interest rate on a mortgage has a direct impact on the size of a mortgage payment: Higher interest rates mean higher mortgage payments. Higher interest rates generally reduce the amount of money you can borrow, and lower interest rates increase it. If the interest rate on our $100,000 mortgage is 6%, the combined principal and interest monthly payment on a 30-year mortgage would be about $599.55—$500 interest + $99.55 principal. The same loan with a 9% interest rate results in a monthly payment of $804.62. Taxes Real estate or property taxes are assessed by government agencies and used to fund public services such as schools, police forces, and fire departments. Taxes are calculated by the government on a per-year basis, but you can pay these taxes as part of your monthly payments. The amount due is divided by the total number of monthly mortgage payments in a given year. The lender collects the payments and holds them in escrow until the taxes have to be paid. Insurance Like real estate taxes, insurance payments are made with each mortgage payment and held in escrow until the bill is due. There are comparisons made in this process to level premium insurance. Two types of insurance coverage may be included in a mortgage payment. One is property insurance, which protects the home and its contents from fire, theft, and other disasters. The other is PMI, which is mandatory for people who buy a home with a down payment of less than 20% of the cost. This type of insurance protects the lender if the borrower is unable to repay the loan. Because it minimizes the default risk on the loan, PMI also enables lenders to sell the loan to investors, who can have some assurance that their debt investment will be paid back to them. PMI coverage can be dropped once the borrower has at least 20% equity in the home. While principal, interest, taxes, and insurance make up the typical mortgage, some people opt for mortgages that do not include taxes or insurance as part of the monthly payment. With this type of loan, you have a lower monthly payment, but you must pay the taxes and insurance. Mortgage insurance may be canceled once the balance reaches 78% of the original value. The Amortization Schedule A mortgage’s amortization schedule provides a detailed look at what portion of each mortgage payment is dedicated to each component of PITI. As noted earlier, the first year's mortgage payments consist primarily of interest payments, while later payments consist primarily of principal. In our example of a $100,000, 30-year mortgage, the amortization schedule has 360 payments. The partial schedule shown below demonstrates how the balance between principal and interest payments reverses over time, moving toward greater application to the principal. Payment Principal Interest Principal Balance 1 $99.55 $500.00 $99,900.45 12 $105.16 $494.39 $98,772.00 180 $243.09 $356.46 $71,048.96 360 $597.00 $2.99 $0 As the chart shows, each payment is $599.55, but the amount dedicated to principal and interest changes. At the start of your mortgage, the rate at which you gain equity in your home is much slower. This is why it can be good to make extra principal payments if the mortgage permits you to do so without a prepayment penalty. They reduce your principal which, in turn, reduces the interest due on each future payment, moving you toward your ultimate goal: paying off the mortgage. On the other hand, the interest is the part that's tax-deductible to the extent permitted by law; if you itemize your deductions instead of taking the standard deduction. FHA-backed mortgages, which allow people with low credit scores to become homeowners, only require a minimum 3.5% down payment. Your First Mortgage Payment The first mortgage payment is due one full month after the last day of the month in which the home purchase closed. Unlike rent, due on the first day of the month for that month, mortgage payments are paid in arrears, on the first day of the month but for the previous month. Say a closing occurs on Jan. 25. The closing costs will include the accrued interest until the end of January. The first full mortgage payment, which is for February, is then due March 1. For example, let’s assume you take an initial mortgage of $240,000 on a $300,000 purchase with a 20% down payment. Your monthly payment is $1,077.71 under a 30-year fixed-rate mortgage with a 3.5% interest rate. This calculation only includes principal and interest but does not include property taxes and insurance. Your daily interest is $23.01. This is calculated by first multiplying the $240,000 loan by the 3.5% interest rate, then dividing by 365. If the mortgage closes on Jan. 25, you owe $161.10 for the seven days of accrued interest for the remainder of the month. The next monthly payment, the full monthly payment of $1,077.71, is due on March 1 and covers the February mortgage payment. You should have all this information in advance. Under the TILA-RESPA Integrated Disclosure rule, two forms must be provided to you three days before the scheduled closing date—the loan estimate and closing disclosure. The amount of accrued interest and other closing costs are laid out in the closing disclosure form. You can see the loan amount, interest rate, monthly payments, and other costs and compare these to the provided initial estimate. How Is a Mortgage Payment Calculated? A mortgage payment is calculated using principal, interest, taxes, and insurance. If you want to find out how much your monthly payment will be there are several good online mortgage calculators. When Do Mortgage Payments Start? When you buy a home, mortgage payments begin on the first of the month after you have lived in the home for 30 days. If you buy a home in October, your first payment on your mortgage will be due on Dec. 1, even if you purchased your home on Oct. 1 or Oct. 31. What Is Mortgage Insurance? There are two kinds of insurance associated with a mortgage payment. The first one is property insurance, which protects the home and everything in it, more or less, from man-made and natural disasters. The second kind of mortgage insurance is PMI and if you bought your home with a downpayment of less than 20%, you will have to pay this insurance to protect the lender, if you suddenly can't pay your loan back. The Bottom Line A mortgage is an essential tool for buying a house, allowing you to become a homeowner without making a large down payment; however, when you take on a mortgage, it’s important to understand the structure of your payments, which cover not only the principal (the amount you borrowed) but also interest, taxes, and insurance. It tells you how long it will take you to pay off your mortgage and how expensive it will be to finance your home purchase.	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https://www.investopedia.com/free-college-aid-missed-5324800	How Much Free College Aid Are Students Missing Out On?	<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/i/interestrate.asp">Interest rates</a> on student loans have increased dramatically in the past few academic years, and finding ways to minimize debt and save on college may be more important now than ever before.<span class="ql-inline-citation" data-cite="1"></span> Unfortunately, too many students fail to access all the free college aid they're eligible for and the losses are staggering. </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 fact, a January 2023 report from the National College Attainment Network (NCAN) showed that billions of dollars in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pell-grant.asp">Pell Grants</a> were left unclaimed by the high school class of 2022.<span class="ql-inline-citation" data-cite="7"></span> What makes this particularly surprising is the fact that filling out one form is all it takes to determine eligibility for Pell Grants, which are a type of student aid that typically does not need to be repaid.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/understanding-scholarships-need-and-merit-4783132">Scholarships</a> and other financial aid are also left on the table each academic year. If you're heading to college or wondering how you'll pay for higher education for a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dependent.asp">dependent</a>, read on to learn which types of aid go unclaimed and what you can do to access them. </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>An early 2023 report from National College Attainment Network (NCAN) showed that billions of dollars in Pell Grant funding were left on the table by the high school class of 2022 when they applied for college.</li><li>Qualifying for Pell Grants and other financial aid requires students and their families to fill out the Free Application for Federal Student Aid (FAFSA).</li><li>The National Scholarship Providers Association reports that as much as $100 in million in scholarships also go unclaimed each academic year.</li><li>If you are hoping to minimize student debt, save money on college tuition, or both, your best bet is to pursue all types of financial aid you may be eligible for.</li></ul></div></div></div> <span class="heading-toc" id="toc-up-to-358-in-pell-grants-lost"></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"> Up to $3.58 in Pell Grants Lost </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> According to a January 2023 report from the National College Attainment Network (NCAN), $3.58 billion in Pell Grants went unclaimed by students who graduated high school in 2022.<span class="ql-inline-citation" data-cite="7"></span> This type of financial aid is awarded only to undergraduate students who "display exceptional financial need and have not earned a bachelor's, graduate, or professional degree," per Federal Student Aid.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Pell Grants are an especially important type of financial aid since this funding usually isn't required to be repaid, except in special circumstances.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The NCAN report also revealed that more than 1.65 million high school graduates failed to fill out the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federal-application-of-student-aid-fafsa.asp">Free Application for Federal Student Aid (FAFSA)</a> for the 2021 to 2022 academic year. Further, just under half of those graduates were likely eligible for Pell Grants and the average amount of aid left on the table worked out to $4,686 per student nationally. </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-100-million-in-scholarship-money-unclaimed"></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"> $100 Million in Scholarship Money Unclaimed </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The National Scholarship Providers Association (NSPA) estimates that an average of $100 million in scholarship funds are left unclaimed every academic year. This is mainly due to "a lack of applicants," they note, adding that scholarship providers consider a lot more than grades when choosing recipients for their awards.<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"> College-bound students can get their share of funding by dedicating some of their time to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-find-scholarships-4782490">finding college scholarships</a> and taking steps to apply. Some of the best places to find college scholarships include school counselors, college financial aid offices, civic groups, and ethnic organizations you may belong to. An array of online scholarship search engines can also help match you with scholarships you could be eligible for. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_21-0"><span class="heading-toc" id="toc-why-dont-people-fill-out-the-fafsa"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Don't People Fill Out the FAFSA?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While there are many reasons families fail to fill out the Free Application for Federal Student Aid (FAFSA) each year, a report from the National Center for Education Statistics (NCES) shed some light on this issue. Based on survey findings shared in the report, common reasons for not filling out the FAFSA include believing you can afford college without it, a belief one won't be eligible for aid, not wanting to take on student debt, and not knowing how to fill out the FAFSA.<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_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_23-0"><span class="heading-toc" id="toc-what-do-families-who-do-not-fill-out-the-fafsa-miss-out-on"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Do Families Who Do Not Fill Out the FAFSA Miss Out On?</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/articles/personal-finance/090815/quick-guide-how-fafsa-loans-work.asp">Filling out the FAFSA</a> is the only way to find out what types of federal student aid you may be eligible for. Further, families who don't fill out the FAFSA miss out on access to federal student loans, federal <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/grant.asp">grants</a>, work-study programs, and need-based aid from states and individual colleges.<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_24-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_25-0"><span class="heading-toc" id="toc-how-much-financial-aid-goes-unused"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Financial Aid Goes Unused?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A 2023 report from NCAN showed that more than $3.58 billion in Pell Grant funding was left on the table by the high school class of 2022 when they applied for college.<span class="ql-inline-citation" data-cite="7"></span> According to the National Scholarship Providers Association (NSPA), another $100 million in scholarships go unclaimed each academic year.<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_26-0"></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_27-0"> <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_28-0"> Future and current college students are easily <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/overlooked-sources-free-college-aid-5323083">leaving billions of dollars on the table</a> when they head off to school each year. However, the bulk of this issue can be solved by having all families fill out the FAFSA form each year, even if they don't think they qualify for financial assistance. </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"> College students should also do their best to apply for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/understanding-scholarships-need-and-merit-4783132">college scholarships</a> they may be eligible for, even if each application takes some time and some work. By putting some effort into paying less and borrowing less for higher education, the next generation of college graduates could be better off. </p></div>	[Interest rates](https://www.investopedia.com/terms/i/interestrate.asp) on student loans have increased dramatically in the past few academic years, and finding ways to minimize debt and save on college may be more important now than ever before. Unfortunately, too many students fail to access all the free college aid they're eligible for and the losses are staggering. In fact, a January 2023 report from the National College Attainment Network (NCAN) showed that billions of dollars in [Pell Grants](https://www.investopedia.com/terms/p/pell-grant.asp) were left unclaimed by the high school class of 2022. What makes this particularly surprising is the fact that filling out one form is all it takes to determine eligibility for Pell Grants, which are a type of student aid that typically does not need to be repaid. [Scholarships](https://www.investopedia.com/understanding-scholarships-need-and-merit-4783132) and other financial aid are also left on the table each academic year. If you're heading to college or wondering how you'll pay for higher education for a [dependent](https://www.investopedia.com/terms/d/dependent.asp), read on to learn which types of aid go unclaimed and what you can do to access them. ### Key Takeaways * An early 2023 report from National College Attainment Network (NCAN) showed that billions of dollars in Pell Grant funding were left on the table by the high school class of 2022 when they applied for college. * Qualifying for Pell Grants and other financial aid requires students and their families to fill out the Free Application for Federal Student Aid (FAFSA). * The National Scholarship Providers Association reports that as much as $100 in million in scholarships also go unclaimed each academic year. * If you are hoping to minimize student debt, save money on college tuition, or both, your best bet is to pursue all types of financial aid you may be eligible for. ## Up to $3.58 in Pell Grants Lost According to a January 2023 report from the National College Attainment Network (NCAN), $3.58 billion in Pell Grants went unclaimed by students who graduated high school in 2022. This type of financial aid is awarded only to undergraduate students who "display exceptional financial need and have not earned a bachelor's, graduate, or professional degree," per Federal Student Aid. Pell Grants are an especially important type of financial aid since this funding usually isn't required to be repaid, except in special circumstances. The NCAN report also revealed that more than 1.65 million high school graduates failed to fill out the [Free Application for Federal Student Aid (FAFSA)](https://www.investopedia.com/terms/f/federal-application-of-student-aid-fafsa.asp) for the 2021 to 2022 academic year. Further, just under half of those graduates were likely eligible for Pell Grants and the average amount of aid left on the table worked out to $4,686 per student nationally. ## $100 Million in Scholarship Money Unclaimed The National Scholarship Providers Association (NSPA) estimates that an average of $100 million in scholarship funds are left unclaimed every academic year. This is mainly due to "a lack of applicants," they note, adding that scholarship providers consider a lot more than grades when choosing recipients for their awards. College-bound students can get their share of funding by dedicating some of their time to [finding college scholarships](https://www.investopedia.com/how-to-find-scholarships-4782490) and taking steps to apply. Some of the best places to find college scholarships include school counselors, college financial aid offices, civic groups, and ethnic organizations you may belong to. An array of online scholarship search engines can also help match you with scholarships you could be eligible for. ## Why Don't People Fill Out the FAFSA? While there are many reasons families fail to fill out the Free Application for Federal Student Aid (FAFSA) each year, a report from the National Center for Education Statistics (NCES) shed some light on this issue. Based on survey findings shared in the report, common reasons for not filling out the FAFSA include believing you can afford college without it, a belief one won't be eligible for aid, not wanting to take on student debt, and not knowing how to fill out the FAFSA. ## What Do Families Who Do Not Fill Out the FAFSA Miss Out On? [Filling out the FAFSA](https://www.investopedia.com/articles/personal-finance/090815/quick-guide-how-fafsa-loans-work.asp) is the only way to find out what types of federal student aid you may be eligible for. Further, families who don't fill out the FAFSA miss out on access to federal student loans, federal [grants](https://www.investopedia.com/terms/g/grant.asp), work-study programs, and need-based aid from states and individual colleges. ## How Much Financial Aid Goes Unused? A 2023 report from NCAN showed that more than $3.58 billion in Pell Grant funding was left on the table by the high school class of 2022 when they applied for college. According to the National Scholarship Providers Association (NSPA), another $100 million in scholarships go unclaimed each academic year. ## The Bottom Line Future and current college students are easily [leaving billions of dollars on the table](https://www.investopedia.com/overlooked-sources-free-college-aid-5323083) when they head off to school each year. However, the bulk of this issue can be solved by having all families fill out the FAFSA form each year, even if they don't think they qualify for financial assistance. College students should also do their best to apply for [college scholarships](https://www.investopedia.com/understanding-scholarships-need-and-merit-4783132) they may be eligible for, even if each application takes some time and some work. By putting some effort into paying less and borrowing less for higher education, the next generation of college graduates could be better off.	Interest rates on student loans have increased dramatically in the past few academic years, and finding ways to minimize debt and save on college may be more important now than ever before. Unfortunately, too many students fail to access all the free college aid they're eligible for and the losses are staggering. In fact, a January 2023 report from the National College Attainment Network (NCAN) showed that billions of dollars in Pell Grants were left unclaimed by the high school class of 2022. What makes this particularly surprising is the fact that filling out one form is all it takes to determine eligibility for Pell Grants, which are a type of student aid that typically does not need to be repaid. Scholarships and other financial aid are also left on the table each academic year. If you're heading to college or wondering how you'll pay for higher education for a dependent, read on to learn which types of aid go unclaimed and what you can do to access them. Key Takeaways An early 2023 report from National College Attainment Network (NCAN) showed that billions of dollars in Pell Grant funding were left on the table by the high school class of 2022 when they applied for college.Qualifying for Pell Grants and other financial aid requires students and their families to fill out the Free Application for Federal Student Aid (FAFSA).The National Scholarship Providers Association reports that as much as $100 in million in scholarships also go unclaimed each academic year.If you are hoping to minimize student debt, save money on college tuition, or both, your best bet is to pursue all types of financial aid you may be eligible for. Up to $3.58 in Pell Grants Lost According to a January 2023 report from the National College Attainment Network (NCAN), $3.58 billion in Pell Grants went unclaimed by students who graduated high school in 2022. This type of financial aid is awarded only to undergraduate students who "display exceptional financial need and have not earned a bachelor's, graduate, or professional degree," per Federal Student Aid. Pell Grants are an especially important type of financial aid since this funding usually isn't required to be repaid, except in special circumstances. The NCAN report also revealed that more than 1.65 million high school graduates failed to fill out the Free Application for Federal Student Aid (FAFSA) for the 2021 to 2022 academic year. Further, just under half of those graduates were likely eligible for Pell Grants and the average amount of aid left on the table worked out to $4,686 per student nationally. $100 Million in Scholarship Money Unclaimed The National Scholarship Providers Association (NSPA) estimates that an average of $100 million in scholarship funds are left unclaimed every academic year. This is mainly due to "a lack of applicants," they note, adding that scholarship providers consider a lot more than grades when choosing recipients for their awards. College-bound students can get their share of funding by dedicating some of their time to finding college scholarships and taking steps to apply. Some of the best places to find college scholarships include school counselors, college financial aid offices, civic groups, and ethnic organizations you may belong to. An array of online scholarship search engines can also help match you with scholarships you could be eligible for. Why Don't People Fill Out the FAFSA? While there are many reasons families fail to fill out the Free Application for Federal Student Aid (FAFSA) each year, a report from the National Center for Education Statistics (NCES) shed some light on this issue. Based on survey findings shared in the report, common reasons for not filling out the FAFSA include believing you can afford college without it, a belief one won't be eligible for aid, not wanting to take on student debt, and not knowing how to fill out the FAFSA. What Do Families Who Do Not Fill Out the FAFSA Miss Out On? Filling out the FAFSA is the only way to find out what types of federal student aid you may be eligible for. Further, families who don't fill out the FAFSA miss out on access to federal student loans, federal grants, work-study programs, and need-based aid from states and individual colleges. How Much Financial Aid Goes Unused? A 2023 report from NCAN showed that more than $3.58 billion in Pell Grant funding was left on the table by the high school class of 2022 when they applied for college. According to the National Scholarship Providers Association (NSPA), another $100 million in scholarships go unclaimed each academic year. The Bottom Line Future and current college students are easily leaving billions of dollars on the table when they head off to school each year. However, the bulk of this issue can be solved by having all families fill out the FAFSA form each year, even if they don't think they qualify for financial assistance. College students should also do their best to apply for college scholarships they may be eligible for, even if each application takes some time and some work. By putting some effort into paying less and borrowing less for higher education, the next generation of college graduates could be better off.	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https://www.investopedia.com/traveling-during-retirement-7564945	Want to Travel the World in Retirement? Here’s How	<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"> Are you hoping to travel the world after you retire? Traveling is the most common activity that people dream of doing after they stop working (60%, according to a December 2023 Transamerica Center for Retirement Studies survey)—and it’s totally possible for most retirees.<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"> With a bit of planning, creativity, and discipline, you’ll be ready to jump on your transportation of choice and experience unforgettable moments. The following tips will help you turn that daydream into your retirement reality.<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>Travel is the most popular dream of retirees, with 60% expressing a wish to see the world.</li><li>Before you just set off, be honest with yourself about your love of being on the road, your obligations to others, and the state of your health.</li><li>Traveling can be expensive, so look carefully at your retirement savings and make sure that the cost of traveling is incorporated into your retirement plan.</li><li>Medicare generally doesn’t cover your healthcare costs outside of the United States and its territories, so additional insurance may be necessary.</li></ul></div></div></div> <span class="heading-toc" id="toc-make-a-plan-before-retirement"></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"> Make a Plan Before Retirement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/11/5-steps-to-retirement-plan.asp">Retirement planning</a> is an ongoing, multistep process. If you already know travel is on your retirement bucket list, you should factor the cost into your plans. To ensure a comfortable, secure, and fun retirement, you’ll want a personalized plan based on the following: </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>Retirement date</li><li>Financial and investment goals</li><li>Risk tolerance</li><li>Retirement lifestyle</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"> To help solidify your plans for traveling during retirement, consider doing these things: </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>Discuss your travel ideas</strong>:<strong> </strong>Where do you want to go? What type of traveler are you? Do you plan to take short trips, or will you go the nomad route of retiring with no permanent home? Be specific and realistic, as costs will vary greatly.</li> <li><strong>Consider your finances</strong>: Based on your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/how-to-manage-timing-and-sources-of-income-retirement/">anticipated retirement income</a>, what type of travel will you be able to afford? The U.S. Department of Labor has a set of interactive worksheets, such as a balance sheet, to help you organize all your accounts and calculate your net worth.<span class="ql-inline-citation" data-cite="2"></span></li> <li><strong>Plan for Social Security benefits</strong>: <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/social-security-4427727">Social Security</a> is a major income source for many retirees, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/when-take-social-security-complete-guide/">the age at which you begin claiming benefits</a> affects how much you will receive. Plan your ideal age to start receiving benefits using <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/consumer-tools/retirement/before-you-claim/">this claiming age calculator</a>. You can also get an estimate of your future benefits by checking your Social Security account.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="4"></span></li> <li><strong>Factor in health concerns</strong>: Do you or your partner have any health issues that may impact where and how you can travel?</li> <li><strong>Make a list of wants and needs</strong>: What kind of amenities, culture, access to healthcare and public transportation, etc. are you looking for? What is nice to have, and what is non-negotiable?</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"> Planning for the above will help you create a realistic retirement plan that includes travel. See if you have access to retirement planning and savings tracking tools through your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/401k.asp">401(k) or individual retirement account (IRA)</a>. You can also talk with a financial advisor. </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-create-a-retirement-travel-budget"></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"> Create a Retirement Travel Budget </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> If you’re like most retirees, a retirement travel budget will be key to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/retirement-income-planning/">making sure you can afford</a> everything you want to see and do. According to Fidelity, most retirees will spend 55% to 80% of their annual working income each year in retirement.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> If you plan to travel frequently in retirement, you’ll need to raise that percentage. Some estimates suggest a budget of between $10,000 and $50,000 a year.<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_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> To begin building a retirement travel budget that matches your situation, estimate your future travel expenses. Research the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cost-of-living.asp">cost of living</a>, accommodations, groceries, eating out, and other activities in the places you want to visit to get a rough idea of your future spending needs. </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 U.S. Department of Labor’s planning worksheets include a “Goals & Priorities” section to help you prioritize what you save based on short- and long-term goals. Then use the “Cash Flow Spending Plan” worksheet to build a guide for how you expect to spend your money. Track actual spending to compare it with what you planned.<span class="ql-inline-citation" data-cite="2"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Use the 50/30/20 Spending Rule to Budget for Travel in Retirement </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.wealthlegacyinstitute.com/people/kimberly-l-curtis-cfp-chfc-clu-cap-aep-msfs/" rel="nofollow">Kimberly L. Curtis</a>, a certified financial planner (CFP) at Cerity Partners, recommends the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp">50/30/20 rule</a> to budget for traveling in retirement. <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/how-to-manage-timing-and-sources-of-income-retirement/">This budgeting framework</a> breaks after-tax income into three main categories with corresponding percentages. </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>Needs (50%)</li><li>Wants (30%)</li><li>Savings (20%)</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"> Based on this rule, cash flow for spending on travel in retirement comes out of the 30% allotted for wants. </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"> “Retirees spend, on average, 5% to 10% of their annual budget on travel,” Curtis said. “Instead of a monthly dollar amount, many retirees will ‘chunk’ their retirement travel budget into annual amounts. For example, a big European trip might mean putting aside $10,000 for that year. Otherwise, retirees may plan on around $5,000 a year for the next 10 to 15 years of retirement.” </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-consider-insurance"></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"> Consider Insurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Retired travelers’ needs may differ from those of younger travelers, particularly the potential need for medical care while on the road. Individuals become eligible for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicare.asp">Medicare</a> at age 65. If you plan to travel during retirement, make sure you don’t miss your initial enrollment period. </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"> Medicare Parts A and B cover hospital care and doctor visits in all 50 U.S. states, the District of Columbia, and all U.S. territories (Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands) as long as the provider accepts Medicare.<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_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Some Medicare Advantage (MA) plans have state-to-state coverage, along with a national pharmacy network. </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"> Keep in mind that many MA plans limit the amount of time you can spend outside your service area (i.e., your state) and still be covered (for example, six months). Additionally, once you travel outside the United States, Medicare generally doesn’t cover healthcare. For this reason, additional insurance is recommended for traveling during retirement.<span class="ql-inline-citation" data-cite="8"></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_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> If you want to travel the world after you retire, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/do-i-need-travel-insurance-7553834">consider additional travel insurance</a> to protect against potential medical emergencies. Travel insurance may also cover inconveniences such as trip cancellations or interruptions and lost or stolen baggage.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-subheading__text"> What to Consider When Selecting Travel Insurance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Cost shouldn’t be the only factor when choosing travel insurance. Travel expert <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.travellingapples.com/about-us/" rel="nofollow">Chris Appleford</a> of Travelling Apples notes some of the most important coverage options to look out for: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> <li>Medical coverage (including medical expenses, evacuation, and repatriation in case you need to be brought back to the U.S. for care)</li><li>Trip cancellation or interruption</li><li>Travel delays</li><li>Luggage and personal belongings</li><li>Terms and conditions surrounding pre-existing conditions</li><li>Coverage duration<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <span class="heading-toc" id="toc-how-to-cut-down-on-travel-costs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-heading__text"> How to Cut Down on Travel Costs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Balancing cash flow can get tricky when you’re no longer receiving a paycheck or business income. Cutting down on travel expenses is one of the biggest concerns for retirees as they explore the world. </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"> Hotel, airline, and attraction prices may fluctuate from season to season, and also on weekends vs. weekdays. Retirees with flexible schedules can save money by traveling when prices are low, during less popular seasons and days. The same flexibility can pay off when it comes to travel dates and destinations. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.hotelrouteplanner.com/" rel="nofollow">Kasper de Wijs</a>, travel expert and owner of HotelRoutePlanner.com, says travel websites and newsletters often post destination-based deals and last-minute offers. </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"> De Wijs also recommends exploring senior discounts, early bird discounts, and loyalty programs for travel-related services. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://elderlyguides.com/author/amber-dixon/" rel="nofollow">Amber Dixon</a> of Elderly Guides agrees that most establishments offer discounts to seniors. </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"> She adds that house-swapping with other travelers or making house-sitting arrangements can also save retirees on accommodation costs. Sites such as Nomador, Trusted Housesitters, and MindMyHouse connect homeowners and house/pet sitters with each other.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block 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-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_62-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>While house- or pet-sitting may help lower travel costs, those arrangements may be considered work even if money does not change hands, violating tourist visa and immigration laws. If this arrangement interests you, check the visa guidelines of your destination country before making plans.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-subheading__text"> Explore the Open Road to Save Money on Travel in Retirement </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> For slightly more adventurous, lower-cost travel, many retirees swear by recreational vehicle (RV) camping. The purchase of an RV is an upfront cost, for sure, but as many RV travelers live in their vehicle for months at a time, other costs are absorbed or reduced. For example, you’re eating most meals in, and the site fee is small compared with hotels or Airbnbs. </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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="http://www.rvcampgear.com/author/rvcampgear_4x8mny/" rel="nofollow">Andrew Kuttow</a>, RV enthusiast and former blogger at the now defunct RVCampGear website, said that memberships with organizations such as Good Sam, AAA, and AARP often include camping and travel discounts. </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"> “You might also consider an America the Beautiful Senior Pass,” Kuttow said. For $80, a lifetime senior pass allows access to more than 2,000 recreation sites managed by the National Park Service and other federal agencies. An annual Senior Pass is $20. You must be 62 years old to be eligible.<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_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-percentage-of-older-people-travel"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Percentage of Older People Travel?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>According to the AARP Travel Trends survey from February 2024 (the most recent survey), 65% of people ages 50 and older plan to take at least one leisure trip in 2024, with the majority taking international trips. About half of older adults say they plan to spend more on travel in 2024 than they did in 2023.<span class="ql-inline-citation" data-cite="13"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-how-much-do-i-need-in-retirement-to-travel"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Do I Need in Retirement to Travel?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It depends on your retirement plan, overhead costs, and budget. Kimberly L. Curtis, a CFP at the Cerity Partners, says that retirees pay 5% to 10% of their annual budget on travel and puts the average yearly amount at about $5,000 for the first 10 to 15 years of retirement. AARP’s 2024 Travel Trends survey found that people ages 50 and older planned to spend an average of $6,659 on travel in 2024.<span class="ql-inline-citation" data-cite="13"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_74-0"><span class="heading-toc" id="toc-what-is-the-cheapest-way-to-travel-in-retirement"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Cheapest Way to Travel in Retirement?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There is no one answer to this question, but there are many ways to curtail the costs of travel, including traveling in the offseason, having flexibility regarding dates and destinations, and taking advantage of senior discounts, early bird discounts, and loyalty programs. There are also house-swapping and house-sitting arrangements. The adventurous can buy an RV and travel the open road, saving on restaurant costs (by eating in) and accommodation costs (by sleeping in).</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_76-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> Traveling is a popular pastime for many people, and retirees are no exception, especially with all the free time they have on their hands. However, if you want to travel in retirement, and particularly if you want to travel internationally, it takes prudent planning starting early in your professional career. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> You need to decide how and where you want to travel, then build those costs into the total amount you are saving for retirement. Don’t forget to factor in healthcare concerns and when you should start taking Social Security. There are also plenty of cost-cutting measures you can take to make your journeys more affordable.<br/> </p></div>	Are you hoping to travel the world after you retire? Traveling is the most common activity that people dream of doing after they stop working (60%, according to a December 2023 Transamerica Center for Retirement Studies survey)—and it’s totally possible for most retirees. With a bit of planning, creativity, and discipline, you’ll be ready to jump on your transportation of choice and experience unforgettable moments. The following tips will help you turn that daydream into your retirement reality. ### Key Takeaways * Travel is the most popular dream of retirees, with 60% expressing a wish to see the world. * Before you just set off, be honest with yourself about your love of being on the road, your obligations to others, and the state of your health. * Traveling can be expensive, so look carefully at your retirement savings and make sure that the cost of traveling is incorporated into your retirement plan. * Medicare generally doesn’t cover your healthcare costs outside of the United States and its territories, so additional insurance may be necessary. ## Make a Plan Before Retirement [Retirement planning](https://www.investopedia.com/articles/retirement/11/5-steps-to-retirement-plan.asp) is an ongoing, multistep process. If you already know travel is on your retirement bucket list, you should factor the cost into your plans. To ensure a comfortable, secure, and fun retirement, you’ll want a personalized plan based on the following: * Retirement date * Financial and investment goals * Risk tolerance * Retirement lifestyle To help solidify your plans for traveling during retirement, consider doing these things: * Discuss your travel ideas:Where do you want to go? What type of traveler are you? Do you plan to take short trips, or will you go the nomad route of retiring with no permanent home? Be specific and realistic, as costs will vary greatly. * Consider your finances: Based on your [anticipated retirement income](https://www.investopedia.com/retirement/how-to-manage-timing-and-sources-of-income-retirement/), what type of travel will you be able to afford? The U.S. Department of Labor has a set of interactive worksheets, such as a balance sheet, to help you organize all your accounts and calculate your net worth. * Plan for Social Security benefits: [Social Security](https://www.investopedia.com/social-security-4427727) is a major income source for many retirees, and [the age at which you begin claiming benefits](https://www.investopedia.com/retirement/when-take-social-security-complete-guide/) affects how much you will receive. Plan your ideal age to start receiving benefits using [this claiming age calculator](https://www.consumerfinance.gov/consumer-tools/retirement/before-you-claim/). You can also get an estimate of your future benefits by checking your Social Security account. * Factor in health concerns: Do you or your partner have any health issues that may impact where and how you can travel? * Make a list of wants and needs: What kind of amenities, culture, access to healthcare and public transportation, etc. are you looking for? What is nice to have, and what is non-negotiable? Planning for the above will help you create a realistic retirement plan that includes travel. See if you have access to retirement planning and savings tracking tools through your [401(k) or individual retirement account (IRA)](https://www.investopedia.com/ask/answers/12/401k.asp). You can also talk with a financial advisor. ## Create a Retirement Travel Budget If you’re like most retirees, a retirement travel budget will be key to [making sure you can afford](https://www.investopedia.com/retirement/retirement-income-planning/) everything you want to see and do. According to Fidelity, most retirees will spend 55% to 80% of their annual working income each year in retirement. If you plan to travel frequently in retirement, you’ll need to raise that percentage. Some estimates suggest a budget of between $10,000 and $50,000 a year. To begin building a retirement travel budget that matches your situation, estimate your future travel expenses. Research the [cost of living](https://www.investopedia.com/terms/c/cost-of-living.asp), accommodations, groceries, eating out, and other activities in the places you want to visit to get a rough idea of your future spending needs. The U.S. Department of Labor’s planning worksheets include a “Goals & Priorities” section to help you prioritize what you save based on short- and long-term goals. Then use the “Cash Flow Spending Plan” worksheet to build a guide for how you expect to spend your money. Track actual spending to compare it with what you planned. ### Use the 50/30/20 Spending Rule to Budget for Travel in Retirement [Kimberly L. Curtis](https://www.wealthlegacyinstitute.com/people/kimberly-l-curtis-cfp-chfc-clu-cap-aep-msfs/), a certified financial planner (CFP) at Cerity Partners, recommends the [50/30/20 rule](https://www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp) to budget for traveling in retirement. [This budgeting framework](https://www.investopedia.com/retirement/how-to-manage-timing-and-sources-of-income-retirement/) breaks after-tax income into three main categories with corresponding percentages. * Needs (50%) * Wants (30%) * Savings (20%) Based on this rule, cash flow for spending on travel in retirement comes out of the 30% allotted for wants. “Retirees spend, on average, 5% to 10% of their annual budget on travel,” Curtis said. “Instead of a monthly dollar amount, many retirees will ‘chunk’ their retirement travel budget into annual amounts. For example, a big European trip might mean putting aside $10,000 for that year. Otherwise, retirees may plan on around $5,000 a year for the next 10 to 15 years of retirement.” ## Consider Insurance Retired travelers’ needs may differ from those of younger travelers, particularly the potential need for medical care while on the road. Individuals become eligible for [Medicare](https://www.investopedia.com/terms/m/medicare.asp) at age 65. If you plan to travel during retirement, make sure you don’t miss your initial enrollment period. Medicare Parts A and B cover hospital care and doctor visits in all 50 U.S. states, the District of Columbia, and all U.S. territories (Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands) as long as the provider accepts Medicare. Some Medicare Advantage (MA) plans have state-to-state coverage, along with a national pharmacy network. Keep in mind that many MA plans limit the amount of time you can spend outside your service area (i.e., your state) and still be covered (for example, six months). Additionally, once you travel outside the United States, Medicare generally doesn’t cover healthcare. For this reason, additional insurance is recommended for traveling during retirement. If you want to travel the world after you retire, [consider additional travel insurance](https://www.investopedia.com/do-i-need-travel-insurance-7553834) to protect against potential medical emergencies. Travel insurance may also cover inconveniences such as trip cancellations or interruptions and lost or stolen baggage. ### What to Consider When Selecting Travel Insurance Cost shouldn’t be the only factor when choosing travel insurance. Travel expert [Chris Appleford](https://www.travellingapples.com/about-us/) of Travelling Apples notes some of the most important coverage options to look out for: * Medical coverage (including medical expenses, evacuation, and repatriation in case you need to be brought back to the U.S. for care) * Trip cancellation or interruption * Travel delays * Luggage and personal belongings * Terms and conditions surrounding pre-existing conditions * Coverage duration ## How to Cut Down on Travel Costs Balancing cash flow can get tricky when you’re no longer receiving a paycheck or business income. Cutting down on travel expenses is one of the biggest concerns for retirees as they explore the world. Hotel, airline, and attraction prices may fluctuate from season to season, and also on weekends vs. weekdays. Retirees with flexible schedules can save money by traveling when prices are low, during less popular seasons and days. The same flexibility can pay off when it comes to travel dates and destinations. [Kasper de Wijs](https://www.hotelrouteplanner.com/), travel expert and owner of HotelRoutePlanner.com, says travel websites and newsletters often post destination-based deals and last-minute offers. De Wijs also recommends exploring senior discounts, early bird discounts, and loyalty programs for travel-related services. [Amber Dixon](https://elderlyguides.com/author/amber-dixon/) of Elderly Guides agrees that most establishments offer discounts to seniors. She adds that house-swapping with other travelers or making house-sitting arrangements can also save retirees on accommodation costs. Sites such as Nomador, Trusted Housesitters, and MindMyHouse connect homeowners and house/pet sitters with each other. ### While house- or pet-sitting may help lower travel costs, those arrangements may be considered work even if money does not change hands, violating tourist visa and immigration laws. If this arrangement interests you, check the visa guidelines of your destination country before making plans. ### Explore the Open Road to Save Money on Travel in Retirement For slightly more adventurous, lower-cost travel, many retirees swear by recreational vehicle (RV) camping. The purchase of an RV is an upfront cost, for sure, but as many RV travelers live in their vehicle for months at a time, other costs are absorbed or reduced. For example, you’re eating most meals in, and the site fee is small compared with hotels or Airbnbs. [Andrew Kuttow](http://www.rvcampgear.com/author/rvcampgear_4x8mny/), RV enthusiast and former blogger at the now defunct RVCampGear website, said that memberships with organizations such as Good Sam, AAA, and AARP often include camping and travel discounts. “You might also consider an America the Beautiful Senior Pass,” Kuttow said. For $80, a lifetime senior pass allows access to more than 2,000 recreation sites managed by the National Park Service and other federal agencies. An annual Senior Pass is $20. You must be 62 years old to be eligible. ## What Percentage of Older People Travel? According to the AARP Travel Trends survey from February 2024 (the most recent survey), 65% of people ages 50 and older plan to take at least one leisure trip in 2024, with the majority taking international trips. About half of older adults say they plan to spend more on travel in 2024 than they did in 2023. ## How Much Do I Need in Retirement to Travel? It depends on your retirement plan, overhead costs, and budget. Kimberly L. Curtis, a CFP at the Cerity Partners, says that retirees pay 5% to 10% of their annual budget on travel and puts the average yearly amount at about $5,000 for the first 10 to 15 years of retirement. AARP’s 2024 Travel Trends survey found that people ages 50 and older planned to spend an average of $6,659 on travel in 2024. ## What Is the Cheapest Way to Travel in Retirement? There is no one answer to this question, but there are many ways to curtail the costs of travel, including traveling in the offseason, having flexibility regarding dates and destinations, and taking advantage of senior discounts, early bird discounts, and loyalty programs. There are also house-swapping and house-sitting arrangements. The adventurous can buy an RV and travel the open road, saving on restaurant costs (by eating in) and accommodation costs (by sleeping in). ## The Bottom Line Traveling is a popular pastime for many people, and retirees are no exception, especially with all the free time they have on their hands. However, if you want to travel in retirement, and particularly if you want to travel internationally, it takes prudent planning starting early in your professional career. You need to decide how and where you want to travel, then build those costs into the total amount you are saving for retirement. Don’t forget to factor in healthcare concerns and when you should start taking Social Security. There are also plenty of cost-cutting measures you can take to make your journeys more affordable.	Are you hoping to travel the world after you retire? Traveling is the most common activity that people dream of doing after they stop working (60%, according to a December 2023 Transamerica Center for Retirement Studies survey)—and it’s totally possible for most retirees. With a bit of planning, creativity, and discipline, you’ll be ready to jump on your transportation of choice and experience unforgettable moments. The following tips will help you turn that daydream into your retirement reality. Key Takeaways Travel is the most popular dream of retirees, with 60% expressing a wish to see the world.Before you just set off, be honest with yourself about your love of being on the road, your obligations to others, and the state of your health.Traveling can be expensive, so look carefully at your retirement savings and make sure that the cost of traveling is incorporated into your retirement plan.Medicare generally doesn’t cover your healthcare costs outside of the United States and its territories, so additional insurance may be necessary. Make a Plan Before Retirement Retirement planning is an ongoing, multistep process. If you already know travel is on your retirement bucket list, you should factor the cost into your plans. To ensure a comfortable, secure, and fun retirement, you’ll want a personalized plan based on the following: Retirement dateFinancial and investment goalsRisk toleranceRetirement lifestyle To help solidify your plans for traveling during retirement, consider doing these things: Discuss your travel ideas: Where do you want to go? What type of traveler are you? Do you plan to take short trips, or will you go the nomad route of retiring with no permanent home? Be specific and realistic, as costs will vary greatly. Consider your finances: Based on your anticipated retirement income, what type of travel will you be able to afford? The U.S. Department of Labor has a set of interactive worksheets, such as a balance sheet, to help you organize all your accounts and calculate your net worth. Plan for Social Security benefits: Social Security is a major income source for many retirees, and the age at which you begin claiming benefits affects how much you will receive. Plan your ideal age to start receiving benefits using this claiming age calculator. You can also get an estimate of your future benefits by checking your Social Security account. Factor in health concerns: Do you or your partner have any health issues that may impact where and how you can travel? Make a list of wants and needs: What kind of amenities, culture, access to healthcare and public transportation, etc. are you looking for? What is nice to have, and what is non-negotiable? Planning for the above will help you create a realistic retirement plan that includes travel. See if you have access to retirement planning and savings tracking tools through your 401(k) or individual retirement account (IRA). You can also talk with a financial advisor. Create a Retirement Travel Budget If you’re like most retirees, a retirement travel budget will be key to making sure you can afford everything you want to see and do. According to Fidelity, most retirees will spend 55% to 80% of their annual working income each year in retirement. If you plan to travel frequently in retirement, you’ll need to raise that percentage. Some estimates suggest a budget of between $10,000 and $50,000 a year. To begin building a retirement travel budget that matches your situation, estimate your future travel expenses. Research the cost of living, accommodations, groceries, eating out, and other activities in the places you want to visit to get a rough idea of your future spending needs. The U.S. Department of Labor’s planning worksheets include a “Goals & Priorities” section to help you prioritize what you save based on short- and long-term goals. Then use the “Cash Flow Spending Plan” worksheet to build a guide for how you expect to spend your money. Track actual spending to compare it with what you planned. Use the 50/30/20 Spending Rule to Budget for Travel in Retirement Kimberly L. Curtis, a certified financial planner (CFP) at Cerity Partners, recommends the 50/30/20 rule to budget for traveling in retirement. This budgeting framework breaks after-tax income into three main categories with corresponding percentages. Needs (50%)Wants (30%)Savings (20%) Based on this rule, cash flow for spending on travel in retirement comes out of the 30% allotted for wants. “Retirees spend, on average, 5% to 10% of their annual budget on travel,” Curtis said. “Instead of a monthly dollar amount, many retirees will ‘chunk’ their retirement travel budget into annual amounts. For example, a big European trip might mean putting aside $10,000 for that year. Otherwise, retirees may plan on around $5,000 a year for the next 10 to 15 years of retirement.” Consider Insurance Retired travelers’ needs may differ from those of younger travelers, particularly the potential need for medical care while on the road. Individuals become eligible for Medicare at age 65. If you plan to travel during retirement, make sure you don’t miss your initial enrollment period. Medicare Parts A and B cover hospital care and doctor visits in all 50 U.S. states, the District of Columbia, and all U.S. territories (Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands) as long as the provider accepts Medicare. Some Medicare Advantage (MA) plans have state-to-state coverage, along with a national pharmacy network. Keep in mind that many MA plans limit the amount of time you can spend outside your service area (i.e., your state) and still be covered (for example, six months). Additionally, once you travel outside the United States, Medicare generally doesn’t cover healthcare. For this reason, additional insurance is recommended for traveling during retirement. If you want to travel the world after you retire, consider additional travel insurance to protect against potential medical emergencies. Travel insurance may also cover inconveniences such as trip cancellations or interruptions and lost or stolen baggage. What to Consider When Selecting Travel Insurance Cost shouldn’t be the only factor when choosing travel insurance. Travel expert Chris Appleford of Travelling Apples notes some of the most important coverage options to look out for: Medical coverage (including medical expenses, evacuation, and repatriation in case you need to be brought back to the U.S. for care)Trip cancellation or interruptionTravel delaysLuggage and personal belongingsTerms and conditions surrounding pre-existing conditionsCoverage duration How to Cut Down on Travel Costs Balancing cash flow can get tricky when you’re no longer receiving a paycheck or business income. Cutting down on travel expenses is one of the biggest concerns for retirees as they explore the world. Hotel, airline, and attraction prices may fluctuate from season to season, and also on weekends vs. weekdays. Retirees with flexible schedules can save money by traveling when prices are low, during less popular seasons and days. The same flexibility can pay off when it comes to travel dates and destinations. Kasper de Wijs, travel expert and owner of HotelRoutePlanner.com, says travel websites and newsletters often post destination-based deals and last-minute offers. De Wijs also recommends exploring senior discounts, early bird discounts, and loyalty programs for travel-related services. Amber Dixon of Elderly Guides agrees that most establishments offer discounts to seniors. She adds that house-swapping with other travelers or making house-sitting arrangements can also save retirees on accommodation costs. Sites such as Nomador, Trusted Housesitters, and MindMyHouse connect homeowners and house/pet sitters with each other. While house- or pet-sitting may help lower travel costs, those arrangements may be considered work even if money does not change hands, violating tourist visa and immigration laws. If this arrangement interests you, check the visa guidelines of your destination country before making plans. Explore the Open Road to Save Money on Travel in Retirement For slightly more adventurous, lower-cost travel, many retirees swear by recreational vehicle (RV) camping. The purchase of an RV is an upfront cost, for sure, but as many RV travelers live in their vehicle for months at a time, other costs are absorbed or reduced. For example, you’re eating most meals in, and the site fee is small compared with hotels or Airbnbs. Andrew Kuttow, RV enthusiast and former blogger at the now defunct RVCampGear website, said that memberships with organizations such as Good Sam, AAA, and AARP often include camping and travel discounts. “You might also consider an America the Beautiful Senior Pass,” Kuttow said. For $80, a lifetime senior pass allows access to more than 2,000 recreation sites managed by the National Park Service and other federal agencies. An annual Senior Pass is $20. You must be 62 years old to be eligible. What Percentage of Older People Travel? According to the AARP Travel Trends survey from February 2024 (the most recent survey), 65% of people ages 50 and older plan to take at least one leisure trip in 2024, with the majority taking international trips. About half of older adults say they plan to spend more on travel in 2024 than they did in 2023. How Much Do I Need in Retirement to Travel? It depends on your retirement plan, overhead costs, and budget. Kimberly L. Curtis, a CFP at the Cerity Partners, says that retirees pay 5% to 10% of their annual budget on travel and puts the average yearly amount at about $5,000 for the first 10 to 15 years of retirement. AARP’s 2024 Travel Trends survey found that people ages 50 and older planned to spend an average of $6,659 on travel in 2024. What Is the Cheapest Way to Travel in Retirement? There is no one answer to this question, but there are many ways to curtail the costs of travel, including traveling in the offseason, having flexibility regarding dates and destinations, and taking advantage of senior discounts, early bird discounts, and loyalty programs. There are also house-swapping and house-sitting arrangements. The adventurous can buy an RV and travel the open road, saving on restaurant costs (by eating in) and accommodation costs (by sleeping in). The Bottom Line Traveling is a popular pastime for many people, and retirees are no exception, especially with all the free time they have on their hands. However, if you want to travel in retirement, and particularly if you want to travel internationally, it takes prudent planning starting early in your professional career. You need to decide how and where you want to travel, then build those costs into the total amount you are saving for retirement. Don’t forget to factor in healthcare concerns and when you should start taking Social Security. There are also plenty of cost-cutting measures you can take to make your journeys more affordable.	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Curtis", "https://www.wealthlegacyinstitute.com/people/kimberly-l-curtis-cfp-chfc-clu-cap-aep-msfs/" ], [ "50/30/20 rule", "https://www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp" ], [ "This budgeting framework", "https://www.investopedia.com/retirement/how-to-manage-timing-and-sources-of-income-retirement/" ], [ "Medicare", "https://www.investopedia.com/terms/m/medicare.asp" ], [ "consider additional travel insurance", "https://www.investopedia.com/do-i-need-travel-insurance-7553834" ], [ "Chris Appleford", "https://www.travellingapples.com/about-us/" ], [ "Kasper de Wijs", "https://www.hotelrouteplanner.com/" ], [ "Amber Dixon", "https://elderlyguides.com/author/amber-dixon/" ], [ "Andrew Kuttow", "http://www.rvcampgear.com/author/rvcampgear_4x8mny/" ] ]
https://www.investopedia.com/tech/what-cryptotourism/	Crypto Tourism	<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-crypto-tourism"></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 Crypto Tourism? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Crypto tourism is a form of tourism that caters to cryptocurrency enthusiasts by offering a packaged travel tours that can either be paid for with digital currency or offer lectures or classes about cryptocurrency as part of the tour. </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>Crypto tourism gained traction in 2017 and continued until the COVID-19 pandemic shut all forms of travel and tourism down.</li><li>Some countries like New Zealand and the Bahamas advertise their use of cryptocurrency in their marketing to tourists.</li><li>The cryptocurrency market is unregulated as of July 23, 2021. </li><li>Using bitcoin and other cryptocurrencies can make it easier to pay for trips and avoid high ATM fees, currency conversion fees, and protect against monetary theft while abroad. </li><li>Crypto tourism is a special kind of tourism dedicated to travel programming that caters to crypto enthusiasts and investors, and often, both.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-crypto-tourism"></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 Crypto Tourism </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Several tourism companies launched special, dedicated travel programs to cater to the needs of crypto and blockchain enthusiasts in 2018-2019. Most of such travel programs include cruises, which offer a host of amenities dedicated to cryptocurrency 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"> For instance, Blockchain Cruises, organized by the tourism arm of the Edinburgh, Scotland-based crypto wallet provider CoinsBank, held four big crypto tourism cruises. Their most recent was in Europe in 2019. The cruise trip spanned five days and sailed in the Mediterranean. Approximately 2,500 participants attended.<span class="ql-inline-citation" data-cite="1"></span> Then the travel industry, crypto tourism included ground to a halt in 2020 due to the COVID-19 pandemic. </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"> Other forms of crypto tourism are simply travelers who use cryptocurrency to pay for their vacations. For example, before the pandemic hit, some tourist companies in Queensland, New Zealand, harnessed cryptocurrency to offer travel programs where tourists could use digital coins to experience the Southern Great Barrier Reef.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> In addition, countries like Grenada, Cyprus, and the Bahamas are all friendly towards tourists wanting to pay with digital money. The Bahamas was among the first countries to roll out its digital currency called the Sand Dollar. Regulators are actively pushing for the national adoption of this currency. If the adoption occurs over the 2021's summer, it would be a historic event for cryptocurrency tourists.<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_14-0"></div> <span class="heading-toc" id="toc-who-uses-crypto-tourism"></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"> Who Uses Crypto Tourism? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The apparent target clients for such tours are the crypto-rich and famous. Still, plenty of regular folks interested in cryptocurrency may embark on a crypto tourism adventure or use cryptocurrency to pay for their holidays. </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"> Beyond the usual fun and sight-seeing activities, crypto tours and cruises include conferences, exhibitions, and panel talks on cryptocurrency-related matters. The events have included prominent speakers who are considered industry stalwarts in the cryptocurrency and blockchain domain. For instance, the 2019 CoinsBank cruise hosted the crypto token proponent John McAfee, CoinsBank co-founder Vitaly Andrusevich, and noted investor and bitcoin cash supporter Roger Ver.<span class="ql-inline-citation" data-cite="2"></span> There is no word yet on events for 2021. </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 past, a few such crypto tours were organized for specific purposes, like the promotion of a promising <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp">initial coin offering</a> (ICO). The programs included conferences, presentations, and market talks by the promoters, industry leaders, and likes and aimed at audiences looking to make <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/what-you-must-know-investing-crypto/">significant investments in cryptocurrency</a> offerings. </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"> As more countries open their borders to travelers, Americans are planning to continue to use digital coins. Travala.com's report found that 22% of those interviewed said they plan to use cryptocurrency to pay for their travel in the second half of 2021.<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> <span class="heading-toc" id="toc-advantages-and-disadvantages-of-crypto-tourism"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Advantages and Disadvantages of Crypto Tourism </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> When digital currency is allowed to be used to pay for holidays, it offers a new way for tourists to pay for their vacations. For would-be crypto investors, a tour geared towards learning about digital currency may be helpful by teaching travelers how to invest and navigate the crypto 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"> In addition, while the pool of participants in crypto tourism is small, it may grow in the future. Blockchain, the technology behind bitcoin, is making inroads into the travel industry.<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_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> However, a few red flags are being raised about crypto tours and crypto tourism in general. With the cryptocurrency market already operating in a not-so-clear, unregulated manner globally, crypto tours are often accused of solely being used as a promotional medium to pitch ICOs and insignificant offerings to participants. It is also a small market for tourists as most of the general public is not using digital currency, and investing in digital coins may be a limited group. </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">Digital currency offers tourists more ways to pay for things</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Crypto tourism programs offer opportunities to learn more about investing in digital money</p></li> <li><p>Opportunities to meet with crypto experts during travel programs</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">The crypto market is unregulated as of 2021</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Crypto tourism may be used as a marketing tool</p></li> <li><p>Crypto tourism isn't a very large market in the travel industry</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> <span class="heading-toc" id="toc-example-of-crypto-tourism"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> Example of Crypto Tourism </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The Covid-19 pandemic put crypto and other forms of tourism on hold. As the industry rebounds, there may be events in the future like the 2019 CoinsBank cruise, which hosted the crypto token proponent John McAfee, CoinsBank co-founder Vitaly Andrusevich, and noted investor and bitcoin cash supporter Roger Ver.<span class="ql-inline-citation" data-cite="2"></span> The cruise on Oasis by the Seas by Royal Caribbean began in Barcelona and ended in Rome. There is no word yet on events for 2021.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> And even while the high <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrencies</a> has raised concerns among investors, the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp">blockchain</a> and cryptocurrency industry continues to have its fans. In fact, as the world begins to open up to travelers in the summer of 2021, a report from Travala.com, the "world's leading cryptocurrency-friendly online travel agency (OTA)," found that 38% of Americans plan to travel in the second half of 2021. And the report found an increased desire to use cryptocurrencies to pay for their vacations.<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_38-0"></div> <span class="heading-toc" id="toc-crypto-tourism-faqs"></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"> Crypto Tourism FAQs </span> </h2> <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"> How Is Crypto Used in Tourism? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> There are a couple of ways crypto is used in tourism. It is used as a form of currency to pay for things like hotels, meals, and even airfare in some cases.<span class="ql-inline-citation" data-cite="11"></span> Cryptocurrency is also used as a theme in tourist programs, such as a cruise offering expert lectures and classes given by digital currency experts. </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"> What Is a Crypto Tourism Cruise? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> A crypto tourism cruise offers passengers access to lectures and workshops held by blockchain and digital currency experts. </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"> What Is Blockchain Tourism? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> There isn't "blockchain tourism," but blockchain is used in the tourist and travel industry. Blockchain is a database often used in the cryptocurrency market. The blockchain holds the data in blocks and chains them together. Blockchain enables cryptocurrency to occur, and this technology is impacting the travel industry by providing secure methods of payment and help with managing multiple vendors and platforms.<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_48-0"></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_49-0"> <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_50-0"> Pre-pandemic, there was a lot of buzz around the promising blockchain technology and the numerous crypto tourism offerings but not all businesses and initiatives are successful. Crypto tourism programs are an emerging trend that attempts to serve as a platform for bringing together like-minded participants and promoting selected offerings. However, as countries begin to woo tourists back, cryptocurrency may continue to be an option for paying for a holiday. </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"> While such dedicated programs offer an opportunity to build a network among the still-nascent crypto community, the participants should practice due diligence before making their next big investments in the specialized sector. </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"> <em>Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative. This article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date, this article was written (June 29, 2018) and revised (July 23, 2021), the authors own no cryptocurrencies.</em> </p></div>	## What Is Crypto Tourism? Crypto tourism is a form of tourism that caters to cryptocurrency enthusiasts by offering a packaged travel tours that can either be paid for with digital currency or offer lectures or classes about cryptocurrency as part of the tour. ### Key Takeaways * Crypto tourism gained traction in 2017 and continued until the COVID-19 pandemic shut all forms of travel and tourism down. * Some countries like New Zealand and the Bahamas advertise their use of cryptocurrency in their marketing to tourists. * The cryptocurrency market is unregulated as of July 23, 2021. * Using bitcoin and other cryptocurrencies can make it easier to pay for trips and avoid high ATM fees, currency conversion fees, and protect against monetary theft while abroad. * Crypto tourism is a special kind of tourism dedicated to travel programming that caters to crypto enthusiasts and investors, and often, both. ## Understanding Crypto Tourism Several tourism companies launched special, dedicated travel programs to cater to the needs of crypto and blockchain enthusiasts in 2018-2019. Most of such travel programs include cruises, which offer a host of amenities dedicated to cryptocurrency participants. For instance, Blockchain Cruises, organized by the tourism arm of the Edinburgh, Scotland-based crypto wallet provider CoinsBank, held four big crypto tourism cruises. Their most recent was in Europe in 2019. The cruise trip spanned five days and sailed in the Mediterranean. Approximately 2,500 participants attended. Then the travel industry, crypto tourism included ground to a halt in 2020 due to the COVID-19 pandemic. Other forms of crypto tourism are simply travelers who use cryptocurrency to pay for their vacations. For example, before the pandemic hit, some tourist companies in Queensland, New Zealand, harnessed cryptocurrency to offer travel programs where tourists could use digital coins to experience the Southern Great Barrier Reef. In addition, countries like Grenada, Cyprus, and the Bahamas are all friendly towards tourists wanting to pay with digital money. The Bahamas was among the first countries to roll out its digital currency called the Sand Dollar. Regulators are actively pushing for the national adoption of this currency. If the adoption occurs over the 2021's summer, it would be a historic event for cryptocurrency tourists. ## Who Uses Crypto Tourism? The apparent target clients for such tours are the crypto-rich and famous. Still, plenty of regular folks interested in cryptocurrency may embark on a crypto tourism adventure or use cryptocurrency to pay for their holidays. Beyond the usual fun and sight-seeing activities, crypto tours and cruises include conferences, exhibitions, and panel talks on cryptocurrency-related matters. The events have included prominent speakers who are considered industry stalwarts in the cryptocurrency and blockchain domain. For instance, the 2019 CoinsBank cruise hosted the crypto token proponent John McAfee, CoinsBank co-founder Vitaly Andrusevich, and noted investor and bitcoin cash supporter Roger Ver. There is no word yet on events for 2021. In the past, a few such crypto tours were organized for specific purposes, like the promotion of a promising [initial coin offering](https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp) (ICO). The programs included conferences, presentations, and market talks by the promoters, industry leaders, and likes and aimed at audiences looking to make [significant investments in cryptocurrency](https://www.investopedia.com/tech/what-you-must-know-investing-crypto/) offerings. As more countries open their borders to travelers, Americans are planning to continue to use digital coins. Travala.com's report found that 22% of those interviewed said they plan to use cryptocurrency to pay for their travel in the second half of 2021. ## Advantages and Disadvantages of Crypto Tourism When digital currency is allowed to be used to pay for holidays, it offers a new way for tourists to pay for their vacations. For would-be crypto investors, a tour geared towards learning about digital currency may be helpful by teaching travelers how to invest and navigate the crypto market. In addition, while the pool of participants in crypto tourism is small, it may grow in the future. Blockchain, the technology behind bitcoin, is making inroads into the travel industry. However, a few red flags are being raised about crypto tours and crypto tourism in general. With the cryptocurrency market already operating in a not-so-clear, unregulated manner globally, crypto tours are often accused of solely being used as a promotional medium to pitch ICOs and insignificant offerings to participants. It is also a small market for tourists as most of the general public is not using digital currency, and investing in digital coins may be a limited group. Digital currency offers tourists more ways to pay for things * Crypto tourism programs offer opportunities to learn more about investing in digital money * Opportunities to meet with crypto experts during travel programs The crypto market is unregulated as of 2021 * Crypto tourism may be used as a marketing tool * Crypto tourism isn't a very large market in the travel industry ## Example of Crypto Tourism The Covid-19 pandemic put crypto and other forms of tourism on hold. As the industry rebounds, there may be events in the future like the 2019 CoinsBank cruise, which hosted the crypto token proponent John McAfee, CoinsBank co-founder Vitaly Andrusevich, and noted investor and bitcoin cash supporter Roger Ver. The cruise on Oasis by the Seas by Royal Caribbean began in Barcelona and ended in Rome. There is no word yet on events for 2021. And even while the high [volatility](https://www.investopedia.com/terms/v/volatility.asp) in [cryptocurrencies](https://www.investopedia.com/terms/c/cryptocurrency.asp) has raised concerns among investors, the [blockchain](https://www.investopedia.com/terms/b/blockchain.asp) and cryptocurrency industry continues to have its fans. In fact, as the world begins to open up to travelers in the summer of 2021, a report from Travala.com, the "world's leading cryptocurrency-friendly online travel agency (OTA)," found that 38% of Americans plan to travel in the second half of 2021. And the report found an increased desire to use cryptocurrencies to pay for their vacations. ## Crypto Tourism FAQs ### How Is Crypto Used in Tourism? There are a couple of ways crypto is used in tourism. It is used as a form of currency to pay for things like hotels, meals, and even airfare in some cases. Cryptocurrency is also used as a theme in tourist programs, such as a cruise offering expert lectures and classes given by digital currency experts. ### What Is a Crypto Tourism Cruise? A crypto tourism cruise offers passengers access to lectures and workshops held by blockchain and digital currency experts. ### What Is Blockchain Tourism? There isn't "blockchain tourism," but blockchain is used in the tourist and travel industry. Blockchain is a database often used in the cryptocurrency market. The blockchain holds the data in blocks and chains them together. Blockchain enables cryptocurrency to occur, and this technology is impacting the travel industry by providing secure methods of payment and help with managing multiple vendors and platforms. ## The Bottom Line Pre-pandemic, there was a lot of buzz around the promising blockchain technology and the numerous crypto tourism offerings but not all businesses and initiatives are successful. Crypto tourism programs are an emerging trend that attempts to serve as a platform for bringing together like-minded participants and promoting selected offerings. However, as countries begin to woo tourists back, cryptocurrency may continue to be an option for paying for a holiday. While such dedicated programs offer an opportunity to build a network among the still-nascent crypto community, the participants should practice due diligence before making their next big investments in the specialized sector. Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative. This article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date, this article was written (June 29, 2018) and revised (July 23, 2021), the authors own no cryptocurrencies.	What Is Crypto Tourism? Crypto tourism is a form of tourism that caters to cryptocurrency enthusiasts by offering a packaged travel tours that can either be paid for with digital currency or offer lectures or classes about cryptocurrency as part of the tour. Key Takeaways Crypto tourism gained traction in 2017 and continued until the COVID-19 pandemic shut all forms of travel and tourism down.Some countries like New Zealand and the Bahamas advertise their use of cryptocurrency in their marketing to tourists.The cryptocurrency market is unregulated as of July 23, 2021. Using bitcoin and other cryptocurrencies can make it easier to pay for trips and avoid high ATM fees, currency conversion fees, and protect against monetary theft while abroad. Crypto tourism is a special kind of tourism dedicated to travel programming that caters to crypto enthusiasts and investors, and often, both. Understanding Crypto Tourism Several tourism companies launched special, dedicated travel programs to cater to the needs of crypto and blockchain enthusiasts in 2018-2019. Most of such travel programs include cruises, which offer a host of amenities dedicated to cryptocurrency participants. For instance, Blockchain Cruises, organized by the tourism arm of the Edinburgh, Scotland-based crypto wallet provider CoinsBank, held four big crypto tourism cruises. Their most recent was in Europe in 2019. The cruise trip spanned five days and sailed in the Mediterranean. Approximately 2,500 participants attended. Then the travel industry, crypto tourism included ground to a halt in 2020 due to the COVID-19 pandemic. Other forms of crypto tourism are simply travelers who use cryptocurrency to pay for their vacations. For example, before the pandemic hit, some tourist companies in Queensland, New Zealand, harnessed cryptocurrency to offer travel programs where tourists could use digital coins to experience the Southern Great Barrier Reef. In addition, countries like Grenada, Cyprus, and the Bahamas are all friendly towards tourists wanting to pay with digital money. The Bahamas was among the first countries to roll out its digital currency called the Sand Dollar. Regulators are actively pushing for the national adoption of this currency. If the adoption occurs over the 2021's summer, it would be a historic event for cryptocurrency tourists. Who Uses Crypto Tourism? The apparent target clients for such tours are the crypto-rich and famous. Still, plenty of regular folks interested in cryptocurrency may embark on a crypto tourism adventure or use cryptocurrency to pay for their holidays. Beyond the usual fun and sight-seeing activities, crypto tours and cruises include conferences, exhibitions, and panel talks on cryptocurrency-related matters. The events have included prominent speakers who are considered industry stalwarts in the cryptocurrency and blockchain domain. For instance, the 2019 CoinsBank cruise hosted the crypto token proponent John McAfee, CoinsBank co-founder Vitaly Andrusevich, and noted investor and bitcoin cash supporter Roger Ver. There is no word yet on events for 2021. In the past, a few such crypto tours were organized for specific purposes, like the promotion of a promising initial coin offering (ICO). The programs included conferences, presentations, and market talks by the promoters, industry leaders, and likes and aimed at audiences looking to make significant investments in cryptocurrency offerings. As more countries open their borders to travelers, Americans are planning to continue to use digital coins. Travala.com's report found that 22% of those interviewed said they plan to use cryptocurrency to pay for their travel in the second half of 2021. Advantages and Disadvantages of Crypto Tourism When digital currency is allowed to be used to pay for holidays, it offers a new way for tourists to pay for their vacations. For would-be crypto investors, a tour geared towards learning about digital currency may be helpful by teaching travelers how to invest and navigate the crypto market. In addition, while the pool of participants in crypto tourism is small, it may grow in the future. Blockchain, the technology behind bitcoin, is making inroads into the travel industry. However, a few red flags are being raised about crypto tours and crypto tourism in general. With the cryptocurrency market already operating in a not-so-clear, unregulated manner globally, crypto tours are often accused of solely being used as a promotional medium to pitch ICOs and insignificant offerings to participants. It is also a small market for tourists as most of the general public is not using digital currency, and investing in digital coins may be a limited group. Digital currency offers tourists more ways to pay for things Crypto tourism programs offer opportunities to learn more about investing in digital money Opportunities to meet with crypto experts during travel programs The crypto market is unregulated as of 2021 Crypto tourism may be used as a marketing tool Crypto tourism isn't a very large market in the travel industry Example of Crypto Tourism The Covid-19 pandemic put crypto and other forms of tourism on hold. As the industry rebounds, there may be events in the future like the 2019 CoinsBank cruise, which hosted the crypto token proponent John McAfee, CoinsBank co-founder Vitaly Andrusevich, and noted investor and bitcoin cash supporter Roger Ver. The cruise on Oasis by the Seas by Royal Caribbean began in Barcelona and ended in Rome. There is no word yet on events for 2021. And even while the high volatility in cryptocurrencies has raised concerns among investors, the blockchain and cryptocurrency industry continues to have its fans. In fact, as the world begins to open up to travelers in the summer of 2021, a report from Travala.com, the "world's leading cryptocurrency-friendly online travel agency (OTA)," found that 38% of Americans plan to travel in the second half of 2021. And the report found an increased desire to use cryptocurrencies to pay for their vacations. Crypto Tourism FAQs How Is Crypto Used in Tourism? There are a couple of ways crypto is used in tourism. It is used as a form of currency to pay for things like hotels, meals, and even airfare in some cases. Cryptocurrency is also used as a theme in tourist programs, such as a cruise offering expert lectures and classes given by digital currency experts. What Is a Crypto Tourism Cruise? A crypto tourism cruise offers passengers access to lectures and workshops held by blockchain and digital currency experts. What Is Blockchain Tourism? There isn't "blockchain tourism," but blockchain is used in the tourist and travel industry. Blockchain is a database often used in the cryptocurrency market. The blockchain holds the data in blocks and chains them together. Blockchain enables cryptocurrency to occur, and this technology is impacting the travel industry by providing secure methods of payment and help with managing multiple vendors and platforms. The Bottom Line Pre-pandemic, there was a lot of buzz around the promising blockchain technology and the numerous crypto tourism offerings but not all businesses and initiatives are successful. Crypto tourism programs are an emerging trend that attempts to serve as a platform for bringing together like-minded participants and promoting selected offerings. However, as countries begin to woo tourists back, cryptocurrency may continue to be an option for paying for a holiday. While such dedicated programs offer an opportunity to build a network among the still-nascent crypto community, the participants should practice due diligence before making their next big investments in the specialized sector. Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative. This article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date, this article was written (June 29, 2018) and revised (July 23, 2021), the authors own no cryptocurrencies.	[ [ "initial coin offering", "https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp" ], [ "significant investments in cryptocurrency", "https://www.investopedia.com/tech/what-you-must-know-investing-crypto/" ], [ "volatility", "https://www.investopedia.com/terms/v/volatility.asp" ], [ "cryptocurrencies", "https://www.investopedia.com/terms/c/cryptocurrency.asp" ], [ "blockchain", "https://www.investopedia.com/terms/b/blockchain.asp" ] ]
https://www.investopedia.com/more-people-are-falling-behind-on-credit-card-bills-8648338	More People Are Falling Behind On Credit Card Bills	<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>More people fell behind on their credit card payments in the first quarter than any time since 2011.<br/></li><li>The surge in card delinquency comes as high interest rates make card debt more burdensome, and inflation pressures household budgets.</li><li>In a separate survey, inflation was the number one reason people said they missed payments.<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"> More people are falling behind on their credit card payments, flashing a warning sign as high interest rates, high inflation over the last few years, and a slowing job market pressure on household finances.<br/><br/>In the first quarter of 2024, 8.9% of credit card holders who were formerly current on their payments fell into delinquency, up from 8.5% in the previous quarter and a fresh high since 2011, the Federal Reserve Bank of New York said 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> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_5-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/arGFf/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Credit Card Delinquencies Surge"></iframe></div> <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"> People falling into delinquency tended to have maxed out their cards, suggesting “tight cash flow situations” rather than forgetfulness as a reason for failing to pay bills on time, economists at the New York Fed said in a blog post accompanying the report.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The New York Fed did not analyze why more people have been falling behind on credit card bills, but separate reports highlighted why credit card debt has become harder to manage. </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"> High interest rates have made credit card debt more burdensome. As of February, the average credit card interest rate was 21.6%, the highest since at least 1995 according to data from the Federal Reerve. The Fed’s campaign of interest rate hikes since 2022, meant to combat inflation, has pushed up interest rates for credit cards and other kinds of loans. </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"> At the same time, inflation has raised the cost of living dramatically. Even though price increases have decelerated since peaking in mid-2022, people are still paying 25% more for food and 23% more for rent than before the pandemic. While pay raises have more or less kept pace with inflation on average, people whose incomes didn’t increase still face those higher costs. </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-inflation-pushes-some-into-delinquency-making-loans-harder-to-come-by"></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"> Inflation Pushes Some Into Delinquency, Making Loans Harder to Come By </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> An online survey of 2,000 borrowers by online personal finance company Achieve pointed to inflation as the leading reason people fell behind on their bills. Among people who fell behind on any kind of bill, 21% cited higher living expenses due to inflation.<span class="ql-inline-citation" data-cite="3"></span><br/><br/>“Skipping payments on financial obligations in order to afford essentials is the type of decision driving more everyday people deeper into debt,” Achieve CEO Andrew Housser said in a press release, adding that for "many consumers, money is going out the door as quickly as it’s coming in, if not faster.” </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"> Concerns about consumers’ ability to repay credit cards were also reflected in a recent survey of bank loan officers, which showed banks continued a trend of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-economy-news-today-may-6-8643783">raising credit score requirements</a> and other standards for credit card borrowing in the first quarter.<br/><br/>Consumers are struggling to pay back credit cards more than other types of loans, according to the New York Fed’s 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"> Auto loan delinquency transitions are also elevated, hitting 7.9% in the first quarter, the highest since 2010. However, delinquency rates for mortgages have remained below pre-pandemic levels, while those for student loans are near record lows as borrowers with federal loans have been protected by Biden-era rule changes to student aid programs.<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:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	### Key Takeaways * More people fell behind on their credit card payments in the first quarter than any time since 2011. * The surge in card delinquency comes as high interest rates make card debt more burdensome, and inflation pressures household budgets. * In a separate survey, inflation was the number one reason people said they missed payments. More people are falling behind on their credit card payments, flashing a warning sign as high interest rates, high inflation over the last few years, and a slowing job market pressure on household finances. In the first quarter of 2024, 8.9% of credit card holders who were formerly current on their payments fell into delinquency, up from 8.5% in the previous quarter and a fresh high since 2011, the Federal Reserve Bank of New York said Tuesday. People falling into delinquency tended to have maxed out their cards, suggesting “tight cash flow situations” rather than forgetfulness as a reason for failing to pay bills on time, economists at the New York Fed said in a blog post accompanying the report. The New York Fed did not analyze why more people have been falling behind on credit card bills, but separate reports highlighted why credit card debt has become harder to manage. High interest rates have made credit card debt more burdensome. As of February, the average credit card interest rate was 21.6%, the highest since at least 1995 according to data from the Federal Reerve. The Fed’s campaign of interest rate hikes since 2022, meant to combat inflation, has pushed up interest rates for credit cards and other kinds of loans. At the same time, inflation has raised the cost of living dramatically. Even though price increases have decelerated since peaking in mid-2022, people are still paying 25% more for food and 23% more for rent than before the pandemic. While pay raises have more or less kept pace with inflation on average, people whose incomes didn’t increase still face those higher costs. ## Inflation Pushes Some Into Delinquency, Making Loans Harder to Come By An online survey of 2,000 borrowers by online personal finance company Achieve pointed to inflation as the leading reason people fell behind on their bills. Among people who fell behind on any kind of bill, 21% cited higher living expenses due to inflation. “Skipping payments on financial obligations in order to afford essentials is the type of decision driving more everyday people deeper into debt,” Achieve CEO Andrew Housser said in a press release, adding that for "many consumers, money is going out the door as quickly as it’s coming in, if not faster.” Concerns about consumers’ ability to repay credit cards were also reflected in a recent survey of bank loan officers, which showed banks continued a trend of [raising credit score requirements](https://www.investopedia.com/us-economy-news-today-may-6-8643783) and other standards for credit card borrowing in the first quarter. Consumers are struggling to pay back credit cards more than other types of loans, according to the New York Fed’s data. Auto loan delinquency transitions are also elevated, hitting 7.9% in the first quarter, the highest since 2010. However, delinquency rates for mortgages have remained below pre-pandemic levels, while those for student loans are near record lows as borrowers with federal loans have been protected by Biden-era rule changes to student aid programs. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	Key Takeaways More people fell behind on their credit card payments in the first quarter than any time since 2011.The surge in card delinquency comes as high interest rates make card debt more burdensome, and inflation pressures household budgets.In a separate survey, inflation was the number one reason people said they missed payments. More people are falling behind on their credit card payments, flashing a warning sign as high interest rates, high inflation over the last few years, and a slowing job market pressure on household finances.In the first quarter of 2024, 8.9% of credit card holders who were formerly current on their payments fell into delinquency, up from 8.5% in the previous quarter and a fresh high since 2011, the Federal Reserve Bank of New York said Tuesday. People falling into delinquency tended to have maxed out their cards, suggesting “tight cash flow situations” rather than forgetfulness as a reason for failing to pay bills on time, economists at the New York Fed said in a blog post accompanying the report. The New York Fed did not analyze why more people have been falling behind on credit card bills, but separate reports highlighted why credit card debt has become harder to manage. High interest rates have made credit card debt more burdensome. As of February, the average credit card interest rate was 21.6%, the highest since at least 1995 according to data from the Federal Reerve. The Fed’s campaign of interest rate hikes since 2022, meant to combat inflation, has pushed up interest rates for credit cards and other kinds of loans. At the same time, inflation has raised the cost of living dramatically. Even though price increases have decelerated since peaking in mid-2022, people are still paying 25% more for food and 23% more for rent than before the pandemic. While pay raises have more or less kept pace with inflation on average, people whose incomes didn’t increase still face those higher costs. Inflation Pushes Some Into Delinquency, Making Loans Harder to Come By An online survey of 2,000 borrowers by online personal finance company Achieve pointed to inflation as the leading reason people fell behind on their bills. Among people who fell behind on any kind of bill, 21% cited higher living expenses due to inflation.“Skipping payments on financial obligations in order to afford essentials is the type of decision driving more everyday people deeper into debt,” Achieve CEO Andrew Housser said in a press release, adding that for "many consumers, money is going out the door as quickly as it’s coming in, if not faster.” Concerns about consumers’ ability to repay credit cards were also reflected in a recent survey of bank loan officers, which showed banks continued a trend of raising credit score requirements and other standards for credit card borrowing in the first quarter.Consumers are struggling to pay back credit cards more than other types of loans, according to the New York Fed’s data. Auto loan delinquency transitions are also elevated, hitting 7.9% in the first quarter, the highest since 2010. However, delinquency rates for mortgages have remained below pre-pandemic levels, while those for student loans are near record lows as borrowers with federal loans have been protected by Biden-era rule changes to student aid programs. Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "raising credit score requirements", "https://www.investopedia.com/us-economy-news-today-may-6-8643783" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/terms/p/packaged-retail-investment-and-insurancebased-products-priips.asp	Packaged Retail Investment and Insurance-Based Products (PRIIPs)	<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-packaged-retail-investment-and-insurance-based-products"></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 Packaged Retail Investment and Insurance-Based Products? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The term packaged retail investment and insurance-based products (PRIIPs) refers to a category of financial assets that are regularly provided to consumers in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/europeanunion.asp">European Union (EU)</a> through banks or other financial institutions as an alternative to savings accounts. For regulation's sake, the category is intentionally broad and is intended to cover all packaged, publicly marketed financial products that have exposure to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underlying.asp">underlying assets</a>—stocks, bonds, etc.—that provide a return over time, and have an element of risk. This essentially covers all packaged retail investment products marketed in the European Union, including insurance policies.<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> <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>Packaged retail investment and insurance-based products are a category of financial assets provided to consumers in the EU as an alternative to savings accounts.</li><li>PRIIPs are offered by banks and other financial institutions.</li><li>Products in the package generally include stocks, bonds, insurance policies, as well as structured funds, structured deposits, and structured products.</li><li>PRIIPs regulations set out new calculation methodologies and transparency requirements for such investment products across the EU as of Jan. 1, 2018, </li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-packaged-retail-investment-and-insurance-based-products-priips"></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 Packaged Retail Investment and Insurance-Based Products (PRIIPs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> As mentioned above, packaged retail investment and insurance-based products are investment vehicles that banks and other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialinstitution.asp">financial institutions</a> offer retail investors in the European Union.<br/>Some of the products that are offered as part of the PRIIPs package generally include stocks, bonds, insurance policies, as well as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/structured_fund.asp">structured funds</a>, structured deposits, and other structured products. </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"> PRIIPs are normally offered when a consumer wants to achieve a specific financial goal. This may be to put toward a child's education or to buy a home. The market for PRIIPs in Europe is worth roughly 10 trillion <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/euro.asp">euros</a>, according to the European Commission.<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"> According to the commission, these packaged products can be difficult to understand and can have problems with transparency. Institutions that sell these packaged products may provide information that's far too complicated, with too much <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/industry.asp">industry</a> information. This can make it challenging for investors to compare them to other products. The commission also points out to potential conflicts of interest, as the banks and institutions may push vehicles in order to make sales, rather than being in the best interests of their clients. As a result, new regulations were put into place as of 2018.<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> <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"> PRIIPs regulations, in effect as of Jan. 1, 2018, set out new calculation methodologies and transparency requirements for such investment products across the EU. The decision to regulate PRIIPs was made as a result of surveys and consultations conducted by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/european-community.asp">European Commission</a>, which found that retail investors across the EU often made investments without understanding the associated risks and costs, some of which led investors to suffer unforeseen losses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_17-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Regulations were put into place as of 2018 for new calculation methodologies and transparency requirements for investment products across the EU. </p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> By aiming to provide clarity about investment products being purchased, the regulation hopes to protect retail investors by allowing for better direct comparison between different products that meet a retail investor’s stated aims, such as understanding the difference between using a stock fund versus a bond fund to accumulate capital for a down payment on a house. When it introduced the regulations in 2014, the commission estimated the size of the PRIIPs market affected by these regulatory changes to be worth roughly 10 trillion euros.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The new regulations require <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment.asp">investment</a> product manufacturers—for example, a fund provider—to create key information documents (KIDs) for their products. These documents must be no longer than three pages and must contain outlined information, including a general description of the provider, an explanation of the main factors that the investment's return depends upon, the level of risk associated with the product (classed from 1 to 7), an indication of the possible maximum loss (including four performance scenarios), and a table explaining the costs of one's investment over time. The commission also stated that the regulation requiring standardized and simplified key information documents may be extended to other financial products beyond PRIIPs.<span class="ql-inline-citation" data-cite="3"></span> </p></div>	## What Are Packaged Retail Investment and Insurance-Based Products? The term packaged retail investment and insurance-based products (PRIIPs) refers to a category of financial assets that are regularly provided to consumers in the [European Union (EU)](https://www.investopedia.com/terms/e/europeanunion.asp) through banks or other financial institutions as an alternative to savings accounts. For regulation's sake, the category is intentionally broad and is intended to cover all packaged, publicly marketed financial products that have exposure to [underlying assets](https://www.investopedia.com/terms/u/underlying.asp)—stocks, bonds, etc.—that provide a return over time, and have an element of risk. This essentially covers all packaged retail investment products marketed in the European Union, including insurance policies. ### Key Takeaways * Packaged retail investment and insurance-based products are a category of financial assets provided to consumers in the EU as an alternative to savings accounts. * PRIIPs are offered by banks and other financial institutions. * Products in the package generally include stocks, bonds, insurance policies, as well as structured funds, structured deposits, and structured products. * PRIIPs regulations set out new calculation methodologies and transparency requirements for such investment products across the EU as of Jan. 1, 2018, ## Understanding Packaged Retail Investment and Insurance-Based Products (PRIIPs) As mentioned above, packaged retail investment and insurance-based products are investment vehicles that banks and other [financial institutions](https://www.investopedia.com/terms/f/financialinstitution.asp) offer retail investors in the European Union. Some of the products that are offered as part of the PRIIPs package generally include stocks, bonds, insurance policies, as well as [structured funds](https://www.investopedia.com/terms/s/structured_fund.asp), structured deposits, and other structured products. PRIIPs are normally offered when a consumer wants to achieve a specific financial goal. This may be to put toward a child's education or to buy a home. The market for PRIIPs in Europe is worth roughly 10 trillion [euros](https://www.investopedia.com/terms/e/euro.asp), according to the European Commission. According to the commission, these packaged products can be difficult to understand and can have problems with transparency. Institutions that sell these packaged products may provide information that's far too complicated, with too much [industry](https://www.investopedia.com/terms/i/industry.asp) information. This can make it challenging for investors to compare them to other products. The commission also points out to potential conflicts of interest, as the banks and institutions may push vehicles in order to make sales, rather than being in the best interests of their clients. As a result, new regulations were put into place as of 2018. ## Special Considerations PRIIPs regulations, in effect as of Jan. 1, 2018, set out new calculation methodologies and transparency requirements for such investment products across the EU. The decision to regulate PRIIPs was made as a result of surveys and consultations conducted by the [European Commission](https://www.investopedia.com/terms/e/european-community.asp), which found that retail investors across the EU often made investments without understanding the associated risks and costs, some of which led investors to suffer unforeseen losses. ### Regulations were put into place as of 2018 for new calculation methodologies and transparency requirements for investment products across the EU. By aiming to provide clarity about investment products being purchased, the regulation hopes to protect retail investors by allowing for better direct comparison between different products that meet a retail investor’s stated aims, such as understanding the difference between using a stock fund versus a bond fund to accumulate capital for a down payment on a house. When it introduced the regulations in 2014, the commission estimated the size of the PRIIPs market affected by these regulatory changes to be worth roughly 10 trillion euros. The new regulations require [investment](https://www.investopedia.com/terms/i/investment.asp) product manufacturers—for example, a fund provider—to create key information documents (KIDs) for their products. These documents must be no longer than three pages and must contain outlined information, including a general description of the provider, an explanation of the main factors that the investment's return depends upon, the level of risk associated with the product (classed from 1 to 7), an indication of the possible maximum loss (including four performance scenarios), and a table explaining the costs of one's investment over time. The commission also stated that the regulation requiring standardized and simplified key information documents may be extended to other financial products beyond PRIIPs.	What Are Packaged Retail Investment and Insurance-Based Products? The term packaged retail investment and insurance-based products (PRIIPs) refers to a category of financial assets that are regularly provided to consumers in the European Union (EU) through banks or other financial institutions as an alternative to savings accounts. For regulation's sake, the category is intentionally broad and is intended to cover all packaged, publicly marketed financial products that have exposure to underlying assets—stocks, bonds, etc.—that provide a return over time, and have an element of risk. This essentially covers all packaged retail investment products marketed in the European Union, including insurance policies. Key Takeaways Packaged retail investment and insurance-based products are a category of financial assets provided to consumers in the EU as an alternative to savings accounts.PRIIPs are offered by banks and other financial institutions.Products in the package generally include stocks, bonds, insurance policies, as well as structured funds, structured deposits, and structured products.PRIIPs regulations set out new calculation methodologies and transparency requirements for such investment products across the EU as of Jan. 1, 2018, Understanding Packaged Retail Investment and Insurance-Based Products (PRIIPs) As mentioned above, packaged retail investment and insurance-based products are investment vehicles that banks and other financial institutions offer retail investors in the European Union.Some of the products that are offered as part of the PRIIPs package generally include stocks, bonds, insurance policies, as well as structured funds, structured deposits, and other structured products. PRIIPs are normally offered when a consumer wants to achieve a specific financial goal. This may be to put toward a child's education or to buy a home. The market for PRIIPs in Europe is worth roughly 10 trillion euros, according to the European Commission. According to the commission, these packaged products can be difficult to understand and can have problems with transparency. Institutions that sell these packaged products may provide information that's far too complicated, with too much industry information. This can make it challenging for investors to compare them to other products. The commission also points out to potential conflicts of interest, as the banks and institutions may push vehicles in order to make sales, rather than being in the best interests of their clients. As a result, new regulations were put into place as of 2018. Special Considerations PRIIPs regulations, in effect as of Jan. 1, 2018, set out new calculation methodologies and transparency requirements for such investment products across the EU. The decision to regulate PRIIPs was made as a result of surveys and consultations conducted by the European Commission, which found that retail investors across the EU often made investments without understanding the associated risks and costs, some of which led investors to suffer unforeseen losses. Regulations were put into place as of 2018 for new calculation methodologies and transparency requirements for investment products across the EU. By aiming to provide clarity about investment products being purchased, the regulation hopes to protect retail investors by allowing for better direct comparison between different products that meet a retail investor’s stated aims, such as understanding the difference between using a stock fund versus a bond fund to accumulate capital for a down payment on a house. When it introduced the regulations in 2014, the commission estimated the size of the PRIIPs market affected by these regulatory changes to be worth roughly 10 trillion euros. The new regulations require investment product manufacturers—for example, a fund provider—to create key information documents (KIDs) for their products. These documents must be no longer than three pages and must contain outlined information, including a general description of the provider, an explanation of the main factors that the investment's return depends upon, the level of risk associated with the product (classed from 1 to 7), an indication of the possible maximum loss (including four performance scenarios), and a table explaining the costs of one's investment over time. The commission also stated that the regulation requiring standardized and simplified key information documents may be extended to other financial products beyond PRIIPs.	[ [ "European Union (EU)", "https://www.investopedia.com/terms/e/europeanunion.asp" ], [ "underlying assets", "https://www.investopedia.com/terms/u/underlying.asp" ], [ "financial institutions", "https://www.investopedia.com/terms/f/financialinstitution.asp" ], [ "structured funds", "https://www.investopedia.com/terms/s/structured_fund.asp" ], [ "euros", "https://www.investopedia.com/terms/e/euro.asp" ], [ "industry", "https://www.investopedia.com/terms/i/industry.asp" ], [ "European Commission", "https://www.investopedia.com/terms/e/european-community.asp" ], [ "investment", "https://www.investopedia.com/terms/i/investment.asp" ] ]
https://www.investopedia.com/terms/f/funds-management.asp	Funds Management: Definition, Responsibilities, and Industries	<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-funds-management"></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 Funds Management? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Funds management is the overseeing and handling of a financial institution's cash flow. The fund manager ensures that the maturity schedules of the deposits coincide with the demand for loans. To do this, the manager looks at both the liabilities and the assets that influence the bank's ability to issue credit. </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-funds-management-in-action"></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"> Funds Management in Action </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Funds management—also referred to as asset management—covers any kind of system that maintains the value of an entity. It may be applied to intangible assets (e.g., intellectual property and goodwill), and tangible assets (e.g., equipment and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/realestate.asp">real estate</a>). It is the systematic process of operating, deploying, maintaining, disposing, and upgrading assets in the most cost-efficient and profit-yielding way possible. </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"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundmanager.asp">fund manager</a> must pay close attention to cost and risk to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalize.asp">capitalize</a> on the cash flow opportunities. A financial institution runs on the ability to offer credit to customers. Ensuring the proper <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a> of the funds is a crucial aspect of the fund manager's position. Funds management can also refer to the management of fund assets. </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 the financial world, the term "fund management" describes people and institutions that manage investments on behalf of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investors</a>. An example would be investment managers who fix the assets of pension funds for pension investors. </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-divisions-of-use"></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"> Divisions of Use </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Fund management may be divided into four industries: </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>Financial investment industry</li><li>Infrastructure industry</li><li>Business and enterprise industry</li><li>The public sector</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 most common use of "fund management" refers to investment management or financial management, which are within the financial sector responsible for managing investment funds for client accounts. The fund manager's duties include studying the client's needs and financial goals, creating an investment plan, and executing the investment strategy. </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-classifying-fund-management"></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"> Classifying Fund Management </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Fund management can be classified according to client type, the method used for management, or the investment type. </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 classifying fund management according to client type, the fund managers are either business fund managers, corporate fund managers, or personal fund managers who handle investment accounts for individual investors. Personal fund managers cover smaller investment portfolios compared to business fund managers. These funds may be controlled by one fund manager or by a team of many fund managers. </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"> Some funds are managed by hedge fund managers who earn from an upfront fee and a certain percentage of the fund's performance, which serves as an incentive for them to perform to the best of their abilities. </p></div>	## What Is Funds Management? Funds management is the overseeing and handling of a financial institution's cash flow. The fund manager ensures that the maturity schedules of the deposits coincide with the demand for loans. To do this, the manager looks at both the liabilities and the assets that influence the bank's ability to issue credit. ## Funds Management in Action Funds management—also referred to as asset management—covers any kind of system that maintains the value of an entity. It may be applied to intangible assets (e.g., intellectual property and goodwill), and tangible assets (e.g., equipment and [real estate](https://www.investopedia.com/terms/r/realestate.asp)). It is the systematic process of operating, deploying, maintaining, disposing, and upgrading assets in the most cost-efficient and profit-yielding way possible. A [fund manager](https://www.investopedia.com/terms/f/fundmanager.asp) must pay close attention to cost and risk to [capitalize](https://www.investopedia.com/terms/c/capitalize.asp) on the cash flow opportunities. A financial institution runs on the ability to offer credit to customers. Ensuring the proper [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) of the funds is a crucial aspect of the fund manager's position. Funds management can also refer to the management of fund assets. In the financial world, the term "fund management" describes people and institutions that manage investments on behalf of [investors](https://www.investopedia.com/terms/i/investor.asp). An example would be investment managers who fix the assets of pension funds for pension investors. ## Divisions of Use Fund management may be divided into four industries: * Financial investment industry * Infrastructure industry * Business and enterprise industry * The public sector The most common use of "fund management" refers to investment management or financial management, which are within the financial sector responsible for managing investment funds for client accounts. The fund manager's duties include studying the client's needs and financial goals, creating an investment plan, and executing the investment strategy. ## Classifying Fund Management Fund management can be classified according to client type, the method used for management, or the investment type. When classifying fund management according to client type, the fund managers are either business fund managers, corporate fund managers, or personal fund managers who handle investment accounts for individual investors. Personal fund managers cover smaller investment portfolios compared to business fund managers. These funds may be controlled by one fund manager or by a team of many fund managers. Some funds are managed by hedge fund managers who earn from an upfront fee and a certain percentage of the fund's performance, which serves as an incentive for them to perform to the best of their abilities.	What Is Funds Management? Funds management is the overseeing and handling of a financial institution's cash flow. The fund manager ensures that the maturity schedules of the deposits coincide with the demand for loans. To do this, the manager looks at both the liabilities and the assets that influence the bank's ability to issue credit. Funds Management in Action Funds management—also referred to as asset management—covers any kind of system that maintains the value of an entity. It may be applied to intangible assets (e.g., intellectual property and goodwill), and tangible assets (e.g., equipment and real estate). It is the systematic process of operating, deploying, maintaining, disposing, and upgrading assets in the most cost-efficient and profit-yielding way possible. A fund manager must pay close attention to cost and risk to capitalize on the cash flow opportunities. A financial institution runs on the ability to offer credit to customers. Ensuring the proper liquidity of the funds is a crucial aspect of the fund manager's position. Funds management can also refer to the management of fund assets. In the financial world, the term "fund management" describes people and institutions that manage investments on behalf of investors. An example would be investment managers who fix the assets of pension funds for pension investors. Divisions of Use Fund management may be divided into four industries: Financial investment industryInfrastructure industryBusiness and enterprise industryThe public sector The most common use of "fund management" refers to investment management or financial management, which are within the financial sector responsible for managing investment funds for client accounts. The fund manager's duties include studying the client's needs and financial goals, creating an investment plan, and executing the investment strategy. Classifying Fund Management Fund management can be classified according to client type, the method used for management, or the investment type. When classifying fund management according to client type, the fund managers are either business fund managers, corporate fund managers, or personal fund managers who handle investment accounts for individual investors. Personal fund managers cover smaller investment portfolios compared to business fund managers. These funds may be controlled by one fund manager or by a team of many fund managers. Some funds are managed by hedge fund managers who earn from an upfront fee and a certain percentage of the fund's performance, which serves as an incentive for them to perform to the best of their abilities.	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https://www.investopedia.com/articles/active-trading/021715/scalping-vs-swing-trading.asp	Scalping vs. Swing Trading: 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-scalping-vs-swing-trading-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"> Scalping vs. Swing Trading: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Many participate in the stock markets—some as investors, others as traders. Investing is executed with a long-term view in mind—years or even decades. Trading, meanwhile, moves to pocket gains on a regular basis. A common method for distinguishing one type of trader from another is the time period for which a trader holds a stock—a variance that can range from a few seconds to months or even years. </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 most popular trading strategies include day trading, swing trading, scalping, and position trading. Choosing a style that suits your own trading temperament is essential for long-term success. This article lays out the differences between a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/012815/top-technical-indicators-scalping-trading-strategy.asp">scalping strategy</a> and a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/swingtrading.asp">swing trading</a> strategy. </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>Scalping and swing trading are two of the more popular short-term investing strategies employed by traders.</li><li>Scalping involves making hundreds of trades daily in which positions are held very briefly, sometimes just seconds; as such, profits are small, but the risk is also reduced.</li><li>Scalping often requires a high degree of analytical capabilities, though traders do not need to have patience. </li><li>Swing trading uses technical analysis and charts to follow and profit off trends in stocks; the time frame is intermediate-term, often a few days to a few weeks.</li><li>Swing traders may not need as much experience as scalpers, as swing trading is usually less demanding in terms of time needed to monitor financial charts. </li></ul></div></div></div> <span class="heading-toc" id="toc-scalping"></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"> Scalping </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/05/scalping.asp">Scalping</a> strategy targets minor changes in intra-day stock price movement, frequently entering and exiting throughout the trading session, to build profits. </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"> Often classified as a subtype of the day trading technique, scalping involves multiple trades of very short holding periods from a few seconds to minutes. Since positions are held for such short periods, gains on any particular trade (or profits per trade) are small. As a result, scalpers carry out numerous trades—into the hundreds during an average trading day—to build profit. Limited time exposure to the market reduces scalper risk. </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"> Scalpers are quick, seldom espousing any particular pattern. Scalpers go short in one trade, then long in the next; small opportunities are their targets. Commonly working around the bid-ask spread—buying on the bid and selling at ask—scalpers exploit the spread for profit. Such opportunities to successfully exploit are more common than large moves, as even fairly still markets witness minor movements. </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"> Scalpers usually follow short period charts such as one-minute charts or five-minute charts. Scalpers may also use transaction-based tick charts. These charts are used to study price movement and take calls on certain trades. </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"> Scalpers seek adequate liquidity for its compatibility with the frequency of trading. These traders need access to accurate data (quote system, live feed) as well as the ability to rapidly execute trades. High <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commission.asp">commissions</a> tend to reduce profit with frequent buying and selling, as they increase costs of performing trades, so direct-broker access is generally preferred. </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"> Scalping is best suited for those who can devote time to the markets, stay focused, and act swiftly. It’s usually said that impatient people make good scalpers as they tend to exit a trade as soon as it becomes profitable. Scalping is for those who can handle stress, make quick decisions, and act accordingly. </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-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>Your timeframe influences what trading style is best for you; scalpers make hundreds of trades per day and must stay glued to the markets, while swing traders make fewer trades and can check in less frequently.</p></div></div></div> <span class="heading-toc" id="toc-swing-trading"></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"> Swing Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The strategy of swing trading involves identifying the trend, then playing within it. For example, swing traders would usually pick a strongly-trending stock after a correction or consolidation, and just before it’s ready to rise again, they would exit after pocketing some profit. Such buying and selling methods are repeated to reap gains. </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"> In cases wherein stocks fall through support, traders move to the other side, going short. Typically, swing traders are “trend followers,” if there is an uptrend, they go long, and if the overall trend is towards the downside, they could go short. Swing trades remain open from a few days to a few weeks (near-term)—sometimes even to months (intermediate-term), but typically lasting only a few days. </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 terms of timeframe, patience required, and potential returns, swing trading falls between day trading and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trendtrading.asp">trend trading</a>. Swing traders use technical analysis and charts which display price actions, helping them locate the best points of entry and exit for profitable trades. These traders study resistance and support, using Fibonacci extensions occasionally combined with other patterns and technical indicators. Some volatility is healthy for swing trading as it gives rise to opportunities. </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"> Swing traders maintain vigilance for a potential of greater gains by indulging in fewer stocks, helping to keep brokerage fees low. </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"> The strategy works well for those unable to stay glued full-time to the markets, keeping a minute-by-minute track of things. Part-time traders who take time to peek at what’s happening during work intervals often opt for this strategy. Pre-market and post-market reviews are crucial to successful <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/06/dayofswingtrader.asp">swing trading</a>, as is patience with overnight holdings. For this reason, it’s not for those who get anxious in such situations. </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 table below gives a brief overview of the main differences between the two trading styles. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_36-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td> </td> <td><b>Scalp Trading</b></td> <td><b>Swing Trading</b></td> </tr> <tr> <td><b>Holding Period</b></td> <td>A few seconds to minutes, never overnight</td> <td>A few days to weeks, even months at times; most commonly held for few days</td> </tr> <tr> <td><b>Number of Trades</b></td> <td>Can be hundreds during a day</td> <td>A few</td> </tr> <tr> <td><b>Chart </b></td> <td>Tick chart or 1-5 minute charts</td> <td>Daily or weekly charts</td> </tr> <tr> <td><b>Trader Traits</b></td> <td>Vigilance, impatience work well here</td> <td>Greater patience and precision required to understand trends</td> </tr> <tr> <td><b>Decision-Making Time</b></td> <td>Rapid</td> <td>Fluid</td> </tr> <tr> <td><b>Strategy</b></td> <td>Extreme</td> <td>Moderate</td> </tr> <tr> <td><b>Stress Level</b></td> <td>High</td> <td>Moderate</td> </tr> <tr> <td><b>Profit Target</b></td> <td>Small, multiple </td> <td>Few but large</td> </tr> <tr> <td><b>Tracking</b></td> <td>Constant monitoring throughout the trading session</td> <td>Reasonable monitoring; requires up-to-date info on news and corporate events</td> </tr> <tr> <td><b>Suitability</b></td> <td>Not for novice traders</td> <td>Suitable for all, from beginners to moderate and advanced players</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Each trading style comes with its own set of risks and rewards. No single "perfect strategy" exists to suit all traders, making it best to choose a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stock-trader.asp">trading strategy</a> based on your skill, temperament, the amount of time you're able to dedicate, your account size, experience with trading, and personal risk tolerance. </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-finra-requirements"></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"> FINRA Requirements </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The Financial Industry Regulatory Authority (FINRA) sets forth trading requirements based on the level of investment activity an investor is engaged in. The two primary definitions relating to scalp trading and swing trading are day trades and pattern day trader. </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"> A day trade occurs when a single security is bought and sold within a margin account on the same day. This applies to all types of securities including options, and cash accounts often limit day trades from occurring. </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"> A pattern day trader is an investor who executes four or more day trades within five business days. The number of day trades performed must represent more than 6% of all trades within that account for any given full business week period. </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"> These two rules often apply to scalp traders who seek to exit their positions before the end of the night. This is also applicable to scalp traders who perform high volumes of trades each day, likely overlapping a buy and sell order of the same security on the same day. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_49-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_50-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>If a pattern day trader exceeds their daily buying power limit, they are subject to a day-trading margin call and will have up to five business days to meet the call requirements.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Should a scalp trader be flagged as a pattern day trader, the trader must maintain at least $25,000 in their margin account on any given day they trade. This equity requirement can be satisfied with either cash or securities. If the margin account value drops below $25,000, the trader is not permitted to trade until the minimum balance has been restored.<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_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Pattern day traders also are not allowed to trade up to certain limits subject to their maintenance margin excess. A maintenance margin excess is the amount which the equity in their account exceeds the minimum amount of equity required. In general, the daily trade limit is often up to four times this maintenance margin excess. </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-is-swing-trading-good-for-beginners"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Swing Trading Good for Beginners?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Swing trading is often considered better for beginners compared to scalp trading or day trading. Swing trading requires less skill and trading expertise. In addition, swing trading usually requires less time as it does not demand a trader be actively involved in scanning positions.</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-how-is-swing-trading-better-than-scalp-trading"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Is Swing Trading Better Than Scalp Trading?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Swing trading has the benefit of usually being less expensive than scalp trading. Swing trading requires fewer orders, so traders will often incur fewer trading costs. Swing trading positions can also be formed over days, so a trader is often not required to continually monitor their positions.</p><p>Though success is not always guaranteed with swing trading, profit is often incurred over a smaller volume of trades. Therefore, swing traders can usually make a relatively similar amount of money to scalp traders yet require less activity and incur higher profit on each trade.</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-how-is-scalp-trading-better-than-swing-trading"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Is Scalp Trading Better Than Swing Trading?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Scalp trading doesn't require much patience; an investor may turn around and sell a security within a minute of buying that security. Some traders find comfort in exiting out of all positions by the end of the day, and some traders may find this style of investing more exciting.</p><p>Because the profit margin on each trade is much smaller when scalp trading, scalpers are often protected by large losses incurred from a single trade or security. Whereas swing trading often employs a "go big or go home" mentality, scalp trading is comprised of hundreds of tiny transactions that may not snowball into larger losses as easily.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_61-0"><span class="heading-toc" id="toc-what-type-of-trading-is-most-profitable"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Type of Trading Is Most Profitable?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Investors are often best suited to practice the style of trading that best suits their preference. Patient, inexperienced traders that are not interested in continually tracking stock charts are more likely to be successful swing trading. Meanwhile, investors that prefer quicker action, have larger amounts of capital to deploy, or have greater technical analysis abilities may be better suited to scalp.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_63-0"><span class="heading-toc" id="toc-can-i-swing-trade-or-scalp-trade-for-a-living"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Swing Trade or Scalp Trade for a Living?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, both styles of trading can be done full-time, and it is possible to make a living swing trading or scalp trading. Ensure you are familiar with FINRA regulations that dictate limitations on your margin account, equity requirements, and trading capacity.</p></div> </div> <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"> <em>Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.</em> </p></div>	## Scalping vs. Swing Trading: An Overview Many participate in the stock markets—some as investors, others as traders. Investing is executed with a long-term view in mind—years or even decades. Trading, meanwhile, moves to pocket gains on a regular basis. A common method for distinguishing one type of trader from another is the time period for which a trader holds a stock—a variance that can range from a few seconds to months or even years. The most popular trading strategies include day trading, swing trading, scalping, and position trading. Choosing a style that suits your own trading temperament is essential for long-term success. This article lays out the differences between a [scalping strategy](https://www.investopedia.com/articles/active-trading/012815/top-technical-indicators-scalping-trading-strategy.asp) and a [swing trading](https://www.investopedia.com/terms/s/swingtrading.asp) strategy. ### Key Takeaways * Scalping and swing trading are two of the more popular short-term investing strategies employed by traders. * Scalping involves making hundreds of trades daily in which positions are held very briefly, sometimes just seconds; as such, profits are small, but the risk is also reduced. * Scalping often requires a high degree of analytical capabilities, though traders do not need to have patience. * Swing trading uses technical analysis and charts to follow and profit off trends in stocks; the time frame is intermediate-term, often a few days to a few weeks. * Swing traders may not need as much experience as scalpers, as swing trading is usually less demanding in terms of time needed to monitor financial charts. ## Scalping [Scalping](https://www.investopedia.com/articles/trading/05/scalping.asp) strategy targets minor changes in intra-day stock price movement, frequently entering and exiting throughout the trading session, to build profits. Often classified as a subtype of the day trading technique, scalping involves multiple trades of very short holding periods from a few seconds to minutes. Since positions are held for such short periods, gains on any particular trade (or profits per trade) are small. As a result, scalpers carry out numerous trades—into the hundreds during an average trading day—to build profit. Limited time exposure to the market reduces scalper risk. Scalpers are quick, seldom espousing any particular pattern. Scalpers go short in one trade, then long in the next; small opportunities are their targets. Commonly working around the bid-ask spread—buying on the bid and selling at ask—scalpers exploit the spread for profit. Such opportunities to successfully exploit are more common than large moves, as even fairly still markets witness minor movements. Scalpers usually follow short period charts such as one-minute charts or five-minute charts. Scalpers may also use transaction-based tick charts. These charts are used to study price movement and take calls on certain trades. Scalpers seek adequate liquidity for its compatibility with the frequency of trading. These traders need access to accurate data (quote system, live feed) as well as the ability to rapidly execute trades. High [commissions](https://www.investopedia.com/terms/c/commission.asp) tend to reduce profit with frequent buying and selling, as they increase costs of performing trades, so direct-broker access is generally preferred. Scalping is best suited for those who can devote time to the markets, stay focused, and act swiftly. It’s usually said that impatient people make good scalpers as they tend to exit a trade as soon as it becomes profitable. Scalping is for those who can handle stress, make quick decisions, and act accordingly. ### Your timeframe influences what trading style is best for you; scalpers make hundreds of trades per day and must stay glued to the markets, while swing traders make fewer trades and can check in less frequently. ## Swing Trading The strategy of swing trading involves identifying the trend, then playing within it. For example, swing traders would usually pick a strongly-trending stock after a correction or consolidation, and just before it’s ready to rise again, they would exit after pocketing some profit. Such buying and selling methods are repeated to reap gains. In cases wherein stocks fall through support, traders move to the other side, going short. Typically, swing traders are “trend followers,” if there is an uptrend, they go long, and if the overall trend is towards the downside, they could go short. Swing trades remain open from a few days to a few weeks (near-term)—sometimes even to months (intermediate-term), but typically lasting only a few days. In terms of timeframe, patience required, and potential returns, swing trading falls between day trading and [trend trading](https://www.investopedia.com/terms/t/trendtrading.asp). Swing traders use technical analysis and charts which display price actions, helping them locate the best points of entry and exit for profitable trades. These traders study resistance and support, using Fibonacci extensions occasionally combined with other patterns and technical indicators. Some volatility is healthy for swing trading as it gives rise to opportunities. Swing traders maintain vigilance for a potential of greater gains by indulging in fewer stocks, helping to keep brokerage fees low. The strategy works well for those unable to stay glued full-time to the markets, keeping a minute-by-minute track of things. Part-time traders who take time to peek at what’s happening during work intervals often opt for this strategy. Pre-market and post-market reviews are crucial to successful [swing trading](https://www.investopedia.com/articles/trading/06/dayofswingtrader.asp), as is patience with overnight holdings. For this reason, it’s not for those who get anxious in such situations. The table below gives a brief overview of the main differences between the two trading styles. \| \| Scalp Trading \| Swing Trading \| \| --- \| --- \| --- \| \| Holding Period \| A few seconds to minutes, never overnight \| A few days to weeks, even months at times; most commonly held for few days \| \| Number of Trades \| Can be hundreds during a day \| A few \| \| Chart \| Tick chart or 1-5 minute charts \| Daily or weekly charts \| \| Trader Traits \| Vigilance, impatience work well here \| Greater patience and precision required to understand trends \| \| Decision-Making Time \| Rapid \| Fluid \| \| Strategy \| Extreme \| Moderate \| \| Stress Level \| High \| Moderate \| \| Profit Target \| Small, multiple \| Few but large \| \| Tracking \| Constant monitoring throughout the trading session \| Reasonable monitoring; requires up-to-date info on news and corporate events \| \| Suitability \| Not for novice traders \| Suitable for all, from beginners to moderate and advanced players \| Each trading style comes with its own set of risks and rewards. No single "perfect strategy" exists to suit all traders, making it best to choose a [trading strategy](https://www.investopedia.com/terms/s/stock-trader.asp) based on your skill, temperament, the amount of time you're able to dedicate, your account size, experience with trading, and personal risk tolerance. ## FINRA Requirements The Financial Industry Regulatory Authority (FINRA) sets forth trading requirements based on the level of investment activity an investor is engaged in. The two primary definitions relating to scalp trading and swing trading are day trades and pattern day trader. A day trade occurs when a single security is bought and sold within a margin account on the same day. This applies to all types of securities including options, and cash accounts often limit day trades from occurring. A pattern day trader is an investor who executes four or more day trades within five business days. The number of day trades performed must represent more than 6% of all trades within that account for any given full business week period. These two rules often apply to scalp traders who seek to exit their positions before the end of the night. This is also applicable to scalp traders who perform high volumes of trades each day, likely overlapping a buy and sell order of the same security on the same day. ### If a pattern day trader exceeds their daily buying power limit, they are subject to a day-trading margin call and will have up to five business days to meet the call requirements. Should a scalp trader be flagged as a pattern day trader, the trader must maintain at least $25,000 in their margin account on any given day they trade. This equity requirement can be satisfied with either cash or securities. If the margin account value drops below $25,000, the trader is not permitted to trade until the minimum balance has been restored. Pattern day traders also are not allowed to trade up to certain limits subject to their maintenance margin excess. A maintenance margin excess is the amount which the equity in their account exceeds the minimum amount of equity required. In general, the daily trade limit is often up to four times this maintenance margin excess. ## Is Swing Trading Good for Beginners? Swing trading is often considered better for beginners compared to scalp trading or day trading. Swing trading requires less skill and trading expertise. In addition, swing trading usually requires less time as it does not demand a trader be actively involved in scanning positions. ## How Is Swing Trading Better Than Scalp Trading? Swing trading has the benefit of usually being less expensive than scalp trading. Swing trading requires fewer orders, so traders will often incur fewer trading costs. Swing trading positions can also be formed over days, so a trader is often not required to continually monitor their positions. Though success is not always guaranteed with swing trading, profit is often incurred over a smaller volume of trades. Therefore, swing traders can usually make a relatively similar amount of money to scalp traders yet require less activity and incur higher profit on each trade. ## How Is Scalp Trading Better Than Swing Trading? Scalp trading doesn't require much patience; an investor may turn around and sell a security within a minute of buying that security. Some traders find comfort in exiting out of all positions by the end of the day, and some traders may find this style of investing more exciting. Because the profit margin on each trade is much smaller when scalp trading, scalpers are often protected by large losses incurred from a single trade or security. Whereas swing trading often employs a "go big or go home" mentality, scalp trading is comprised of hundreds of tiny transactions that may not snowball into larger losses as easily. ## What Type of Trading Is Most Profitable? Investors are often best suited to practice the style of trading that best suits their preference. Patient, inexperienced traders that are not interested in continually tracking stock charts are more likely to be successful swing trading. Meanwhile, investors that prefer quicker action, have larger amounts of capital to deploy, or have greater technical analysis abilities may be better suited to scalp. ## Can I Swing Trade or Scalp Trade for a Living? Yes, both styles of trading can be done full-time, and it is possible to make a living swing trading or scalp trading. Ensure you are familiar with FINRA regulations that dictate limitations on your margin account, equity requirements, and trading capacity. 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.	Scalping vs. Swing Trading: An Overview Many participate in the stock markets—some as investors, others as traders. Investing is executed with a long-term view in mind—years or even decades. Trading, meanwhile, moves to pocket gains on a regular basis. A common method for distinguishing one type of trader from another is the time period for which a trader holds a stock—a variance that can range from a few seconds to months or even years. The most popular trading strategies include day trading, swing trading, scalping, and position trading. Choosing a style that suits your own trading temperament is essential for long-term success. This article lays out the differences between a scalping strategy and a swing trading strategy. Key Takeaways Scalping and swing trading are two of the more popular short-term investing strategies employed by traders.Scalping involves making hundreds of trades daily in which positions are held very briefly, sometimes just seconds; as such, profits are small, but the risk is also reduced.Scalping often requires a high degree of analytical capabilities, though traders do not need to have patience. Swing trading uses technical analysis and charts to follow and profit off trends in stocks; the time frame is intermediate-term, often a few days to a few weeks.Swing traders may not need as much experience as scalpers, as swing trading is usually less demanding in terms of time needed to monitor financial charts. Scalping Scalping strategy targets minor changes in intra-day stock price movement, frequently entering and exiting throughout the trading session, to build profits. Often classified as a subtype of the day trading technique, scalping involves multiple trades of very short holding periods from a few seconds to minutes. Since positions are held for such short periods, gains on any particular trade (or profits per trade) are small. As a result, scalpers carry out numerous trades—into the hundreds during an average trading day—to build profit. Limited time exposure to the market reduces scalper risk. Scalpers are quick, seldom espousing any particular pattern. Scalpers go short in one trade, then long in the next; small opportunities are their targets. Commonly working around the bid-ask spread—buying on the bid and selling at ask—scalpers exploit the spread for profit. Such opportunities to successfully exploit are more common than large moves, as even fairly still markets witness minor movements. Scalpers usually follow short period charts such as one-minute charts or five-minute charts. Scalpers may also use transaction-based tick charts. These charts are used to study price movement and take calls on certain trades. Scalpers seek adequate liquidity for its compatibility with the frequency of trading. These traders need access to accurate data (quote system, live feed) as well as the ability to rapidly execute trades. High commissions tend to reduce profit with frequent buying and selling, as they increase costs of performing trades, so direct-broker access is generally preferred. Scalping is best suited for those who can devote time to the markets, stay focused, and act swiftly. It’s usually said that impatient people make good scalpers as they tend to exit a trade as soon as it becomes profitable. Scalping is for those who can handle stress, make quick decisions, and act accordingly. Your timeframe influences what trading style is best for you; scalpers make hundreds of trades per day and must stay glued to the markets, while swing traders make fewer trades and can check in less frequently. Swing Trading The strategy of swing trading involves identifying the trend, then playing within it. For example, swing traders would usually pick a strongly-trending stock after a correction or consolidation, and just before it’s ready to rise again, they would exit after pocketing some profit. Such buying and selling methods are repeated to reap gains. In cases wherein stocks fall through support, traders move to the other side, going short. Typically, swing traders are “trend followers,” if there is an uptrend, they go long, and if the overall trend is towards the downside, they could go short. Swing trades remain open from a few days to a few weeks (near-term)—sometimes even to months (intermediate-term), but typically lasting only a few days. In terms of timeframe, patience required, and potential returns, swing trading falls between day trading and trend trading. Swing traders use technical analysis and charts which display price actions, helping them locate the best points of entry and exit for profitable trades. These traders study resistance and support, using Fibonacci extensions occasionally combined with other patterns and technical indicators. Some volatility is healthy for swing trading as it gives rise to opportunities. Swing traders maintain vigilance for a potential of greater gains by indulging in fewer stocks, helping to keep brokerage fees low. The strategy works well for those unable to stay glued full-time to the markets, keeping a minute-by-minute track of things. Part-time traders who take time to peek at what’s happening during work intervals often opt for this strategy. Pre-market and post-market reviews are crucial to successful swing trading, as is patience with overnight holdings. For this reason, it’s not for those who get anxious in such situations. The table below gives a brief overview of the main differences between the two trading styles. Scalp Trading Swing Trading Holding Period A few seconds to minutes, never overnight A few days to weeks, even months at times; most commonly held for few days Number of Trades Can be hundreds during a day A few Chart Tick chart or 1-5 minute charts Daily or weekly charts Trader Traits Vigilance, impatience work well here Greater patience and precision required to understand trends Decision-Making Time Rapid Fluid Strategy Extreme Moderate Stress Level High Moderate Profit Target Small, multiple Few but large Tracking Constant monitoring throughout the trading session Reasonable monitoring; requires up-to-date info on news and corporate events Suitability Not for novice traders Suitable for all, from beginners to moderate and advanced players Each trading style comes with its own set of risks and rewards. No single "perfect strategy" exists to suit all traders, making it best to choose a trading strategy based on your skill, temperament, the amount of time you're able to dedicate, your account size, experience with trading, and personal risk tolerance. FINRA Requirements The Financial Industry Regulatory Authority (FINRA) sets forth trading requirements based on the level of investment activity an investor is engaged in. The two primary definitions relating to scalp trading and swing trading are day trades and pattern day trader. A day trade occurs when a single security is bought and sold within a margin account on the same day. This applies to all types of securities including options, and cash accounts often limit day trades from occurring. A pattern day trader is an investor who executes four or more day trades within five business days. The number of day trades performed must represent more than 6% of all trades within that account for any given full business week period. These two rules often apply to scalp traders who seek to exit their positions before the end of the night. This is also applicable to scalp traders who perform high volumes of trades each day, likely overlapping a buy and sell order of the same security on the same day. If a pattern day trader exceeds their daily buying power limit, they are subject to a day-trading margin call and will have up to five business days to meet the call requirements. Should a scalp trader be flagged as a pattern day trader, the trader must maintain at least $25,000 in their margin account on any given day they trade. This equity requirement can be satisfied with either cash or securities. If the margin account value drops below $25,000, the trader is not permitted to trade until the minimum balance has been restored. Pattern day traders also are not allowed to trade up to certain limits subject to their maintenance margin excess. A maintenance margin excess is the amount which the equity in their account exceeds the minimum amount of equity required. In general, the daily trade limit is often up to four times this maintenance margin excess. Is Swing Trading Good for Beginners? Swing trading is often considered better for beginners compared to scalp trading or day trading. Swing trading requires less skill and trading expertise. In addition, swing trading usually requires less time as it does not demand a trader be actively involved in scanning positions. How Is Swing Trading Better Than Scalp Trading? Swing trading has the benefit of usually being less expensive than scalp trading. Swing trading requires fewer orders, so traders will often incur fewer trading costs. Swing trading positions can also be formed over days, so a trader is often not required to continually monitor their positions.Though success is not always guaranteed with swing trading, profit is often incurred over a smaller volume of trades. Therefore, swing traders can usually make a relatively similar amount of money to scalp traders yet require less activity and incur higher profit on each trade. How Is Scalp Trading Better Than Swing Trading? Scalp trading doesn't require much patience; an investor may turn around and sell a security within a minute of buying that security. Some traders find comfort in exiting out of all positions by the end of the day, and some traders may find this style of investing more exciting.Because the profit margin on each trade is much smaller when scalp trading, scalpers are often protected by large losses incurred from a single trade or security. Whereas swing trading often employs a "go big or go home" mentality, scalp trading is comprised of hundreds of tiny transactions that may not snowball into larger losses as easily. What Type of Trading Is Most Profitable? Investors are often best suited to practice the style of trading that best suits their preference. Patient, inexperienced traders that are not interested in continually tracking stock charts are more likely to be successful swing trading. Meanwhile, investors that prefer quicker action, have larger amounts of capital to deploy, or have greater technical analysis abilities may be better suited to scalp. Can I Swing Trade or Scalp Trade for a Living? Yes, both styles of trading can be done full-time, and it is possible to make a living swing trading or scalp trading. Ensure you are familiar with FINRA regulations that dictate limitations on your margin account, equity requirements, and trading capacity. 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.	[ [ "scalping strategy", "https://www.investopedia.com/articles/active-trading/012815/top-technical-indicators-scalping-trading-strategy.asp" ], [ "swing trading", "https://www.investopedia.com/terms/s/swingtrading.asp" ], [ "Scalping", "https://www.investopedia.com/articles/trading/05/scalping.asp" ], [ "commissions", "https://www.investopedia.com/terms/c/commission.asp" ], [ "trend trading", "https://www.investopedia.com/terms/t/trendtrading.asp" ], [ "swing trading", "https://www.investopedia.com/articles/trading/06/dayofswingtrader.asp" ], [ "trading strategy", "https://www.investopedia.com/terms/s/stock-trader.asp" ] ]
https://www.investopedia.com/managing-costs-for-nicu-stay-6260862	Managing Costs for an NICU Stay	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The neonatal intensive care unit (NICU) is designed to provide around-the-clock healthcare for babies who are born prematurely or with life-threatening health conditions. </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 NICU stay can be emotional and stressful for parents, and there may be financial aftershocks once medical bills begin arriving. Newborn intensive care costs can be significantly higher than <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/budgeting-for-baby.asp">standard newborn care costs</a>. While your insurance should pay for some of your medical expenses, it may not cover everything. </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 neonatal intensive care unit (NICU) provides around-the-clock care for prematurely born babies and newborns with certain health conditions.</li><li>If your baby has to go to the NICU shortly after birth, it’s important to add them to your health insurance policy as soon as possible.</li><li>Health insurance may cover some, though not all, of the costs associated with neonatal intensive care.</li><li>Parents whose insurance does not cover the full cost of NICU or who are uninsured may qualify for financial aid through the hospital or their state’s Medicaid program.</li></ul></div></div></div> <span class="heading-toc" id="toc-average-cost-of-a-nicu-stay"></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"> Average Cost of a NICU Stay </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The NICU provides specialized care to newborns who are born early or are sick. While in the NICU, your baby might be seen by a number of healthcare staff, including a neonatologist, respiratory therapist, neonatal nurse practitioner, and dietitian. In general, your baby will receive more intensive care and attention during their NICU stay than during a typical hospital stay.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> From a cost perspective, this means that you’ll likely pay more for neonatal intensive care than you would for standard newborn care. According to a Michigan Medicine study of nearly 400,000 deliveries that required hospitalization from 2016 to 2019, the average NICU bill was $4,969. In 9% of cases where neonatal intensive care was needed, the bill exceeded $10,000.<span class="ql-inline-citation" data-cite="2"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_12-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_13-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">$3,000 to $20,000 </h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The price range of a NICU stay per day as of 2023.<span class="ql-inline-citation" data-cite="16"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The amount that you might pay for NICU care can depend on several factors, including: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <li>Why your baby was transferred to the NICU</li><li>How long they remain in the NICU</li><li>The level of care that they receive</li><li>The hospital where the NICU is located</li> </ul> <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 moderate to late preterm babies, the typical NICU stay is about 17 days.<span class="ql-inline-citation" data-cite="3"></span> Some newborns may go home earlier from the NICU, while others may stay for several weeks or even months, depending on the extent of their care needs. Generally, the longer the stay, the more you can expect an NICU visit to cost. </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_3-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>In addition to NICU stay costs, new parents may also need to consider the possibility of other added costs if the mother requires specialized care to deal with complications stemming from the birth.</p></div></div></div> <span class="heading-toc" id="toc-does-insurance-cover-nicu-costs"></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"> Does Insurance Cover NICU Costs? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Whether your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/healthinsurance.asp">health insurance</a> will cover some or all of the costs of neonatal intensive care depends on your policy. If your baby is admitted to the NICU, it’s important to contact your health insurance company to ask about your coverage. Specifically, you can ask these questions: </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>Does my plan pay for neonatal intensive care?</li><li>What costs are included or excluded from coverage?</li><li>What part of the medical bills am I responsible for?</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"> You’ll also need to consider how your financial obligation may be affected if your child is covered by more than one health insurance plan. For example, if you’re married and you and your spouse both have health insurance through your employer, you’ll need to be aware of whether the coordination of benefits rule applies.<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_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Coordination of benefits is a provision that’s included in most healthcare plans and provides up to 100% coverage for medical services. Under this rule, your plan is primarily designed to cover you while your spouse’s plan primarily covers them. When you have children, your insurance companies can use the birthday rule to decide which policy should cover the child. The child’s primary plan would be the one that belongs to the parent whose birthday comes first in the year.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> This means that if your birthday comes first, your child will be covered by your plan first, even if your spouse’s plan offers more generous coverage. So you would need to submit NICU bills to your plan as the primary insurer before submitting any claims to secondary insurance, potentially increasing the amount that you have to pay out of pocket. </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_4-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Once your child is born, you’ll need to contact your health insurance company to add them to your policy before any NICU costs can be covered.</p></div></div></div> <span class="heading-toc" id="toc-how-to-get-help-with-nicu-costs"></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"> How to Get Help With NICU Costs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> If your health insurance doesn’t cover newborn intensive care, or if you don’t have health insurance, there are a few things you might be able to do to lighten some of the load financially. You can start by contacting the hospital’s NICU case manager or social worker. They should be able to discuss possible options for covering NICU expenses, including applying 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> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssi.asp">Supplemental Security Income (SSI)</a> benefits. </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"> Newborns born to mothers who already have Medicaid are automatically covered. In cases where the mother does not qualify for Medicaid, the baby still may be eligible. Medicaid eligibility is based on household size, income, and financial resources. You can apply for Medicaid for your newborn or for yourself through your local Department of Social Services office.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> All babies that meet the Low Birth Weight (LBW) requirements qualify for SSI. A baby is considered LBW if they weighed 1,200 grams or less at birth, or if they weighed 2,000 grams or less at birth and are less than the 3rd percentile of size for their age. Babies that are non-LBW may still qualify for SSI if they have certain conditions that may affect them for a year or more.<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_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> While SSI does not directly cover healthcare costs, qualifying for SSI automatically makes your baby eligible for Medicaid in 35 states, and applying for SSI is an important first step in the process. SSI only pays $30 per month while your baby is in the hospital, but can pay up to $841 per month when your baby comes home if your family is exceptionally low income. Most hospitals have social workers who furnish paperwork to 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> to qualify for SSI. If yours does not, you can file online at <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.ssa.gov/">ssa.gov</a> and an SSA employee will contact you to complete the application.<span class="ql-inline-citation" data-cite="15"></span><span class="ql-inline-citation" data-cite="14"></span><span class="ql-inline-citation" data-cite="13"></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_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> You could talk to the hospital about other options if you’re not eligible for Medicaid or SSI benefits. For example, you may be eligible for charity assistance based on your income and financial resources. Or the hospital may work with you to negotiate a discounted payment plan. You can contact the hospital’s billing department to discuss possible solutions to fit your situation. </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-tip" 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_5-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>Thoroughly review any medical bills you receive from the hospital or specific providers to look for errors or charges that you don’t understand, then contact the biller to have those issues addressed.</p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-can-neonatal-intensive-care-unit-nicu-babies-get-supplemental-security-income-ssi"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Neonatal Intensive Care Unit (NICU) Babies Get Supplemental Security Income (SSI)?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Newborns who have certain disabling conditions may be eligible to receive Supplemental Security Income (SSI) benefits. To qualify, your child must meet the LBW requirements outlined above, or have a condition that’s expected to seriously limit their activities for a period of 12 months or more.<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_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-how-much-is-a-weeks-stay-in-the-nicu"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Is a Week’s Stay in the NICU?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The cost of a weeklong stay in the NICU can vary by hospital. For example, Nationwide Children’s Hospital typically charges $8,600 per day for NICU level 2 care.<span class="ql-inline-citation" data-cite="8"></span> Based on those numbers, you could pay as much as $60,200 for a seven-day NICU stay. If your child has to go to the neonatal unit, ask for itemized bills so you can see what you are being charged for.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-does-insurance-cover-premature-birth"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Insurance Cover Premature Birth?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Health insurance plans can cover premature birth and NICU costs if neonatal care is necessary. If you anticipate any complications that might result in an NICU stay for your newborn, it’s important to ask your insurer what will be covered and what won’t. If you’re married, you can also check your spouse’s coverage, and the baby will be eligible for both health plans.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Having your baby spend the first days or weeks of its life in neonatal intensive care can be strenuous enough without having to worry about staggering medical bills. Understanding what’s likely to be covered by your health insurance and what options you have for getting financial assistance can help reduce your stress with financial issues. </p></div>	The neonatal intensive care unit (NICU) is designed to provide around-the-clock healthcare for babies who are born prematurely or with life-threatening health conditions. A NICU stay can be emotional and stressful for parents, and there may be financial aftershocks once medical bills begin arriving. Newborn intensive care costs can be significantly higher than [standard newborn care costs](https://www.investopedia.com/articles/pf/08/budgeting-for-baby.asp). While your insurance should pay for some of your medical expenses, it may not cover everything. ### Key Takeaways * A neonatal intensive care unit (NICU) provides around-the-clock care for prematurely born babies and newborns with certain health conditions. * If your baby has to go to the NICU shortly after birth, it’s important to add them to your health insurance policy as soon as possible. * Health insurance may cover some, though not all, of the costs associated with neonatal intensive care. * Parents whose insurance does not cover the full cost of NICU or who are uninsured may qualify for financial aid through the hospital or their state’s Medicaid program. ## Average Cost of a NICU Stay The NICU provides specialized care to newborns who are born early or are sick. While in the NICU, your baby might be seen by a number of healthcare staff, including a neonatologist, respiratory therapist, neonatal nurse practitioner, and dietitian. In general, your baby will receive more intensive care and attention during their NICU stay than during a typical hospital stay. From a cost perspective, this means that you’ll likely pay more for neonatal intensive care than you would for standard newborn care. According to a Michigan Medicine study of nearly 400,000 deliveries that required hospitalization from 2016 to 2019, the average NICU bill was $4,969. In 9% of cases where neonatal intensive care was needed, the bill exceeded $10,000. ### $3,000 to $20,000 The price range of a NICU stay per day as of 2023. The amount that you might pay for NICU care can depend on several factors, including: * Why your baby was transferred to the NICU * How long they remain in the NICU * The level of care that they receive * The hospital where the NICU is located For moderate to late preterm babies, the typical NICU stay is about 17 days. Some newborns may go home earlier from the NICU, while others may stay for several weeks or even months, depending on the extent of their care needs. Generally, the longer the stay, the more you can expect an NICU visit to cost. ### Important In addition to NICU stay costs, new parents may also need to consider the possibility of other added costs if the mother requires specialized care to deal with complications stemming from the birth. ## Does Insurance Cover NICU Costs? Whether your [health insurance](https://www.investopedia.com/terms/h/healthinsurance.asp) will cover some or all of the costs of neonatal intensive care depends on your policy. If your baby is admitted to the NICU, it’s important to contact your health insurance company to ask about your coverage. Specifically, you can ask these questions: * Does my plan pay for neonatal intensive care? * What costs are included or excluded from coverage? * What part of the medical bills am I responsible for? You’ll also need to consider how your financial obligation may be affected if your child is covered by more than one health insurance plan. For example, if you’re married and you and your spouse both have health insurance through your employer, you’ll need to be aware of whether the coordination of benefits rule applies. Coordination of benefits is a provision that’s included in most healthcare plans and provides up to 100% coverage for medical services. Under this rule, your plan is primarily designed to cover you while your spouse’s plan primarily covers them. When you have children, your insurance companies can use the birthday rule to decide which policy should cover the child. The child’s primary plan would be the one that belongs to the parent whose birthday comes first in the year. This means that if your birthday comes first, your child will be covered by your plan first, even if your spouse’s plan offers more generous coverage. So you would need to submit NICU bills to your plan as the primary insurer before submitting any claims to secondary insurance, potentially increasing the amount that you have to pay out of pocket. ### Note Once your child is born, you’ll need to contact your health insurance company to add them to your policy before any NICU costs can be covered. ## How to Get Help With NICU Costs If your health insurance doesn’t cover newborn intensive care, or if you don’t have health insurance, there are a few things you might be able to do to lighten some of the load financially. You can start by contacting the hospital’s NICU case manager or social worker. They should be able to discuss possible options for covering NICU expenses, including applying for [Medicaid](https://www.investopedia.com/terms/m/medicaid.asp) or [Supplemental Security Income (SSI)](https://www.investopedia.com/terms/s/ssi.asp) benefits. Newborns born to mothers who already have Medicaid are automatically covered. In cases where the mother does not qualify for Medicaid, the baby still may be eligible. Medicaid eligibility is based on household size, income, and financial resources. You can apply for Medicaid for your newborn or for yourself through your local Department of Social Services office. All babies that meet the Low Birth Weight (LBW) requirements qualify for SSI. A baby is considered LBW if they weighed 1,200 grams or less at birth, or if they weighed 2,000 grams or less at birth and are less than the 3rd percentile of size for their age. Babies that are non-LBW may still qualify for SSI if they have certain conditions that may affect them for a year or more. While SSI does not directly cover healthcare costs, qualifying for SSI automatically makes your baby eligible for Medicaid in 35 states, and applying for SSI is an important first step in the process. SSI only pays $30 per month while your baby is in the hospital, but can pay up to $841 per month when your baby comes home if your family is exceptionally low income. Most hospitals have social workers who furnish paperwork to the [Social Security Administration (SSA)](https://www.investopedia.com/terms/s/ssa.asp) to qualify for SSI. If yours does not, you can file online at [ssa.gov](https://www.ssa.gov/) and an SSA employee will contact you to complete the application. You could talk to the hospital about other options if you’re not eligible for Medicaid or SSI benefits. For example, you may be eligible for charity assistance based on your income and financial resources. Or the hospital may work with you to negotiate a discounted payment plan. You can contact the hospital’s billing department to discuss possible solutions to fit your situation. ### Tip Thoroughly review any medical bills you receive from the hospital or specific providers to look for errors or charges that you don’t understand, then contact the biller to have those issues addressed. ## Can Neonatal Intensive Care Unit (NICU) Babies Get Supplemental Security Income (SSI)? Newborns who have certain disabling conditions may be eligible to receive Supplemental Security Income (SSI) benefits. To qualify, your child must meet the LBW requirements outlined above, or have a condition that’s expected to seriously limit their activities for a period of 12 months or more. ## How Much Is a Week’s Stay in the NICU? The cost of a weeklong stay in the NICU can vary by hospital. For example, Nationwide Children’s Hospital typically charges $8,600 per day for NICU level 2 care. Based on those numbers, you could pay as much as $60,200 for a seven-day NICU stay. If your child has to go to the neonatal unit, ask for itemized bills so you can see what you are being charged for. ## Does Insurance Cover Premature Birth? Health insurance plans can cover premature birth and NICU costs if neonatal care is necessary. If you anticipate any complications that might result in an NICU stay for your newborn, it’s important to ask your insurer what will be covered and what won’t. If you’re married, you can also check your spouse’s coverage, and the baby will be eligible for both health plans. ## The Bottom Line Having your baby spend the first days or weeks of its life in neonatal intensive care can be strenuous enough without having to worry about staggering medical bills. Understanding what’s likely to be covered by your health insurance and what options you have for getting financial assistance can help reduce your stress with financial issues.	The neonatal intensive care unit (NICU) is designed to provide around-the-clock healthcare for babies who are born prematurely or with life-threatening health conditions. A NICU stay can be emotional and stressful for parents, and there may be financial aftershocks once medical bills begin arriving. Newborn intensive care costs can be significantly higher than standard newborn care costs. While your insurance should pay for some of your medical expenses, it may not cover everything. Key Takeaways A neonatal intensive care unit (NICU) provides around-the-clock care for prematurely born babies and newborns with certain health conditions.If your baby has to go to the NICU shortly after birth, it’s important to add them to your health insurance policy as soon as possible.Health insurance may cover some, though not all, of the costs associated with neonatal intensive care.Parents whose insurance does not cover the full cost of NICU or who are uninsured may qualify for financial aid through the hospital or their state’s Medicaid program. Average Cost of a NICU Stay The NICU provides specialized care to newborns who are born early or are sick. While in the NICU, your baby might be seen by a number of healthcare staff, including a neonatologist, respiratory therapist, neonatal nurse practitioner, and dietitian. In general, your baby will receive more intensive care and attention during their NICU stay than during a typical hospital stay. From a cost perspective, this means that you’ll likely pay more for neonatal intensive care than you would for standard newborn care. According to a Michigan Medicine study of nearly 400,000 deliveries that required hospitalization from 2016 to 2019, the average NICU bill was $4,969. In 9% of cases where neonatal intensive care was needed, the bill exceeded $10,000. $3,000 to $20,000 The price range of a NICU stay per day as of 2023. The amount that you might pay for NICU care can depend on several factors, including: Why your baby was transferred to the NICUHow long they remain in the NICUThe level of care that they receiveThe hospital where the NICU is located For moderate to late preterm babies, the typical NICU stay is about 17 days. Some newborns may go home earlier from the NICU, while others may stay for several weeks or even months, depending on the extent of their care needs. Generally, the longer the stay, the more you can expect an NICU visit to cost. Important In addition to NICU stay costs, new parents may also need to consider the possibility of other added costs if the mother requires specialized care to deal with complications stemming from the birth. Does Insurance Cover NICU Costs? Whether your health insurance will cover some or all of the costs of neonatal intensive care depends on your policy. If your baby is admitted to the NICU, it’s important to contact your health insurance company to ask about your coverage. Specifically, you can ask these questions: Does my plan pay for neonatal intensive care?What costs are included or excluded from coverage?What part of the medical bills am I responsible for? You’ll also need to consider how your financial obligation may be affected if your child is covered by more than one health insurance plan. For example, if you’re married and you and your spouse both have health insurance through your employer, you’ll need to be aware of whether the coordination of benefits rule applies. Coordination of benefits is a provision that’s included in most healthcare plans and provides up to 100% coverage for medical services. Under this rule, your plan is primarily designed to cover you while your spouse’s plan primarily covers them. When you have children, your insurance companies can use the birthday rule to decide which policy should cover the child. The child’s primary plan would be the one that belongs to the parent whose birthday comes first in the year. This means that if your birthday comes first, your child will be covered by your plan first, even if your spouse’s plan offers more generous coverage. So you would need to submit NICU bills to your plan as the primary insurer before submitting any claims to secondary insurance, potentially increasing the amount that you have to pay out of pocket. Note Once your child is born, you’ll need to contact your health insurance company to add them to your policy before any NICU costs can be covered. How to Get Help With NICU Costs If your health insurance doesn’t cover newborn intensive care, or if you don’t have health insurance, there are a few things you might be able to do to lighten some of the load financially. You can start by contacting the hospital’s NICU case manager or social worker. They should be able to discuss possible options for covering NICU expenses, including applying for Medicaid or Supplemental Security Income (SSI) benefits. Newborns born to mothers who already have Medicaid are automatically covered. In cases where the mother does not qualify for Medicaid, the baby still may be eligible. Medicaid eligibility is based on household size, income, and financial resources. You can apply for Medicaid for your newborn or for yourself through your local Department of Social Services office. All babies that meet the Low Birth Weight (LBW) requirements qualify for SSI. A baby is considered LBW if they weighed 1,200 grams or less at birth, or if they weighed 2,000 grams or less at birth and are less than the 3rd percentile of size for their age. Babies that are non-LBW may still qualify for SSI if they have certain conditions that may affect them for a year or more. While SSI does not directly cover healthcare costs, qualifying for SSI automatically makes your baby eligible for Medicaid in 35 states, and applying for SSI is an important first step in the process. SSI only pays $30 per month while your baby is in the hospital, but can pay up to $841 per month when your baby comes home if your family is exceptionally low income. Most hospitals have social workers who furnish paperwork to the Social Security Administration (SSA) to qualify for SSI. If yours does not, you can file online at ssa.gov and an SSA employee will contact you to complete the application. You could talk to the hospital about other options if you’re not eligible for Medicaid or SSI benefits. For example, you may be eligible for charity assistance based on your income and financial resources. Or the hospital may work with you to negotiate a discounted payment plan. You can contact the hospital’s billing department to discuss possible solutions to fit your situation. Tip Thoroughly review any medical bills you receive from the hospital or specific providers to look for errors or charges that you don’t understand, then contact the biller to have those issues addressed. Can Neonatal Intensive Care Unit (NICU) Babies Get Supplemental Security Income (SSI)? Newborns who have certain disabling conditions may be eligible to receive Supplemental Security Income (SSI) benefits. To qualify, your child must meet the LBW requirements outlined above, or have a condition that’s expected to seriously limit their activities for a period of 12 months or more. How Much Is a Week’s Stay in the NICU? The cost of a weeklong stay in the NICU can vary by hospital. For example, Nationwide Children’s Hospital typically charges $8,600 per day for NICU level 2 care. Based on those numbers, you could pay as much as $60,200 for a seven-day NICU stay. If your child has to go to the neonatal unit, ask for itemized bills so you can see what you are being charged for. Does Insurance Cover Premature Birth? Health insurance plans can cover premature birth and NICU costs if neonatal care is necessary. If you anticipate any complications that might result in an NICU stay for your newborn, it’s important to ask your insurer what will be covered and what won’t. If you’re married, you can also check your spouse’s coverage, and the baby will be eligible for both health plans. The Bottom Line Having your baby spend the first days or weeks of its life in neonatal intensive care can be strenuous enough without having to worry about staggering medical bills. Understanding what’s likely to be covered by your health insurance and what options you have for getting financial assistance can help reduce your stress with financial issues.	[ [ "standard newborn care costs", "https://www.investopedia.com/articles/pf/08/budgeting-for-baby.asp" ], [ "health insurance", "https://www.investopedia.com/terms/h/healthinsurance.asp" ], [ "Medicaid", "https://www.investopedia.com/terms/m/medicaid.asp" ], [ "Supplemental Security Income (SSI)", "https://www.investopedia.com/terms/s/ssi.asp" ], [ "Social Security Administration (SSA)", "https://www.investopedia.com/terms/s/ssa.asp" ], [ "ssa.gov", "https://www.ssa.gov/" ] ]
https://www.investopedia.com/articles/investing/092915/5-countries-produce-most-carbon-dioxide-co2.asp	The 5 Countries That Produce the Most Carbon Dioxide (CO2)	<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"> Carbon dioxide (CO<sub>2</sub>) is an odorless gas that is highly important to life on Earth. As a greenhouse gas, an excessive concentration of CO<sub>2</sub> can disrupt the natural regulation of temperature in the atmosphere and lead to global warming. </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 concentration of CO<sub>2</sub> has especially increased as a result of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/industrial-revolution.asp">Industrial Revolution</a> and exponential growth in manufacturing activities around the world. Deforestation, agriculture, and fossil fuel use are the primary sources of CO<sub>2</sub>. </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"> According to the most recent data from the Global Carbon Atlas, the top five countries that have produced in aggregate the most CO<sub>2</sub> since the Industrial Revolution are the United States, China, Russia, Germany, and the United Kingdom.<span class="ql-inline-citation" data-cite="43"></span> In 2020, the largest emitters were in China, the U.S., India, Russia, and Japan.<span class="ql-inline-citation" data-cite="40"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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>Carbon dioxide, which is a greenhouse gas, has become a major concern as climate change becomes a bigger issue. </li><li>The top five CO<sub>2</sub>-producing nations in 2021 were China, the United States, India, Russia, and Japan.</li><li>The U.S. has the bulk of its emissions coming from the transportation sector; burning fossil fuel for cars, ships, planes, etc.<span class="ql-inline-citation" data-cite="44"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-1-china"></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"> 1. China </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> China is the largest emitter of carbon dioxide gas in the world, with 11,336 million metric tons emitted in 2021.<span class="ql-inline-citation" data-cite="40"></span> The primary source of CO<sub>2</sub> emissions in China is fossil fuels, most notably those that burn <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/how-many-people-work-coal-industry/">coal</a>. About 58% of the total energy generated by China in 2021 came from coal alone, and because coal is rich in carbon, burning it in China's power and industrial plants and boilers releases large amounts of CO<sub>2</sub> into the atmosphere.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Also, China is one of the largest importers of oil, which contributes to large CO<sub>2</sub> emissions through the country's use of motor vehicles. China plans to reduce its dependence on coal and decrease overall pollution in large cities in the future by generating more electricity using nuclear, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/renewable_resource.asp">renewable energy</a> sources, and natural gas.<span class="ql-inline-citation" data-cite="35"></span><span class="ql-inline-citation" data-cite="5"></span><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-callout mntl-block" id="mntl-sc-block_14-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The $1 trillion Infrastructure Investment and Jobs Act was signed into law by President Joe Biden on Nov. 15, 2021.<span class="ql-inline-citation" data-cite="37"></span><span class="ql-inline-citation" data-cite="36"></span><br>This bill covers funding to improve infrastructure across the U.S. and funds include $7.5 billion for a nationwide network of electric vehicle charging stations and $65 billion to update power lines, prevent hacking of the power grid, and provide clean energy. All of these areas have the potential to improve CO<sub>2</sub> emissions in the United States.<span class="ql-inline-citation" data-cite="37"></span><br/></br></p></div></div></div> <span class="heading-toc" id="toc-2-the-united-states"></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"> 2. The United States </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The U.S. is the second-largest emitter of CO<sub>2</sub>, with 5,032 million metric tons of total carbon dioxide emissions in 2021.<span class="ql-inline-citation" data-cite="40"></span> The largest sources of CO<sub>2 </sub>emissions in the U.S. came from transportation, electric power, and industry in 2021.<span class="ql-inline-citation" data-cite="31"></span> Even though the U.S. government undertook significant efforts to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/erpa.asp">reduce</a> the reliance on coal for electricity generation, the country remains a major producer of crude oil.<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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> The U.S. economy is also heavily reliant on the transportation sector, which burns petroleum for trucks, ships, trains, and planes. U.S. consumers especially depend on their cars as their primary means of transportation, and this also contributes to the CO<sub>2</sub> footprint through gasoline and diesel.<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_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Another large contributor to CO<sub>2 </sub>emissions in the U.S. is industry, which burns fossil fuels for energy. Also, the U.S. chemical sector uses various chemical reactions necessary to produce goods from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rawmaterials.asp">raw materials</a>, which in the process, emit CO<sub>2</sub>.<span class="ql-inline-citation" data-cite="47"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <span class="heading-toc" id="toc-3-india"></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"> 3. India </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> India is the third-largest CO<sub>2</sub> emitter, with 2,674 million metric tons of total <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/carbontrade.asp">carbon dioxide</a> emissions produced in 2021. Coal is the main energy source for India, supplying about 44% of the energy in the country. Petroleum and other liquids provided about 24%.<span class="ql-inline-citation" data-cite="40"></span><span class="ql-inline-citation" data-cite="41"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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/articles/fundamental-analysis/12/natural-gas-primer.asp">Natural gas</a> accounts for only 6% of India's energy consumption. However, the country plans to increase the natural gas market share to 15% by 2030 to reduce air pollution and use cleaner-burning fuels.<span class="ql-inline-citation" data-cite="41"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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/gvdTm/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Total Share of CO2 Emissions by Country Since 1750"></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-4-russia"></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. Russia </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/11/investing-in-russia.asp">Russia</a> is the fourth-largest contributor to CO<sub>2</sub> emissions in the world, emitting 1,712 million metric tons in 2021. Russia has one of the largest natural gas deposits in the world, and natural gas is the primary source of energy and power generation in the country.<span class="ql-inline-citation" data-cite="40"></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_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Coal, which is widely used in chemical and other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/basic_materials.asp">basic material</a> industries and for power generation in Russia, is also a major contributor to Russia's CO<sub>2</sub> emissions. Russia has also been a large supplier of natural gas to other countries, primarily in Europe. However, European countries have been cutting back on Russian natural gas due to the country's invasion of Ukraine, and Russia is also cutting back on its supply of gas to Europe.<span class="ql-inline-citation" data-cite="38"></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_34-0"></div> <span class="heading-toc" id="toc-5-japan"></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"> 5. Japan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Japan is the fifth-largest producer of CO<sub>2</sub> emissions, with 1,602 million metric tons in 2021. Japan's energy fuel mix changed after the 2011 nuclear accident at Fukushima. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/oil-4689767">Oil</a> is the largest source of energy in Japan, with its total share of energy consumption being 38% in 2021, which is the latest figure available.<span class="ql-inline-citation" data-cite="40"></span><span class="ql-inline-citation" data-cite="42"></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"> Coal still makes up a large share of energy consumption in Japan: 25%. Nuclear gas is becoming more prominent in Japan after the nuclear disaster and now accounts for 23% of energy consumption as of 2021. The country's energy plan from 2018 has the goal of increasing nuclear-fired power production by 2030 to reduce the dependency on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hydrocarbon.asp">hydrocarbon</a> fuel imports.<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_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-which-countries-have-produced-the-most-carbon-dioxide-emissions"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Countries Have Produced the Most Carbon Dioxide Emissions?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The countries that have produced the most carbon dioxide emissions since 1750 have been the United States, China, Russia, Germany, the U.S., and Japan.<span class="ql-inline-citation" data-cite="43"></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-main-source-of-co2-emissions"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Main Source of CO2 Emissions?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Burning coal is the most significant contributor to anthropogenic CO<sub>2</sub> emissions. Across all fossil fuels, coal is the most carbon-intensive. Given how inexpensive and ubiquitous a source of energy coal is, it has powered electricity grids for decades worldwide.<span class="ql-inline-citation" data-cite="29"></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-why-are-chinas-emissions-so-high"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Are China's Emissions So High?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As the world's second-largest manufacturer, much of China's industrial production is powered by coal. Rapid urbanization has also intensified the country's CO<sub>2</sub> emissions. Cement and steel production, which are both required for infrastructure, produce significant amounts of C0<sub>2</sub>. Half of the world's steel is manufactured in China.<span class="ql-inline-citation" data-cite="40"></span><span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="39"></span><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_46-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Carbon dioxide is the main greenhouse gas emitted by humans through different things like burning fossil fuels, deforestation, and (rising) industrial activities. The countries that are responsible for emitting the most CO<sub>2</sub> in the world include the most advanced, including the U.S. and Japan, and some of the fastest-growing economies—notably, China, India, and Russia. While rising CO<sub>2</sub> levels are a cause for concern, this gas does serve a purpose. It helps keep the Earth's temperature above freezing and helps lower pH levels in the world's oceans.<span class="ql-inline-citation" data-cite="48"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> <em>Correction</em>―<em>Oct. 10, 2022:</em> A previous version of this article incorrectly stated the timeframe under consideration and referred to metric tons rather than millions of metric tons (megatonnes). </p></div>	Carbon dioxide (CO2) is an odorless gas that is highly important to life on Earth. As a greenhouse gas, an excessive concentration of CO2 can disrupt the natural regulation of temperature in the atmosphere and lead to global warming. The concentration of CO2 has especially increased as a result of the [Industrial Revolution](https://www.investopedia.com/terms/i/industrial-revolution.asp) and exponential growth in manufacturing activities around the world. Deforestation, agriculture, and fossil fuel use are the primary sources of CO2. According to the most recent data from the Global Carbon Atlas, the top five countries that have produced in aggregate the most CO2 since the Industrial Revolution are the United States, China, Russia, Germany, and the United Kingdom. In 2020, the largest emitters were in China, the U.S., India, Russia, and Japan. ### Key Takeaways * Carbon dioxide, which is a greenhouse gas, has become a major concern as climate change becomes a bigger issue. * The top five CO2-producing nations in 2021 were China, the United States, India, Russia, and Japan. * The U.S. has the bulk of its emissions coming from the transportation sector; burning fossil fuel for cars, ships, planes, etc. ## 1. China China is the largest emitter of carbon dioxide gas in the world, with 11,336 million metric tons emitted in 2021. The primary source of CO2 emissions in China is fossil fuels, most notably those that burn [coal](https://www.investopedia.com/news/how-many-people-work-coal-industry/). About 58% of the total energy generated by China in 2021 came from coal alone, and because coal is rich in carbon, burning it in China's power and industrial plants and boilers releases large amounts of CO2 into the atmosphere. Also, China is one of the largest importers of oil, which contributes to large CO2 emissions through the country's use of motor vehicles. China plans to reduce its dependence on coal and decrease overall pollution in large cities in the future by generating more electricity using nuclear, [renewable energy](https://www.investopedia.com/terms/r/renewable_resource.asp) sources, and natural gas. ### The $1 trillion Infrastructure Investment and Jobs Act was signed into law by President Joe Biden on Nov. 15, 2021. This bill covers funding to improve infrastructure across the U.S. and funds include $7.5 billion for a nationwide network of electric vehicle charging stations and $65 billion to update power lines, prevent hacking of the power grid, and provide clean energy. All of these areas have the potential to improve CO2 emissions in the United States. ## 2. The United States The U.S. is the second-largest emitter of CO2, with 5,032 million metric tons of total carbon dioxide emissions in 2021. The largest sources of CO2 emissions in the U.S. came from transportation, electric power, and industry in 2021. Even though the U.S. government undertook significant efforts to [reduce](https://www.investopedia.com/terms/e/erpa.asp) the reliance on coal for electricity generation, the country remains a major producer of crude oil. The U.S. economy is also heavily reliant on the transportation sector, which burns petroleum for trucks, ships, trains, and planes. U.S. consumers especially depend on their cars as their primary means of transportation, and this also contributes to the CO2 footprint through gasoline and diesel. Another large contributor to CO2 emissions in the U.S. is industry, which burns fossil fuels for energy. Also, the U.S. chemical sector uses various chemical reactions necessary to produce goods from [raw materials](https://www.investopedia.com/terms/r/rawmaterials.asp), which in the process, emit CO2. ## 3. India India is the third-largest CO2 emitter, with 2,674 million metric tons of total [carbon dioxide](https://www.investopedia.com/terms/c/carbontrade.asp) emissions produced in 2021. Coal is the main energy source for India, supplying about 44% of the energy in the country. Petroleum and other liquids provided about 24%. [Natural gas](https://www.investopedia.com/articles/fundamental-analysis/12/natural-gas-primer.asp) accounts for only 6% of India's energy consumption. However, the country plans to increase the natural gas market share to 15% by 2030 to reduce air pollution and use cleaner-burning fuels. ## 4. Russia [Russia](https://www.investopedia.com/articles/basics/11/investing-in-russia.asp) is the fourth-largest contributor to CO2 emissions in the world, emitting 1,712 million metric tons in 2021. Russia has one of the largest natural gas deposits in the world, and natural gas is the primary source of energy and power generation in the country. Coal, which is widely used in chemical and other [basic material](https://www.investopedia.com/terms/b/basic_materials.asp) industries and for power generation in Russia, is also a major contributor to Russia's CO2 emissions. Russia has also been a large supplier of natural gas to other countries, primarily in Europe. However, European countries have been cutting back on Russian natural gas due to the country's invasion of Ukraine, and Russia is also cutting back on its supply of gas to Europe. ## 5. Japan Japan is the fifth-largest producer of CO2 emissions, with 1,602 million metric tons in 2021. Japan's energy fuel mix changed after the 2011 nuclear accident at Fukushima. [Oil](https://www.investopedia.com/oil-4689767) is the largest source of energy in Japan, with its total share of energy consumption being 38% in 2021, which is the latest figure available. Coal still makes up a large share of energy consumption in Japan: 25%. Nuclear gas is becoming more prominent in Japan after the nuclear disaster and now accounts for 23% of energy consumption as of 2021. The country's energy plan from 2018 has the goal of increasing nuclear-fired power production by 2030 to reduce the dependency on [hydrocarbon](https://www.investopedia.com/terms/h/hydrocarbon.asp) fuel imports. ## Which Countries Have Produced the Most Carbon Dioxide Emissions? The countries that have produced the most carbon dioxide emissions since 1750 have been the United States, China, Russia, Germany, the U.S., and Japan. ## What Is the Main Source of CO2 Emissions? Burning coal is the most significant contributor to anthropogenic CO2 emissions. Across all fossil fuels, coal is the most carbon-intensive. Given how inexpensive and ubiquitous a source of energy coal is, it has powered electricity grids for decades worldwide. ## Why Are China's Emissions So High? As the world's second-largest manufacturer, much of China's industrial production is powered by coal. Rapid urbanization has also intensified the country's CO2 emissions. Cement and steel production, which are both required for infrastructure, produce significant amounts of C02. Half of the world's steel is manufactured in China. ## The Bottom Line Carbon dioxide is the main greenhouse gas emitted by humans through different things like burning fossil fuels, deforestation, and (rising) industrial activities. The countries that are responsible for emitting the most CO2 in the world include the most advanced, including the U.S. and Japan, and some of the fastest-growing economies—notably, China, India, and Russia. While rising CO2 levels are a cause for concern, this gas does serve a purpose. It helps keep the Earth's temperature above freezing and helps lower pH levels in the world's oceans. Correction―Oct. 10, 2022: A previous version of this article incorrectly stated the timeframe under consideration and referred to metric tons rather than millions of metric tons (megatonnes).	Carbon dioxide (CO2) is an odorless gas that is highly important to life on Earth. As a greenhouse gas, an excessive concentration of CO2 can disrupt the natural regulation of temperature in the atmosphere and lead to global warming. The concentration of CO2 has especially increased as a result of the Industrial Revolution and exponential growth in manufacturing activities around the world. Deforestation, agriculture, and fossil fuel use are the primary sources of CO2. According to the most recent data from the Global Carbon Atlas, the top five countries that have produced in aggregate the most CO2 since the Industrial Revolution are the United States, China, Russia, Germany, and the United Kingdom. In 2020, the largest emitters were in China, the U.S., India, Russia, and Japan. Key Takeaways Carbon dioxide, which is a greenhouse gas, has become a major concern as climate change becomes a bigger issue. The top five CO2-producing nations in 2021 were China, the United States, India, Russia, and Japan.The U.S. has the bulk of its emissions coming from the transportation sector; burning fossil fuel for cars, ships, planes, etc. 1. China China is the largest emitter of carbon dioxide gas in the world, with 11,336 million metric tons emitted in 2021. The primary source of CO2 emissions in China is fossil fuels, most notably those that burn coal. About 58% of the total energy generated by China in 2021 came from coal alone, and because coal is rich in carbon, burning it in China's power and industrial plants and boilers releases large amounts of CO2 into the atmosphere. Also, China is one of the largest importers of oil, which contributes to large CO2 emissions through the country's use of motor vehicles. China plans to reduce its dependence on coal and decrease overall pollution in large cities in the future by generating more electricity using nuclear, renewable energy sources, and natural gas. The $1 trillion Infrastructure Investment and Jobs Act was signed into law by President Joe Biden on Nov. 15, 2021.This bill covers funding to improve infrastructure across the U.S. and funds include $7.5 billion for a nationwide network of electric vehicle charging stations and $65 billion to update power lines, prevent hacking of the power grid, and provide clean energy. All of these areas have the potential to improve CO2 emissions in the United States. 2. The United States The U.S. is the second-largest emitter of CO2, with 5,032 million metric tons of total carbon dioxide emissions in 2021. The largest sources of CO2 emissions in the U.S. came from transportation, electric power, and industry in 2021. Even though the U.S. government undertook significant efforts to reduce the reliance on coal for electricity generation, the country remains a major producer of crude oil. The U.S. economy is also heavily reliant on the transportation sector, which burns petroleum for trucks, ships, trains, and planes. U.S. consumers especially depend on their cars as their primary means of transportation, and this also contributes to the CO2 footprint through gasoline and diesel. Another large contributor to CO2 emissions in the U.S. is industry, which burns fossil fuels for energy. Also, the U.S. chemical sector uses various chemical reactions necessary to produce goods from raw materials, which in the process, emit CO2. 3. India India is the third-largest CO2 emitter, with 2,674 million metric tons of total carbon dioxide emissions produced in 2021. Coal is the main energy source for India, supplying about 44% of the energy in the country. Petroleum and other liquids provided about 24%. Natural gas accounts for only 6% of India's energy consumption. However, the country plans to increase the natural gas market share to 15% by 2030 to reduce air pollution and use cleaner-burning fuels. 4. Russia Russia is the fourth-largest contributor to CO2 emissions in the world, emitting 1,712 million metric tons in 2021. Russia has one of the largest natural gas deposits in the world, and natural gas is the primary source of energy and power generation in the country. Coal, which is widely used in chemical and other basic material industries and for power generation in Russia, is also a major contributor to Russia's CO2 emissions. Russia has also been a large supplier of natural gas to other countries, primarily in Europe. However, European countries have been cutting back on Russian natural gas due to the country's invasion of Ukraine, and Russia is also cutting back on its supply of gas to Europe. 5. Japan Japan is the fifth-largest producer of CO2 emissions, with 1,602 million metric tons in 2021. Japan's energy fuel mix changed after the 2011 nuclear accident at Fukushima. Oil is the largest source of energy in Japan, with its total share of energy consumption being 38% in 2021, which is the latest figure available. Coal still makes up a large share of energy consumption in Japan: 25%. Nuclear gas is becoming more prominent in Japan after the nuclear disaster and now accounts for 23% of energy consumption as of 2021. The country's energy plan from 2018 has the goal of increasing nuclear-fired power production by 2030 to reduce the dependency on hydrocarbon fuel imports. Which Countries Have Produced the Most Carbon Dioxide Emissions? The countries that have produced the most carbon dioxide emissions since 1750 have been the United States, China, Russia, Germany, the U.S., and Japan. What Is the Main Source of CO2 Emissions? Burning coal is the most significant contributor to anthropogenic CO2 emissions. Across all fossil fuels, coal is the most carbon-intensive. Given how inexpensive and ubiquitous a source of energy coal is, it has powered electricity grids for decades worldwide. Why Are China's Emissions So High? As the world's second-largest manufacturer, much of China's industrial production is powered by coal. Rapid urbanization has also intensified the country's CO2 emissions. Cement and steel production, which are both required for infrastructure, produce significant amounts of C02. Half of the world's steel is manufactured in China. The Bottom Line Carbon dioxide is the main greenhouse gas emitted by humans through different things like burning fossil fuels, deforestation, and (rising) industrial activities. The countries that are responsible for emitting the most CO2 in the world include the most advanced, including the U.S. and Japan, and some of the fastest-growing economies—notably, China, India, and Russia. While rising CO2 levels are a cause for concern, this gas does serve a purpose. It helps keep the Earth's temperature above freezing and helps lower pH levels in the world's oceans. Correction―Oct. 10, 2022: A previous version of this article incorrectly stated the timeframe under consideration and referred to metric tons rather than millions of metric tons (megatonnes).	[ [ "Industrial Revolution", "https://www.investopedia.com/terms/i/industrial-revolution.asp" ], [ "coal", "https://www.investopedia.com/news/how-many-people-work-coal-industry/" ], [ "renewable energy", "https://www.investopedia.com/terms/r/renewable_resource.asp" ], [ "reduce", "https://www.investopedia.com/terms/e/erpa.asp" ], [ "raw materials", "https://www.investopedia.com/terms/r/rawmaterials.asp" ], [ "carbon dioxide", "https://www.investopedia.com/terms/c/carbontrade.asp" ], [ "Natural gas", "https://www.investopedia.com/articles/fundamental-analysis/12/natural-gas-primer.asp" ], [ "Russia", "https://www.investopedia.com/articles/basics/11/investing-in-russia.asp" ], [ "basic material", "https://www.investopedia.com/terms/b/basic_materials.asp" ], [ "Oil", "https://www.investopedia.com/oil-4689767" ], [ "hydrocarbon", "https://www.investopedia.com/terms/h/hydrocarbon.asp" ] ]
https://www.investopedia.com/gold-price-on-may-13-rate-slips-amid-concerns-about-inflation-8647622	Gold Price on May 13: Rate Slips Amid Concerns About Inflation	<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 spot price of gold headed lower Monday, reversing a two-day rally amid concerns about inflation and how it may affect the Federal Reserve's stance on interest rates. </li><li>Consumers anticipated steeper price increases over the coming year in April than they did in March, according to a survey by the Federal Reserve Bank of New York.</li><li>A Bloomberg survey found that gold was the leading inflation hedge identified by respondents, followed by big tech stocks.</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 spot price of gold reversed two days of gains, dropping about 1.1% to $2,335.53 per ounce as of 4:30 p.m. ET Monday amid concerns about inflation and the potential impact it could have on the Federal Reserve's stance on interest rates after a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/survey-shows-consumers-bracing-for-a-year-of-rising-inflation-less-income-8647500">report</a> from the Federal Reserve Bank of New York found consumers anticipated steeper price increases over the coming year in April than they did in March. </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-consumers-raise-inflation-outlook"></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"> Consumers Raise Inflation Outlook </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A study from the New York Federal Reserve showed consumers in April raised their estimate of where inflation will be in the short and long term. That news came ahead of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-expect-in-the-markets-this-week-may13-2024-8646361">this week's reports</a> on producer and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumerpriceindex.asp">consumer prices</a>, all of which could influence when policymakers finally begin lowering borrowing costs again. </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"> Respondents to the New York Federal Reserve's Survey of Consumer Expectations in April said they saw inflation a year from now at a 3.3% annual rate, up from 3% in March. They said they expected that in five years, the rate will be at 2.8% versus a forecast of 2.6% the month before.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The Labor Department releases its April report on producer prices Tuesday, with consumer price data for last month coming on Wednesday. </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-gold-seen-as-top-inflation-hedge-followed-by-big-tech-survey-shows"></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"> Gold Seen as Top Inflation Hedge, Followed by Big Tech, Survey Shows </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Gold has managed to maintain its lead in being perceived as the top <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp">hedge</a> against inflation, though big technology stocks are also highly regarded, a recent survey of <em>Bloomberg </em>readers suggested.<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"> <em>Bloomberg's</em> latest Markets Live Pulse poll found that when asked which asset best protect against inflation, 46% of participants picked <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/exchangetradedfunds/08/gold-etf-gold-futures-showdown.asp">gold</a>, while 30.4% went with U.S. tech-giant stocks such as Nvidia. Bitcoin was the choice of 5.1%, while other options captured 18.1%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></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_17-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:70.9%;"> <img alt="XAUUSD" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/wOL1UHaPo4qaEvPu2uws9UopeEQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-13_16-34-08-d4702a1858f0400dba52fd3a0ad7c9cf.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/wOL1UHaPo4qaEvPu2uws9UopeEQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-13_16-34-08-d4702a1858f0400dba52fd3a0ad7c9cf.png" data-srcset="https://www.investopedia.com/thmb/zueQpQTKbUt-EgPZ8jkdDOX9XTI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-13_16-34-08-d4702a1858f0400dba52fd3a0ad7c9cf.png 750w" data-tracking-container="true" height="1066" id="mntl-sc-block-image_1-0" width="1502"/> <noscript> <img alt="XAUUSD" class="img--noscript universal-image__image" height="1066" sizes="750px" src="https://www.investopedia.com/thmb/wOL1UHaPo4qaEvPu2uws9UopeEQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-13_16-34-08-d4702a1858f0400dba52fd3a0ad7c9cf.png" srcset="https://www.investopedia.com/thmb/zueQpQTKbUt-EgPZ8jkdDOX9XTI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-13_16-34-08-d4702a1858f0400dba52fd3a0ad7c9cf.png 750w" width="1502"/> </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:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	### Key Takeaways * The spot price of gold headed lower Monday, reversing a two-day rally amid concerns about inflation and how it may affect the Federal Reserve's stance on interest rates. * Consumers anticipated steeper price increases over the coming year in April than they did in March, according to a survey by the Federal Reserve Bank of New York. * A Bloomberg survey found that gold was the leading inflation hedge identified by respondents, followed by big tech stocks. The spot price of gold reversed two days of gains, dropping about 1.1% to $2,335.53 per ounce as of 4:30 p.m. ET Monday amid concerns about inflation and the potential impact it could have on the Federal Reserve's stance on interest rates after a [report](https://www.investopedia.com/survey-shows-consumers-bracing-for-a-year-of-rising-inflation-less-income-8647500) from the Federal Reserve Bank of New York found consumers anticipated steeper price increases over the coming year in April than they did in March. ## Consumers Raise Inflation Outlook A study from the New York Federal Reserve showed consumers in April raised their estimate of where inflation will be in the short and long term. That news came ahead of [this week's reports](https://www.investopedia.com/what-to-expect-in-the-markets-this-week-may13-2024-8646361) on producer and [consumer prices](https://www.investopedia.com/terms/c/consumerpriceindex.asp), all of which could influence when policymakers finally begin lowering borrowing costs again. Respondents to the New York Federal Reserve's Survey of Consumer Expectations in April said they saw inflation a year from now at a 3.3% annual rate, up from 3% in March. They said they expected that in five years, the rate will be at 2.8% versus a forecast of 2.6% the month before. The Labor Department releases its April report on producer prices Tuesday, with consumer price data for last month coming on Wednesday. ## Gold Seen as Top Inflation Hedge, Followed by Big Tech, Survey Shows Gold has managed to maintain its lead in being perceived as the top [hedge](https://www.investopedia.com/terms/h/hedge.asp) against inflation, though big technology stocks are also highly regarded, a recent survey of Bloomberg readers suggested. Bloomberg's latest Markets Live Pulse poll found that when asked which asset best protect against inflation, 46% of participants picked [gold](https://www.investopedia.com/articles/exchangetradedfunds/08/gold-etf-gold-futures-showdown.asp), while 30.4% went with U.S. tech-giant stocks such as Nvidia. Bitcoin was the choice of 5.1%, while other options captured 18.1%. ![XAUUSD]() ![XAUUSD](https://www.investopedia.com/thmb/wOL1UHaPo4qaEvPu2uws9UopeEQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-13_16-34-08-d4702a1858f0400dba52fd3a0ad7c9cf.png) TradingView Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	Key Takeaways The spot price of gold headed lower Monday, reversing a two-day rally amid concerns about inflation and how it may affect the Federal Reserve's stance on interest rates. Consumers anticipated steeper price increases over the coming year in April than they did in March, according to a survey by the Federal Reserve Bank of New York.A Bloomberg survey found that gold was the leading inflation hedge identified by respondents, followed by big tech stocks. The spot price of gold reversed two days of gains, dropping about 1.1% to $2,335.53 per ounce as of 4:30 p.m. ET Monday amid concerns about inflation and the potential impact it could have on the Federal Reserve's stance on interest rates after a report from the Federal Reserve Bank of New York found consumers anticipated steeper price increases over the coming year in April than they did in March. Consumers Raise Inflation Outlook A study from the New York Federal Reserve showed consumers in April raised their estimate of where inflation will be in the short and long term. That news came ahead of this week's reports on producer and consumer prices, all of which could influence when policymakers finally begin lowering borrowing costs again. Respondents to the New York Federal Reserve's Survey of Consumer Expectations in April said they saw inflation a year from now at a 3.3% annual rate, up from 3% in March. They said they expected that in five years, the rate will be at 2.8% versus a forecast of 2.6% the month before. The Labor Department releases its April report on producer prices Tuesday, with consumer price data for last month coming on Wednesday. Gold Seen as Top Inflation Hedge, Followed by Big Tech, Survey Shows Gold has managed to maintain its lead in being perceived as the top hedge against inflation, though big technology stocks are also highly regarded, a recent survey of Bloomberg readers suggested. Bloomberg's latest Markets Live Pulse poll found that when asked which asset best protect against inflation, 46% of participants picked gold, while 30.4% went with U.S. tech-giant stocks such as Nvidia. Bitcoin was the choice of 5.1%, while other options captured 18.1%. TradingView Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "report", "https://www.investopedia.com/survey-shows-consumers-bracing-for-a-year-of-rising-inflation-less-income-8647500" ], [ "this week's reports", "https://www.investopedia.com/what-to-expect-in-the-markets-this-week-may13-2024-8646361" ], [ "consumer prices", "https://www.investopedia.com/terms/c/consumerpriceindex.asp" ], [ "hedge", "https://www.investopedia.com/terms/h/hedge.asp" ], [ "gold", "https://www.investopedia.com/articles/exchangetradedfunds/08/gold-etf-gold-futures-showdown.asp" ], [ "XAUUSD", "https://www.investopedia.com/thmb/wOL1UHaPo4qaEvPu2uws9UopeEQ=/1500x0/filters:no_upscale(" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/what-bank-executives-are-saying-about-the-us-economy-in-earnings-calls-8630781	What Bank Executives Are Saying About the US Economy in Earnings Calls	<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>JPMorgan Chase CEO Jamie Dimon and executives of other banks cautioned in earnings calls Friday that while the economy has remained resilient, persistently high inflation and elevated interest rates could have negative impacts.</li><li>Dimon was the least optimistic of the executives who spoke Friday, echoing statements he made in his annual shareholder letter earlier this week.</li><li>Shares of JPMorgan tumbled on Friday following its earnings call, while Citi and Wells Fargo shares also finished lower.</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 earnings season kicked off Friday as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/jpmorgan-q1-fy2024-earnings-8630503">JPMorgan Chase</a> (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPM">JPM</a>), <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wells-fargo-q1-fy2024-earnings-8630504">Wells Fargo</a> (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WFC">WFC</a>), and <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/citi-q1-fy2024-earnings-restructuring-8630506">Citigroup</a> (<a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=C">C</a>) released quarterly results, with executives cautioning that while the economy has remained resilient, persistently high inflation and elevated interest rates could have negative impacts. </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"> JPMorgan shares suffered the most in Friday's session, falling 6.5%, while Citi shares lost 1.7% and Wells Fargo shares finished 0.4% lower. </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"> “While we remain confident in our ability to produce strong returns and manage risk across a range of scenarios, the economic, geopolitical, and regulatory uncertainties that we have been talking about for some time remain prominent, and we are focused on being prepared to navigate those challenges as well as any others that may come our way," JPMorgan <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> Jeremy Barnum said during the company's earnings call.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> JPMorgan CEO Jamie Dimon said on the call that JPMorgan Chase’s customers are “in pretty good shape,” but cautioned that a number of factors including high interest rates and inflation could change the economic outlook for the bank's consumer and business customers. </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"> Dimon was the least optimistic of the executives who spoke Friday, echoing statements he made in his <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/4-key-takeaways-from-jamie-dimon-annual-shareholder-letter-8628197">annual shareholder letter</a> earlier this week that JPMorgan is prepared for a wide range of economic situations, including higher interest rates or a recession, and that he feels less confident than most that the U.S. economy will execute a "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/softlanding.asp">soft landing</a>," avoiding a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/recession.asp">recession</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"> Wells Fargo CFO Mike Santomassimo said in the company's earnings call some investors are looking to the 2024 presidential election as a factor in how aggressively they want to invest, but interest rates and the impact they could have in the long term are the dominant factor. </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"> "I think at this point, what we're seeing most is related to the overall sort of macroeconomic environment we're in with such high rates, and people having some uncertainty just generally around where things go from here," Santomassimo said.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Citigroup CEO Jane Fraser said the global economic environment so far this year has been a story of "economic resiliency supported by tight labor markets and the consumer." Fraser was notably more optimistic than others, and said conditions in a number of international markets and the U.S. are disinflationary, suggesting a soft landing could be increasingly likely.<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"> Citi's CFO Mark Mason, however, said that while Citi thinks a soft landing is still likely, other risks to the economy could persist if interest rates remain elevated for too long.<span class="ql-inline-citation" data-cite="7"></span> </p></div>	### Key Takeaways * JPMorgan Chase CEO Jamie Dimon and executives of other banks cautioned in earnings calls Friday that while the economy has remained resilient, persistently high inflation and elevated interest rates could have negative impacts. * Dimon was the least optimistic of the executives who spoke Friday, echoing statements he made in his annual shareholder letter earlier this week. * Shares of JPMorgan tumbled on Friday following its earnings call, while Citi and Wells Fargo shares also finished lower. The earnings season kicked off Friday as [JPMorgan Chase](https://www.investopedia.com/jpmorgan-q1-fy2024-earnings-8630503) ([JPM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPM)), [Wells Fargo](https://www.investopedia.com/wells-fargo-q1-fy2024-earnings-8630504) ([WFC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WFC)), and [Citigroup](https://www.investopedia.com/citi-q1-fy2024-earnings-restructuring-8630506) ([C](https://www.investopedia.com/markets/quote?tvwidgetsymbol=C)) released quarterly results, with executives cautioning that while the economy has remained resilient, persistently high inflation and elevated interest rates could have negative impacts. JPMorgan shares suffered the most in Friday's session, falling 6.5%, while Citi shares lost 1.7% and Wells Fargo shares finished 0.4% lower. “While we remain confident in our ability to produce strong returns and manage risk across a range of scenarios, the economic, geopolitical, and regulatory uncertainties that we have been talking about for some time remain prominent, and we are focused on being prepared to navigate those challenges as well as any others that may come our way," JPMorgan [Chief Financial Officer (CFO)](https://www.investopedia.com/terms/c/cfo.asp) Jeremy Barnum said during the company's earnings call. JPMorgan CEO Jamie Dimon said on the call that JPMorgan Chase’s customers are “in pretty good shape,” but cautioned that a number of factors including high interest rates and inflation could change the economic outlook for the bank's consumer and business customers. Dimon was the least optimistic of the executives who spoke Friday, echoing statements he made in his [annual shareholder letter](https://www.investopedia.com/4-key-takeaways-from-jamie-dimon-annual-shareholder-letter-8628197) earlier this week that JPMorgan is prepared for a wide range of economic situations, including higher interest rates or a recession, and that he feels less confident than most that the U.S. economy will execute a "[soft landing](https://www.investopedia.com/terms/s/softlanding.asp)," avoiding a [recession](https://www.investopedia.com/terms/r/recession.asp). Wells Fargo CFO Mike Santomassimo said in the company's earnings call some investors are looking to the 2024 presidential election as a factor in how aggressively they want to invest, but interest rates and the impact they could have in the long term are the dominant factor. "I think at this point, what we're seeing most is related to the overall sort of macroeconomic environment we're in with such high rates, and people having some uncertainty just generally around where things go from here," Santomassimo said. Citigroup CEO Jane Fraser said the global economic environment so far this year has been a story of "economic resiliency supported by tight labor markets and the consumer." Fraser was notably more optimistic than others, and said conditions in a number of international markets and the U.S. are disinflationary, suggesting a soft landing could be increasingly likely. Citi's CFO Mark Mason, however, said that while Citi thinks a soft landing is still likely, other risks to the economy could persist if interest rates remain elevated for too long.	Key Takeaways JPMorgan Chase CEO Jamie Dimon and executives of other banks cautioned in earnings calls Friday that while the economy has remained resilient, persistently high inflation and elevated interest rates could have negative impacts.Dimon was the least optimistic of the executives who spoke Friday, echoing statements he made in his annual shareholder letter earlier this week.Shares of JPMorgan tumbled on Friday following its earnings call, while Citi and Wells Fargo shares also finished lower. The earnings season kicked off Friday as JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) released quarterly results, with executives cautioning that while the economy has remained resilient, persistently high inflation and elevated interest rates could have negative impacts. JPMorgan shares suffered the most in Friday's session, falling 6.5%, while Citi shares lost 1.7% and Wells Fargo shares finished 0.4% lower. “While we remain confident in our ability to produce strong returns and manage risk across a range of scenarios, the economic, geopolitical, and regulatory uncertainties that we have been talking about for some time remain prominent, and we are focused on being prepared to navigate those challenges as well as any others that may come our way," JPMorgan Chief Financial Officer (CFO) Jeremy Barnum said during the company's earnings call. JPMorgan CEO Jamie Dimon said on the call that JPMorgan Chase’s customers are “in pretty good shape,” but cautioned that a number of factors including high interest rates and inflation could change the economic outlook for the bank's consumer and business customers. Dimon was the least optimistic of the executives who spoke Friday, echoing statements he made in his annual shareholder letter earlier this week that JPMorgan is prepared for a wide range of economic situations, including higher interest rates or a recession, and that he feels less confident than most that the U.S. economy will execute a "soft landing," avoiding a recession. Wells Fargo CFO Mike Santomassimo said in the company's earnings call some investors are looking to the 2024 presidential election as a factor in how aggressively they want to invest, but interest rates and the impact they could have in the long term are the dominant factor. "I think at this point, what we're seeing most is related to the overall sort of macroeconomic environment we're in with such high rates, and people having some uncertainty just generally around where things go from here," Santomassimo said. Citigroup CEO Jane Fraser said the global economic environment so far this year has been a story of "economic resiliency supported by tight labor markets and the consumer." Fraser was notably more optimistic than others, and said conditions in a number of international markets and the U.S. are disinflationary, suggesting a soft landing could be increasingly likely. Citi's CFO Mark Mason, however, said that while Citi thinks a soft landing is still likely, other risks to the economy could persist if interest rates remain elevated for too long.	[ [ "JPMorgan Chase", "https://www.investopedia.com/jpmorgan-q1-fy2024-earnings-8630503" ], [ "JPM", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPM" ], [ "Wells Fargo", "https://www.investopedia.com/wells-fargo-q1-fy2024-earnings-8630504" ], [ "WFC", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=WFC" ], [ "Citigroup", "https://www.investopedia.com/citi-q1-fy2024-earnings-restructuring-8630506" ], [ "C", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=C" ], [ "Chief Financial Officer (CFO)", "https://www.investopedia.com/terms/c/cfo.asp" ], [ "annual shareholder letter", "https://www.investopedia.com/4-key-takeaways-from-jamie-dimon-annual-shareholder-letter-8628197" ], [ "soft landing", "https://www.investopedia.com/terms/s/softlanding.asp" ], [ "recession", "https://www.investopedia.com/terms/r/recession.asp" ] ]
https://www.investopedia.com/terms/m/marketmaker.asp	Market Maker Definition: What It Means and How They Make Money	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-market-maker"></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 Market Maker? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The term market maker refers to a firm or individual who actively quotes <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/two-sidedmarket.asp">two-sided markets</a> in a particular security by providing <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bid.asp">bids</a> and offers (known as <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/ask.asp">asks</a>) along with the market size of each. Market makers provide liquidity and depth to markets and profit from the difference in the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bid-askspread.asp">bid-ask spread</a>. They may also make trades for their own accounts, which are known as principal trades.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A market maker is an individual participant or member firm of an exchange that buys and sells securities for its own account.</li><li>Market makers provide the market with liquidity and depth while profiting from the difference in the bid-ask spread.</li><li>Brokerage houses are the most common types of market makers, providing purchase and sale solutions for investors.</li><li>Market makers are compensated for the risk of holding assets because a security's value may decline between its purchase and sale to another buyer. </li><li>While brokers compete against one another, specialists post bids and asks and ensure they are reported accurately.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-market-makers"></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 Market Makers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Many market makers are often <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 that provide trading services for investors in an effort to keep financial markets liquid. A market maker can also be an individual trader, who is commonly known as a local. The vast majority of market makers work on behalf of large institutions due to the size of securities needed to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/what-is-done-when-shares-are-bought-and-sold.asp">facilitate the volume of purchases and sales</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"> Each market maker displays buy and sell quotations for a guaranteed number of shares. Once the market maker receives an order from a buyer, they immediately sell off their position of shares from their own <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inventory.asp">inventory</a>. This allows them to complete the order. </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 market maker must commit to continuously quoting prices at which it will buy (or bid for) and sell (or ask for) securities.<span class="ql-inline-citation" data-cite="1"></span> Market makers must also quote the volume in which they're willing to trade along with the frequency of time they will quote at the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bestbid.asp">best bid</a> and best offer prices. Market makers must stick to these parameters at all times and during all market outlooks. When markets become erratic or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatile</a>, market makers must remain disciplined in order to continue facilitating smooth transactions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block 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><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/makeamarket.asp">Making a market</a> signals a willingness to buy and sell the securities of a certain set of companies to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker-dealer.asp">broker-dealer</a> firms that are members of that exchange.</p></div></div></div> <span class="heading-toc" id="toc-how-market-makers-earn-profits"></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"> How Market Makers Earn Profits </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Market makers are compensated for the risk of holding assets because they may see a decline in the value of a security after it has been purchased from a seller and before it's sold to a buyer. </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"> Consequently, they commonly charge the aforementioned <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spread.asp">spread</a> on each security they cover. For example, when an investor searches for a stock using an online brokerage firm, it might observe a bid price of $100 and an ask price of $100.05. This means the broker purchases the stock for $100, then sells it to prospective buyers for $100.05. Through high-volume trading, a small spread can add up to large daily profits. </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"> Market makers must operate under a given exchange's bylaws, which are approved by a country's securities regulator, such as the <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 (SEC)</a>.<span class="ql-inline-citation" data-cite="4"></span> The rights and responsibilities of market makers vary by exchange and by the type of financial instrument they trade, such as equities or options. </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-makers-vs-designated-market-makers-dmms"></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 Makers vs. Designated Market Makers (DMMs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Many exchanges use a system of market makers, who compete to set the best bid or offer so they can win the business of incoming orders. But some entities, such as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nyse.asp">New York Stock Exchange (NYSE)</a>, have what's called a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/designated-market-maker-dmm.asp">designated market maker (DMM)</a> system instead. </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"> Once referred to as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/specialist.asp">specialist</a> systems, DMMs are essentially lone market makers with a monopoly over the order flow in a particular security or securities. Because the NYSE is an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/auctionmarket.asp">auction market</a>, bids and asks are competitively forwarded by investors.<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"> Here's how it works: The specialist posts these bids and asks for the entire market to see and ensures they are reported in an accurate and timely manner. They also make sure that the best price is always maintained, that all marketable trades are executed, and that order is maintained on the floor. </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 specialist must also set the opening price for the stock each morning, which can differ from the previous day's closing price based on after-hours news and events. The specialist determines the correct market price based on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/law-of-supply-demand.asp">supply and demand</a>.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_31-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_32-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_3-0">$40.72 trillion</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Total market capitalization of domestic companies listed in the United States.<span class="ql-inline-citation" data-cite="15"></span></p></div></div></div> <span class="heading-toc" id="toc-market-makers-by-exchange"></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"> Market Makers by Exchange </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> As noted above, market makers provide trading services for investors who participate in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/11/securities-market-introduction.asp">securities market</a>. Their activities through their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/entity-trading-account.asp">entity trading accounts</a> produce and boost liquidity within the markets. You can find these entities all over the global market. We've highlighted some of the most popular ones in different parts of the world. </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"> NYSE and Nasdaq </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/03/103103.asp">NYSE and Nasdaq</a> are the two main stock exchanges in the United States. Both are based in New York. </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"> According to the NYSE, a lead market maker is an "ETP holder or firm that has registered" to trade securities with the exchange.<span class="ql-inline-citation" data-cite="6"></span> Over at the Nasdaq, a market maker is a "member firm that buys and sells securities at prices it displays in NASDAQ for its own account (principal trades) and for customer accounts (agency trades)."<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_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Some of the top names of market makers in New York include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> <li>Credit Suisse</li><li>Deutsche Bank </li><li>Goldman Sachs</li><li>KCG Americas</li><li>Timber Hill <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_44-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-subheading__text"> Frankfurt Stock Exchange (FRA) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/frankfurt-stock-exchange-fra-.f.asp">Frankfurt Stock Exchange (FRA)</a> is one of seven stock exchanges in Germany. It is also the largest in the country. The exchange, which is operated by Deutsche Börse AG, calls its market makers designated sponsors.<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_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> The following are some of the names of market makers on Xetra, which is the electronic trading platform of the exchange group: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> <li>Berenberg</li><li>JPMorgan</li><li>Morgan Stanley</li><li>Optiver</li><li>UBS Europe<span class="ql-inline-citation" data-cite="14"></span><br/></li> </ul> <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"> London Stock Exchange Group </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> London is home to one of the largest stock exchange groups in Europe. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lse.asp">London Stock Exchange (LSE)</a> is part of the London Stock Exchange Group. This group also includes the family of FTSE Russell Indexes and the group's clearing services.<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_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> The following are some of the key market makers in his part of the world: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> <li>BNP Paribas</li><li>GMP Securities Europe</li><li>Liberium Capital</li><li>Mediobanca</li><li>Standard Chartered<span class="ql-inline-citation" data-cite="9"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_59-0"> <span class="mntl-sc-block-subheading__text"> Tokyo Exchange Group </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> The Tokyo Exchange Group combined the Tokyo Stock Exchange and the Osaka Securities Exchange into one unit in 2013. In addition to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/infrastructure.asp">infrastructure</a> and data, the group provides "market users with reliable venues for trading listed securities and derivatives instruments."<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_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> According to JPX, the following are some of the key names among market makers: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> <li>ABN AMRO Clearing</li><li>Nissan Securities</li><li>Nomura Securities</li><li>Phillip Securities</li><li>Societe Generale<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_65-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_66-0"> <span class="mntl-sc-block-subheading__text"> Toronto Stock Exchange (TSX) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> Toronto is considered to be Canada's financial capital, which is where the country's leading stock exchange is located. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/toronto-stock-exchange-tsx.asp">Toronto Stock Exchange (TSX)</a>, which is the country's largest exchange, is owned by TMX Group. </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"> The TSX lists the following among its market makers: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> <li>BMO Nesbitt Burns</li><li>Integral Wealth Solutions</li><li>Questrade</li><li>Scotia Capital</li><li>TD Securities<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_72-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_73-0"><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_74-0"><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>Market-making facilitates a smoother flow of financial markets by making it easier for investors and traders to buy and sell. Without market making, there may be insufficient <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transaction.asp">transactions</a> and fewer investment activities.</p></div></div></div> <span class="heading-toc" id="toc-example-of-market-maker"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_75-0"> <span class="mntl-sc-block-heading__text"> Example of Market Maker </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> Here's a hypothetical example to show how a market maker trades. Let's say there's a market maker in XYZ stock. They may provide a quote of $10.00 - $10.05 or 100x500. This means that they make a bid (they will buy) of $10.00 for 100 shares. They'll also offer (they will sell) 500 shares at $10.05. Other market participants may then buy (lift the offer) from the MM at $10.05 or sell to them (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hitthebid.asp">hit the bid</a>) at $10.00.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_78-0"><span class="heading-toc" id="toc-who-are-market-makers-and-what-do-they-do"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Are Market Makers and What Do They Do?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A market maker participates in the securities market by providing trading services for investors and boosting liquidity in the market. They specifically provide bids and offers for a particular security in addition to its market size. Market makers typically work for large brokerage houses that profit off of the difference between the bid and ask spread.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_80-0"><span class="heading-toc" id="toc-how-do-market-makers-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Market Makers Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A number of market makers operate and compete with each other within securities exchanges to attract the business of investors by setting the most competitive bid and ask offers. In some cases, exchanges like the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/128.asp">NYSE use a specialist system</a> where a specialist is the sole market maker who makes all the bids and asks that are visible to the market. A specialist process is conducted to ensure that all marketable trades are executed at a fair price in a timely manner.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_82-0"><span class="heading-toc" id="toc-how-do-market-makers-earn-a-profit"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Market Makers Earn a Profit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Market makers earn a profit through the spread between the securities bid and offer price. Because market makers bear the risk of covering a given security, which may drop in price, they are compensated for this risk of holding the assets. For example, consider an investor who sees that Apple stock has a bid price of $50 and an ask price of $50.10. What this means is that the market maker bought the Apple shares for $50 and is selling them for $50.10, earning a profit of $0.10.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_84-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> The market is made up of a range of different entities that help keep things going. They include corporations, exchanges, traders and investors, and market makers. Each one of these serves a different purpose: Companies offer their shares on the market. Exchanges are where these transactions take place, And traders and investors are at one end of the transactions. Market makers, though, play a very important role in all of this. These entities provide bids and offers and inject much-needed liquidity into the markets as they do this. </p></div>	## What Is a Market Maker? The term market maker refers to a firm or individual who actively quotes [two-sided markets](https://www.investopedia.com/terms/t/two-sidedmarket.asp) in a particular security by providing [bids](https://www.investopedia.com/terms/b/bid.asp) and offers (known as [asks](https://www.investopedia.com/terms/a/ask.asp)) along with the market size of each. Market makers provide liquidity and depth to markets and profit from the difference in the [bid-ask spread](https://www.investopedia.com/terms/b/bid-askspread.asp). They may also make trades for their own accounts, which are known as principal trades. ### Key Takeaways * A market maker is an individual participant or member firm of an exchange that buys and sells securities for its own account. * Market makers provide the market with liquidity and depth while profiting from the difference in the bid-ask spread. * Brokerage houses are the most common types of market makers, providing purchase and sale solutions for investors. * Market makers are compensated for the risk of holding assets because a security's value may decline between its purchase and sale to another buyer. * While brokers compete against one another, specialists post bids and asks and ensure they are reported accurately. ## Understanding Market Makers Many market makers are often [brokerage](https://www.investopedia.com/terms/b/brokerage-company.asp) houses that provide trading services for investors in an effort to keep financial markets liquid. A market maker can also be an individual trader, who is commonly known as a local. The vast majority of market makers work on behalf of large institutions due to the size of securities needed to [facilitate the volume of purchases and sales](https://www.investopedia.com/ask/answers/12/what-is-done-when-shares-are-bought-and-sold.asp). Each market maker displays buy and sell quotations for a guaranteed number of shares. Once the market maker receives an order from a buyer, they immediately sell off their position of shares from their own [inventory](https://www.investopedia.com/terms/i/inventory.asp). This allows them to complete the order. A market maker must commit to continuously quoting prices at which it will buy (or bid for) and sell (or ask for) securities. Market makers must also quote the volume in which they're willing to trade along with the frequency of time they will quote at the [best bid](https://www.investopedia.com/terms/b/bestbid.asp) and best offer prices. Market makers must stick to these parameters at all times and during all market outlooks. When markets become erratic or [volatile](https://www.investopedia.com/terms/v/volatility.asp), market makers must remain disciplined in order to continue facilitating smooth transactions. ### [Making a market](https://www.investopedia.com/terms/m/makeamarket.asp) signals a willingness to buy and sell the securities of a certain set of companies to [broker-dealer](https://www.investopedia.com/terms/b/broker-dealer.asp) firms that are members of that exchange. ## How Market Makers Earn Profits Market makers are compensated for the risk of holding assets because they may see a decline in the value of a security after it has been purchased from a seller and before it's sold to a buyer. Consequently, they commonly charge the aforementioned [spread](https://www.investopedia.com/terms/s/spread.asp) on each security they cover. For example, when an investor searches for a stock using an online brokerage firm, it might observe a bid price of $100 and an ask price of $100.05. This means the broker purchases the stock for $100, then sells it to prospective buyers for $100.05. Through high-volume trading, a small spread can add up to large daily profits. Market makers must operate under a given exchange's bylaws, which are approved by a country's securities regulator, such as the [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp). The rights and responsibilities of market makers vary by exchange and by the type of financial instrument they trade, such as equities or options. ## Market Makers vs. Designated Market Makers (DMMs) Many exchanges use a system of market makers, who compete to set the best bid or offer so they can win the business of incoming orders. But some entities, such as the [New York Stock Exchange (NYSE)](https://www.investopedia.com/terms/n/nyse.asp), have what's called a [designated market maker (DMM)](https://www.investopedia.com/terms/d/designated-market-maker-dmm.asp) system instead. Once referred to as [specialist](https://www.investopedia.com/terms/s/specialist.asp) systems, DMMs are essentially lone market makers with a monopoly over the order flow in a particular security or securities. Because the NYSE is an [auction market](https://www.investopedia.com/terms/a/auctionmarket.asp), bids and asks are competitively forwarded by investors. Here's how it works: The specialist posts these bids and asks for the entire market to see and ensures they are reported in an accurate and timely manner. They also make sure that the best price is always maintained, that all marketable trades are executed, and that order is maintained on the floor. The specialist must also set the opening price for the stock each morning, which can differ from the previous day's closing price based on after-hours news and events. The specialist determines the correct market price based on [supply and demand](https://www.investopedia.com/terms/l/law-of-supply-demand.asp). ### $40.72 trillion Total market capitalization of domestic companies listed in the United States. ## Market Makers by Exchange As noted above, market makers provide trading services for investors who participate in the [securities market](https://www.investopedia.com/articles/stocks/11/securities-market-introduction.asp). Their activities through their [entity trading accounts](https://www.investopedia.com/terms/e/entity-trading-account.asp) produce and boost liquidity within the markets. You can find these entities all over the global market. We've highlighted some of the most popular ones in different parts of the world. ### NYSE and Nasdaq The [NYSE and Nasdaq](https://www.investopedia.com/articles/basics/03/103103.asp) are the two main stock exchanges in the United States. Both are based in New York. According to the NYSE, a lead market maker is an "ETP holder or firm that has registered" to trade securities with the exchange. Over at the Nasdaq, a market maker is a "member firm that buys and sells securities at prices it displays in NASDAQ for its own account (principal trades) and for customer accounts (agency trades)." Some of the top names of market makers in New York include: * Credit Suisse * Deutsche Bank * Goldman Sachs * KCG Americas * Timber Hill ### Frankfurt Stock Exchange (FRA) The [Frankfurt Stock Exchange (FRA)](https://www.investopedia.com/terms/f/frankfurt-stock-exchange-fra-.f.asp) is one of seven stock exchanges in Germany. It is also the largest in the country. The exchange, which is operated by Deutsche Börse AG, calls its market makers designated sponsors. The following are some of the names of market makers on Xetra, which is the electronic trading platform of the exchange group: * Berenberg * JPMorgan * Morgan Stanley * Optiver * UBS Europe ### London Stock Exchange Group London is home to one of the largest stock exchange groups in Europe. The [London Stock Exchange (LSE)](https://www.investopedia.com/terms/l/lse.asp) is part of the London Stock Exchange Group. This group also includes the family of FTSE Russell Indexes and the group's clearing services. The following are some of the key market makers in his part of the world: * BNP Paribas * GMP Securities Europe * Liberium Capital * Mediobanca * Standard Chartered ### Tokyo Exchange Group The Tokyo Exchange Group combined the Tokyo Stock Exchange and the Osaka Securities Exchange into one unit in 2013. In addition to [infrastructure](https://www.investopedia.com/terms/i/infrastructure.asp) and data, the group provides "market users with reliable venues for trading listed securities and derivatives instruments." According to JPX, the following are some of the key names among market makers: * ABN AMRO Clearing * Nissan Securities * Nomura Securities * Phillip Securities * Societe Generale ### Toronto Stock Exchange (TSX) Toronto is considered to be Canada's financial capital, which is where the country's leading stock exchange is located. The [Toronto Stock Exchange (TSX)](https://www.investopedia.com/terms/t/toronto-stock-exchange-tsx.asp), which is the country's largest exchange, is owned by TMX Group. The TSX lists the following among its market makers: * BMO Nesbitt Burns * Integral Wealth Solutions * Questrade * Scotia Capital * TD Securities ### Market-making facilitates a smoother flow of financial markets by making it easier for investors and traders to buy and sell. Without market making, there may be insufficient [transactions](https://www.investopedia.com/terms/t/transaction.asp) and fewer investment activities. ## Example of Market Maker Here's a hypothetical example to show how a market maker trades. Let's say there's a market maker in XYZ stock. They may provide a quote of $10.00 - $10.05 or 100x500. This means that they make a bid (they will buy) of $10.00 for 100 shares. They'll also offer (they will sell) 500 shares at $10.05. Other market participants may then buy (lift the offer) from the MM at $10.05 or sell to them ([hit the bid](https://www.investopedia.com/terms/h/hitthebid.asp)) at $10.00. ## Who Are Market Makers and What Do They Do? A market maker participates in the securities market by providing trading services for investors and boosting liquidity in the market. They specifically provide bids and offers for a particular security in addition to its market size. Market makers typically work for large brokerage houses that profit off of the difference between the bid and ask spread. ## How Do Market Makers Work? A number of market makers operate and compete with each other within securities exchanges to attract the business of investors by setting the most competitive bid and ask offers. In some cases, exchanges like the [NYSE use a specialist system](https://www.investopedia.com/ask/answers/128.asp) where a specialist is the sole market maker who makes all the bids and asks that are visible to the market. A specialist process is conducted to ensure that all marketable trades are executed at a fair price in a timely manner. ## How Do Market Makers Earn a Profit? Market makers earn a profit through the spread between the securities bid and offer price. Because market makers bear the risk of covering a given security, which may drop in price, they are compensated for this risk of holding the assets. For example, consider an investor who sees that Apple stock has a bid price of $50 and an ask price of $50.10. What this means is that the market maker bought the Apple shares for $50 and is selling them for $50.10, earning a profit of $0.10. ## The Bottom Line The market is made up of a range of different entities that help keep things going. They include corporations, exchanges, traders and investors, and market makers. Each one of these serves a different purpose: Companies offer their shares on the market. Exchanges are where these transactions take place, And traders and investors are at one end of the transactions. Market makers, though, play a very important role in all of this. These entities provide bids and offers and inject much-needed liquidity into the markets as they do this.	What Is a Market Maker? The term market maker refers to a firm or individual who actively quotes two-sided markets in a particular security by providing bids and offers (known as asks) along with the market size of each. Market makers provide liquidity and depth to markets and profit from the difference in the bid-ask spread. They may also make trades for their own accounts, which are known as principal trades. Key Takeaways A market maker is an individual participant or member firm of an exchange that buys and sells securities for its own account.Market makers provide the market with liquidity and depth while profiting from the difference in the bid-ask spread.Brokerage houses are the most common types of market makers, providing purchase and sale solutions for investors.Market makers are compensated for the risk of holding assets because a security's value may decline between its purchase and sale to another buyer. While brokers compete against one another, specialists post bids and asks and ensure they are reported accurately. Understanding Market Makers Many market makers are often brokerage houses that provide trading services for investors in an effort to keep financial markets liquid. A market maker can also be an individual trader, who is commonly known as a local. The vast majority of market makers work on behalf of large institutions due to the size of securities needed to facilitate the volume of purchases and sales. Each market maker displays buy and sell quotations for a guaranteed number of shares. Once the market maker receives an order from a buyer, they immediately sell off their position of shares from their own inventory. This allows them to complete the order. A market maker must commit to continuously quoting prices at which it will buy (or bid for) and sell (or ask for) securities. Market makers must also quote the volume in which they're willing to trade along with the frequency of time they will quote at the best bid and best offer prices. Market makers must stick to these parameters at all times and during all market outlooks. When markets become erratic or volatile, market makers must remain disciplined in order to continue facilitating smooth transactions. Making a market signals a willingness to buy and sell the securities of a certain set of companies to broker-dealer firms that are members of that exchange. How Market Makers Earn Profits Market makers are compensated for the risk of holding assets because they may see a decline in the value of a security after it has been purchased from a seller and before it's sold to a buyer. Consequently, they commonly charge the aforementioned spread on each security they cover. For example, when an investor searches for a stock using an online brokerage firm, it might observe a bid price of $100 and an ask price of $100.05. This means the broker purchases the stock for $100, then sells it to prospective buyers for $100.05. Through high-volume trading, a small spread can add up to large daily profits. Market makers must operate under a given exchange's bylaws, which are approved by a country's securities regulator, such as the Securities and Exchange Commission (SEC). The rights and responsibilities of market makers vary by exchange and by the type of financial instrument they trade, such as equities or options. Market Makers vs. Designated Market Makers (DMMs) Many exchanges use a system of market makers, who compete to set the best bid or offer so they can win the business of incoming orders. But some entities, such as the New York Stock Exchange (NYSE), have what's called a designated market maker (DMM) system instead. Once referred to as specialist systems, DMMs are essentially lone market makers with a monopoly over the order flow in a particular security or securities. Because the NYSE is an auction market, bids and asks are competitively forwarded by investors. Here's how it works: The specialist posts these bids and asks for the entire market to see and ensures they are reported in an accurate and timely manner. They also make sure that the best price is always maintained, that all marketable trades are executed, and that order is maintained on the floor. The specialist must also set the opening price for the stock each morning, which can differ from the previous day's closing price based on after-hours news and events. The specialist determines the correct market price based on supply and demand. $40.72 trillion Total market capitalization of domestic companies listed in the United States. Market Makers by Exchange As noted above, market makers provide trading services for investors who participate in the securities market. Their activities through their entity trading accounts produce and boost liquidity within the markets. You can find these entities all over the global market. We've highlighted some of the most popular ones in different parts of the world. NYSE and Nasdaq The NYSE and Nasdaq are the two main stock exchanges in the United States. Both are based in New York. According to the NYSE, a lead market maker is an "ETP holder or firm that has registered" to trade securities with the exchange. Over at the Nasdaq, a market maker is a "member firm that buys and sells securities at prices it displays in NASDAQ for its own account (principal trades) and for customer accounts (agency trades)." Some of the top names of market makers in New York include: Credit SuisseDeutsche Bank Goldman SachsKCG AmericasTimber Hill Frankfurt Stock Exchange (FRA) The Frankfurt Stock Exchange (FRA) is one of seven stock exchanges in Germany. It is also the largest in the country. The exchange, which is operated by Deutsche Börse AG, calls its market makers designated sponsors. The following are some of the names of market makers on Xetra, which is the electronic trading platform of the exchange group: BerenbergJPMorganMorgan StanleyOptiverUBS Europe London Stock Exchange Group London is home to one of the largest stock exchange groups in Europe. The London Stock Exchange (LSE) is part of the London Stock Exchange Group. This group also includes the family of FTSE Russell Indexes and the group's clearing services. The following are some of the key market makers in his part of the world: BNP ParibasGMP Securities EuropeLiberium CapitalMediobancaStandard Chartered Tokyo Exchange Group The Tokyo Exchange Group combined the Tokyo Stock Exchange and the Osaka Securities Exchange into one unit in 2013. In addition to infrastructure and data, the group provides "market users with reliable venues for trading listed securities and derivatives instruments." According to JPX, the following are some of the key names among market makers: ABN AMRO ClearingNissan SecuritiesNomura SecuritiesPhillip SecuritiesSociete Generale Toronto Stock Exchange (TSX) Toronto is considered to be Canada's financial capital, which is where the country's leading stock exchange is located. The Toronto Stock Exchange (TSX), which is the country's largest exchange, is owned by TMX Group. The TSX lists the following among its market makers: BMO Nesbitt BurnsIntegral Wealth SolutionsQuestradeScotia CapitalTD Securities Market-making facilitates a smoother flow of financial markets by making it easier for investors and traders to buy and sell. Without market making, there may be insufficient transactions and fewer investment activities. Example of Market Maker Here's a hypothetical example to show how a market maker trades. Let's say there's a market maker in XYZ stock. They may provide a quote of $10.00 - $10.05 or 100x500. This means that they make a bid (they will buy) of $10.00 for 100 shares. They'll also offer (they will sell) 500 shares at $10.05. Other market participants may then buy (lift the offer) from the MM at $10.05 or sell to them (hit the bid) at $10.00. Who Are Market Makers and What Do They Do? A market maker participates in the securities market by providing trading services for investors and boosting liquidity in the market. They specifically provide bids and offers for a particular security in addition to its market size. Market makers typically work for large brokerage houses that profit off of the difference between the bid and ask spread. How Do Market Makers Work? A number of market makers operate and compete with each other within securities exchanges to attract the business of investors by setting the most competitive bid and ask offers. In some cases, exchanges like the NYSE use a specialist system where a specialist is the sole market maker who makes all the bids and asks that are visible to the market. A specialist process is conducted to ensure that all marketable trades are executed at a fair price in a timely manner. How Do Market Makers Earn a Profit? Market makers earn a profit through the spread between the securities bid and offer price. Because market makers bear the risk of covering a given security, which may drop in price, they are compensated for this risk of holding the assets. For example, consider an investor who sees that Apple stock has a bid price of $50 and an ask price of $50.10. What this means is that the market maker bought the Apple shares for $50 and is selling them for $50.10, earning a profit of $0.10. The Bottom Line The market is made up of a range of different entities that help keep things going. They include corporations, exchanges, traders and investors, and market makers. Each one of these serves a different purpose: Companies offer their shares on the market. Exchanges are where these transactions take place, And traders and investors are at one end of the transactions. Market makers, though, play a very important role in all of this. These entities provide bids and offers and inject much-needed liquidity into the markets as they do this.	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https://www.investopedia.com/terms/t/tac.asp	Targeted Amortization Class (TAC): 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-targeted-amortization-class"></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 Targeted Amortization Class? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Targeted amortization class (TAC) is a type of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset-backedsecurity.asp">asset-backed security</a> that is designed to protect investors from prepayment risk. A targeted amortization class tranche is designed to pay according to a defined principal balance schedule that is created using a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prepayment-model.asp">prepayment speed assumption</a> (PSA). A TAC tranche is similar to a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pactranche.asp">planned amortization class</a> (PAC) tranche in that it protects investors from prepayment, providing steady, stable cash flow and a fixed principal payment schedule. However, targeted amortization class tranches are structured differently than PAC tranches in that they only use one PSA rather than a range, as PAC tranches do. </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-targeted-amortization-class-tac"></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 Targeted Amortization Class (TAC) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Targeted amortization class tranches are structured products that increase cash flow certainty. TAC tranches can be created with any asset-backed security with a payment schedule, but they are most strongly associated with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cmo.asp">collateralized mortgage obligations</a> (CMO) and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp">mortgage-backed securities</a> (MBS). The targeted amortization class tranche is essentially a bond under a CMO or MBS. For the TAC tranches, the principal is paid on a predetermined schedule. Any prepayment that occurs is amortized in order to maintain the schedule, stretching the cash flow predictably rather than returning capital in what is likely to be a lower interest environment than when the product was created. </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-the-relationship-between-tac-and-pac"></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"> The Relationship between TAC and PAC </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> As mentioned, a planned amortization class tranche uses a range of prepayment rates, whereas a targeted amortization class tranche uses one. For a PAC, changes in the prepayment rates—either a rise in prepayment or burnout—are baked into the model to some extent. Unlike a PAC holder, a TAC investor will see more or less principal than is scheduled depending upon whether the prepayment rate is higher or lower than the defined rate. For example, if prepayment rates are below the rate used for the TAC, the principal amounts will not be available for scheduled payment, so the life of the TAC will need to be extended. Alternately, the prepayment protection is also limited if the prepayment rate exceeds the PSA used for the TAC. Investors will see their investment returned in what is bound to be a worse interest rate environment. </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 fact, the existence of PAC tranches negatively impacts TAC tranches. The PAC tranches are senior to TAC tranches. So, in the hierarchy, PAC tranches yield less and have the lowest risk, TAC tranches yield more than PACs but carry limited protection, and other tranches yield more but carry no protection against prepayment. </p></div>	## What Is Targeted Amortization Class? Targeted amortization class (TAC) is a type of [asset-backed security](https://www.investopedia.com/terms/a/asset-backedsecurity.asp) that is designed to protect investors from prepayment risk. A targeted amortization class tranche is designed to pay according to a defined principal balance schedule that is created using a [prepayment speed assumption](https://www.investopedia.com/terms/p/prepayment-model.asp) (PSA). A TAC tranche is similar to a [planned amortization class](https://www.investopedia.com/terms/p/pactranche.asp) (PAC) tranche in that it protects investors from prepayment, providing steady, stable cash flow and a fixed principal payment schedule. However, targeted amortization class tranches are structured differently than PAC tranches in that they only use one PSA rather than a range, as PAC tranches do. ## Understanding Targeted Amortization Class (TAC) Targeted amortization class tranches are structured products that increase cash flow certainty. TAC tranches can be created with any asset-backed security with a payment schedule, but they are most strongly associated with [collateralized mortgage obligations](https://www.investopedia.com/terms/c/cmo.asp) (CMO) and [mortgage-backed securities](https://www.investopedia.com/terms/m/mbs.asp) (MBS). The targeted amortization class tranche is essentially a bond under a CMO or MBS. For the TAC tranches, the principal is paid on a predetermined schedule. Any prepayment that occurs is amortized in order to maintain the schedule, stretching the cash flow predictably rather than returning capital in what is likely to be a lower interest environment than when the product was created. ## The Relationship between TAC and PAC As mentioned, a planned amortization class tranche uses a range of prepayment rates, whereas a targeted amortization class tranche uses one. For a PAC, changes in the prepayment rates—either a rise in prepayment or burnout—are baked into the model to some extent. Unlike a PAC holder, a TAC investor will see more or less principal than is scheduled depending upon whether the prepayment rate is higher or lower than the defined rate. For example, if prepayment rates are below the rate used for the TAC, the principal amounts will not be available for scheduled payment, so the life of the TAC will need to be extended. Alternately, the prepayment protection is also limited if the prepayment rate exceeds the PSA used for the TAC. Investors will see their investment returned in what is bound to be a worse interest rate environment. In fact, the existence of PAC tranches negatively impacts TAC tranches. The PAC tranches are senior to TAC tranches. So, in the hierarchy, PAC tranches yield less and have the lowest risk, TAC tranches yield more than PACs but carry limited protection, and other tranches yield more but carry no protection against prepayment.	What Is Targeted Amortization Class? Targeted amortization class (TAC) is a type of asset-backed security that is designed to protect investors from prepayment risk. A targeted amortization class tranche is designed to pay according to a defined principal balance schedule that is created using a prepayment speed assumption (PSA). A TAC tranche is similar to a planned amortization class (PAC) tranche in that it protects investors from prepayment, providing steady, stable cash flow and a fixed principal payment schedule. However, targeted amortization class tranches are structured differently than PAC tranches in that they only use one PSA rather than a range, as PAC tranches do. Understanding Targeted Amortization Class (TAC) Targeted amortization class tranches are structured products that increase cash flow certainty. TAC tranches can be created with any asset-backed security with a payment schedule, but they are most strongly associated with collateralized mortgage obligations (CMO) and mortgage-backed securities (MBS). The targeted amortization class tranche is essentially a bond under a CMO or MBS. For the TAC tranches, the principal is paid on a predetermined schedule. Any prepayment that occurs is amortized in order to maintain the schedule, stretching the cash flow predictably rather than returning capital in what is likely to be a lower interest environment than when the product was created. The Relationship between TAC and PAC As mentioned, a planned amortization class tranche uses a range of prepayment rates, whereas a targeted amortization class tranche uses one. For a PAC, changes in the prepayment rates—either a rise in prepayment or burnout—are baked into the model to some extent. Unlike a PAC holder, a TAC investor will see more or less principal than is scheduled depending upon whether the prepayment rate is higher or lower than the defined rate. For example, if prepayment rates are below the rate used for the TAC, the principal amounts will not be available for scheduled payment, so the life of the TAC will need to be extended. Alternately, the prepayment protection is also limited if the prepayment rate exceeds the PSA used for the TAC. Investors will see their investment returned in what is bound to be a worse interest rate environment. In fact, the existence of PAC tranches negatively impacts TAC tranches. The PAC tranches are senior to TAC tranches. So, in the hierarchy, PAC tranches yield less and have the lowest risk, TAC tranches yield more than PACs but carry limited protection, and other tranches yield more but carry no protection against prepayment.	[ [ "asset-backed security", "https://www.investopedia.com/terms/a/asset-backedsecurity.asp" ], [ "prepayment speed assumption", "https://www.investopedia.com/terms/p/prepayment-model.asp" ], [ "planned amortization class", "https://www.investopedia.com/terms/p/pactranche.asp" ], [ "collateralized mortgage obligations", "https://www.investopedia.com/terms/c/cmo.asp" ], [ "mortgage-backed securities", "https://www.investopedia.com/terms/m/mbs.asp" ] ]
https://www.investopedia.com/terms/b/bubble.asp	What Is an Economic Bubble and How Does It Work, With 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-bubble"></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 Bubble? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a "crash" or a "bubble burst." </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"> Typically, a bubble is created by a surge in asset prices that is driven by exuberant market behavior. During a bubble, assets typically trade at a price, or within a price range, that greatly exceeds the asset's intrinsic value (the price does not align with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundamentals.asp" rel="noopener noreferrer">fundamentals</a> of the asset). </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 cause of bubbles is disputed by economists; some economists even disagree that bubbles occur at all (on the basis that asset prices frequently deviate from their intrinsic value). However, bubbles are usually only identified and studied in retrospect, after a massive drop in prices occurs. </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-how-a-bubble-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> How a Bubble Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> An economic bubble occurs any time that the price of a good rises far above the item's real value. Bubbles are typically attributed to a change in investor behavior, although what causes this change in behavior is debated. </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"> Bubbles in equities markets and economies cause resources to be transferred to areas of rapid growth. At the end of a bubble, resources are moved again, causing prices to deflate. </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 Japanese economy experienced a bubble in the 1980s after the country's banks were partially deregulated.<span class="ql-inline-citation" data-cite="1"></span> This caused a huge surge in the prices of real estate and stock prices. The dot-com boom, also called the dot-com bubble, was a stock market bubble in the late 1990s. It was characterized by excessive speculation in Internet-related companies.<span class="ql-inline-citation" data-cite="2"></span> During the dot-com boom, people bought technology stocks at high prices—believing they could sell them at a higher price—until confidence was lost and a large market correction occurred. </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_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 bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets.</li><li>This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a "crash" or a "bubble burst."</li><li>Bubbles are typically attributed to a change in investor behavior, although what causes this change in behavior is debated.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The research of American economist Hyman P. Minsky helps to explain the development of financial instability and provides one explanation of the characteristics of financial crises. Through his research, Minsky identified five stages in a typical <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-cycle.asp">credit cycle</a>.<span class="ql-inline-citation" data-cite="3"></span> While his theories went largely under-the-radar for many decades, the subprime mortgage crisis of 2008 renewed interest in his formulations, which also help to explain some of the patterns of a bubble. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Displacement </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> This stage takes place when investors start to notice a new paradigm, like a new product or technology, or historically low interest rates. This can be basically anything that gets their attention. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> Boom </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Prices start to rise. Then, they get even more momentum as more investors enter the market. This sets up the stage for the boom. There is an overall sense of failing to jump in, causing even more people to start buying assets. </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"> Euphoria </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> When euphoria hits and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp" rel="noopener noreferrer">asset</a> prices skyrocket, it could be said that caution on the part of investors is mostly thrown out the window. </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"> Profit-Taking </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Figuring out when the bubble will burst isn’t easy; once it has burst, it will not inflate again. It is possible to have an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/echobubble.asp">echo bubble</a>, which is only a temporary rally. But anyone who can identify the early warning signs will make money by selling off positions. </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"> Panic </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Asset prices change course and drop (sometimes as rapidly as they rose). Investors want to liquidate them at any price. Asset prices decline as supply outshines demand. </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-examples-of-bubbles"></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"> Examples of Bubbles </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Recent history includes two very consequential bubbles: the dot-com bubble of the 1990s and the housing bubble between 2007 and 2008. However, the first recorded speculative bubble, which occurred in Holland from 1634 to 1637, provides an illustrative lesson that applies to the modern-day.<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_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"> Tulip Mania </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> While it may seem absurd to suggest that a flower could bring down a whole economy, that is exactly what happened in Holland in the early 1600s. The tulip bulb trade initially started by accident. A botanist brought tulip bulbs from Constantinople and planted them for his own scientific research. Neighbors then stole the bulbs and began selling them. The wealthy began to collect some of the rarer varieties as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/luxury-item.asp">luxury good</a>. As their demand increased, the prices of bulbs surged. Some rare varieties of tulips commanded astronomical prices. </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"> Bulbs were traded for anything with a store of value, including homes and acreage. At its peak, tulip mania had created such a frenzy that fortunes were made overnight. The creation of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futuresexchange.asp">futures exchange</a>, where tulips were bought and sold through contracts with no actual delivery, fueled the speculative pricing. </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 bubble burst when a seller arranged a big purchase with a buyer, and the buyer failed to show. At this point, it was clear that price increases were unsustainable. This created a panic that spiraled throughout Europe, driving the worth of any tulip bulb down to a tiny fraction of its recent price. Dutch authorities stepped in to calm the panic by allowing contract holders to be freed from their contracts for 10% of the contract value. In the end, fortunes were lost by noblemen and laymen alike.<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_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"> Dot-Com Bubble </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> The dot-com bubble was characterized by a rise in equity markets that was fueled by investments in internet and technology-based companies. It grew out of a combination of speculative investing and the overabundance of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/venturecapital.asp" rel="noopener noreferrer">venture capital</a> going into <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/startup.asp" rel="noopener noreferrer">startup</a> companies. Investors started to pour money into internet startups in the 1990s, with the express hope that they would be profitable. </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"> As technology advanced and the internet started to be commercialized, startup companies in the Internet and technology sector helped fuel the surge in the stock market that began in 1995. The subsequent bubble was formed by cheap money and easy capital. Many of these companies barely generated any profits or even a significant product. Regardless, they were able to offer <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 offerings (IPOs)</a>. Their stock prices saw incredible highs, creating a frenzy among interested investors. </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"> But as the market peaked, panic among investors ensued. This led to about a 10% loss in the stock market. The capital that was once easy to obtain started to dry up; companies with millions in market capitalization became worthless in a very short amount of time. As the year 2001 ended, a good portion of the public dot-com companies had folded. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_51-0"> <span class="mntl-sc-block-subheading__text"> U.S. Housing Bubble </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> The U.S. housing bubble was a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/realestate.asp" rel="noopener noreferrer">real estate</a> bubble that affected more than half of the United States in the mid-2000s. It was partially the result of the dot-com bubble. As the markets began to crash, values in real estate started to rise. At the same time, the demand for homeownership started to grow at almost alarming levels. Interest rates started to decline. A concurrent force was a lenient approach on the part of lenders; this meant that almost anyone could become a homeowner. </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"> Banks reduced their requirements to borrow and started to lower their interest rates. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arm.asp" rel="noopener noreferrer">Adjustable-rate mortgages (ARMs)</a> became a favorite, with low introductory rates and refinancing options within three to five years. Many people started to buy homes, and some people flipped them for profits. But when the stock market began to rise again, interest rates also started to rise. For homeowners with ARMs, their mortgages started to refinance at higher rates. The value of these homes took a nosedive, which triggered a sell-off in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp" rel="noopener noreferrer">mortgage-backed securities (MBSs)</a>. This eventually led to an environment that resulted in millions of dollars in mortgage defaults. </p></div>	## What Is a Bubble? A bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a "crash" or a "bubble burst." Typically, a bubble is created by a surge in asset prices that is driven by exuberant market behavior. During a bubble, assets typically trade at a price, or within a price range, that greatly exceeds the asset's intrinsic value (the price does not align with the [fundamentals](https://www.investopedia.com/terms/f/fundamentals.asp) of the asset). The cause of bubbles is disputed by economists; some economists even disagree that bubbles occur at all (on the basis that asset prices frequently deviate from their intrinsic value). However, bubbles are usually only identified and studied in retrospect, after a massive drop in prices occurs. ## How a Bubble Works An economic bubble occurs any time that the price of a good rises far above the item's real value. Bubbles are typically attributed to a change in investor behavior, although what causes this change in behavior is debated. Bubbles in equities markets and economies cause resources to be transferred to areas of rapid growth. At the end of a bubble, resources are moved again, causing prices to deflate. The Japanese economy experienced a bubble in the 1980s after the country's banks were partially deregulated. This caused a huge surge in the prices of real estate and stock prices. The dot-com boom, also called the dot-com bubble, was a stock market bubble in the late 1990s. It was characterized by excessive speculation in Internet-related companies. During the dot-com boom, people bought technology stocks at high prices—believing they could sell them at a higher price—until confidence was lost and a large market correction occurred. ### Key Takeaways * A bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. * This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a "crash" or a "bubble burst." * Bubbles are typically attributed to a change in investor behavior, although what causes this change in behavior is debated. The research of American economist Hyman P. Minsky helps to explain the development of financial instability and provides one explanation of the characteristics of financial crises. Through his research, Minsky identified five stages in a typical [credit cycle](https://www.investopedia.com/terms/c/credit-cycle.asp). While his theories went largely under-the-radar for many decades, the subprime mortgage crisis of 2008 renewed interest in his formulations, which also help to explain some of the patterns of a bubble. ### Displacement This stage takes place when investors start to notice a new paradigm, like a new product or technology, or historically low interest rates. This can be basically anything that gets their attention. ### Boom Prices start to rise. Then, they get even more momentum as more investors enter the market. This sets up the stage for the boom. There is an overall sense of failing to jump in, causing even more people to start buying assets. ### Euphoria When euphoria hits and [asset](https://www.investopedia.com/terms/a/asset.asp) prices skyrocket, it could be said that caution on the part of investors is mostly thrown out the window. ### Profit-Taking Figuring out when the bubble will burst isn’t easy; once it has burst, it will not inflate again. It is possible to have an [echo bubble](https://www.investopedia.com/terms/e/echobubble.asp), which is only a temporary rally. But anyone who can identify the early warning signs will make money by selling off positions. ### Panic Asset prices change course and drop (sometimes as rapidly as they rose). Investors want to liquidate them at any price. Asset prices decline as supply outshines demand. ## Examples of Bubbles Recent history includes two very consequential bubbles: the dot-com bubble of the 1990s and the housing bubble between 2007 and 2008. However, the first recorded speculative bubble, which occurred in Holland from 1634 to 1637, provides an illustrative lesson that applies to the modern-day. ### Tulip Mania While it may seem absurd to suggest that a flower could bring down a whole economy, that is exactly what happened in Holland in the early 1600s. The tulip bulb trade initially started by accident. A botanist brought tulip bulbs from Constantinople and planted them for his own scientific research. Neighbors then stole the bulbs and began selling them. The wealthy began to collect some of the rarer varieties as a [luxury good](https://www.investopedia.com/terms/l/luxury-item.asp). As their demand increased, the prices of bulbs surged. Some rare varieties of tulips commanded astronomical prices. Bulbs were traded for anything with a store of value, including homes and acreage. At its peak, tulip mania had created such a frenzy that fortunes were made overnight. The creation of a [futures exchange](https://www.investopedia.com/terms/f/futuresexchange.asp), where tulips were bought and sold through contracts with no actual delivery, fueled the speculative pricing. The bubble burst when a seller arranged a big purchase with a buyer, and the buyer failed to show. At this point, it was clear that price increases were unsustainable. This created a panic that spiraled throughout Europe, driving the worth of any tulip bulb down to a tiny fraction of its recent price. Dutch authorities stepped in to calm the panic by allowing contract holders to be freed from their contracts for 10% of the contract value. In the end, fortunes were lost by noblemen and laymen alike. ### Dot-Com Bubble The dot-com bubble was characterized by a rise in equity markets that was fueled by investments in internet and technology-based companies. It grew out of a combination of speculative investing and the overabundance of [venture capital](https://www.investopedia.com/terms/v/venturecapital.asp) going into [startup](https://www.investopedia.com/terms/s/startup.asp) companies. Investors started to pour money into internet startups in the 1990s, with the express hope that they would be profitable. As technology advanced and the internet started to be commercialized, startup companies in the Internet and technology sector helped fuel the surge in the stock market that began in 1995. The subsequent bubble was formed by cheap money and easy capital. Many of these companies barely generated any profits or even a significant product. Regardless, they were able to offer [initial public offerings (IPOs)](https://www.investopedia.com/terms/i/ipo.asp). Their stock prices saw incredible highs, creating a frenzy among interested investors. But as the market peaked, panic among investors ensued. This led to about a 10% loss in the stock market. The capital that was once easy to obtain started to dry up; companies with millions in market capitalization became worthless in a very short amount of time. As the year 2001 ended, a good portion of the public dot-com companies had folded. ### U.S. Housing Bubble The U.S. housing bubble was a [real estate](https://www.investopedia.com/terms/r/realestate.asp) bubble that affected more than half of the United States in the mid-2000s. It was partially the result of the dot-com bubble. As the markets began to crash, values in real estate started to rise. At the same time, the demand for homeownership started to grow at almost alarming levels. Interest rates started to decline. A concurrent force was a lenient approach on the part of lenders; this meant that almost anyone could become a homeowner. Banks reduced their requirements to borrow and started to lower their interest rates. [Adjustable-rate mortgages (ARMs)](https://www.investopedia.com/terms/a/arm.asp) became a favorite, with low introductory rates and refinancing options within three to five years. Many people started to buy homes, and some people flipped them for profits. But when the stock market began to rise again, interest rates also started to rise. For homeowners with ARMs, their mortgages started to refinance at higher rates. The value of these homes took a nosedive, which triggered a sell-off in [mortgage-backed securities (MBSs)](https://www.investopedia.com/terms/m/mbs.asp). This eventually led to an environment that resulted in millions of dollars in mortgage defaults.	What Is a Bubble? A bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a "crash" or a "bubble burst." Typically, a bubble is created by a surge in asset prices that is driven by exuberant market behavior. During a bubble, assets typically trade at a price, or within a price range, that greatly exceeds the asset's intrinsic value (the price does not align with the fundamentals of the asset). The cause of bubbles is disputed by economists; some economists even disagree that bubbles occur at all (on the basis that asset prices frequently deviate from their intrinsic value). However, bubbles are usually only identified and studied in retrospect, after a massive drop in prices occurs. How a Bubble Works An economic bubble occurs any time that the price of a good rises far above the item's real value. Bubbles are typically attributed to a change in investor behavior, although what causes this change in behavior is debated. Bubbles in equities markets and economies cause resources to be transferred to areas of rapid growth. At the end of a bubble, resources are moved again, causing prices to deflate. The Japanese economy experienced a bubble in the 1980s after the country's banks were partially deregulated. This caused a huge surge in the prices of real estate and stock prices. The dot-com boom, also called the dot-com bubble, was a stock market bubble in the late 1990s. It was characterized by excessive speculation in Internet-related companies. During the dot-com boom, people bought technology stocks at high prices—believing they could sell them at a higher price—until confidence was lost and a large market correction occurred. Key Takeaways A bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets.This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a "crash" or a "bubble burst."Bubbles are typically attributed to a change in investor behavior, although what causes this change in behavior is debated. The research of American economist Hyman P. Minsky helps to explain the development of financial instability and provides one explanation of the characteristics of financial crises. Through his research, Minsky identified five stages in a typical credit cycle. While his theories went largely under-the-radar for many decades, the subprime mortgage crisis of 2008 renewed interest in his formulations, which also help to explain some of the patterns of a bubble. Displacement This stage takes place when investors start to notice a new paradigm, like a new product or technology, or historically low interest rates. This can be basically anything that gets their attention. Boom Prices start to rise. Then, they get even more momentum as more investors enter the market. This sets up the stage for the boom. There is an overall sense of failing to jump in, causing even more people to start buying assets. Euphoria When euphoria hits and asset prices skyrocket, it could be said that caution on the part of investors is mostly thrown out the window. Profit-Taking Figuring out when the bubble will burst isn’t easy; once it has burst, it will not inflate again. It is possible to have an echo bubble, which is only a temporary rally. But anyone who can identify the early warning signs will make money by selling off positions. Panic Asset prices change course and drop (sometimes as rapidly as they rose). Investors want to liquidate them at any price. Asset prices decline as supply outshines demand. Examples of Bubbles Recent history includes two very consequential bubbles: the dot-com bubble of the 1990s and the housing bubble between 2007 and 2008. However, the first recorded speculative bubble, which occurred in Holland from 1634 to 1637, provides an illustrative lesson that applies to the modern-day. Tulip Mania While it may seem absurd to suggest that a flower could bring down a whole economy, that is exactly what happened in Holland in the early 1600s. The tulip bulb trade initially started by accident. A botanist brought tulip bulbs from Constantinople and planted them for his own scientific research. Neighbors then stole the bulbs and began selling them. The wealthy began to collect some of the rarer varieties as a luxury good. As their demand increased, the prices of bulbs surged. Some rare varieties of tulips commanded astronomical prices. Bulbs were traded for anything with a store of value, including homes and acreage. At its peak, tulip mania had created such a frenzy that fortunes were made overnight. The creation of a futures exchange, where tulips were bought and sold through contracts with no actual delivery, fueled the speculative pricing. The bubble burst when a seller arranged a big purchase with a buyer, and the buyer failed to show. At this point, it was clear that price increases were unsustainable. This created a panic that spiraled throughout Europe, driving the worth of any tulip bulb down to a tiny fraction of its recent price. Dutch authorities stepped in to calm the panic by allowing contract holders to be freed from their contracts for 10% of the contract value. In the end, fortunes were lost by noblemen and laymen alike. Dot-Com Bubble The dot-com bubble was characterized by a rise in equity markets that was fueled by investments in internet and technology-based companies. It grew out of a combination of speculative investing and the overabundance of venture capital going into startup companies. Investors started to pour money into internet startups in the 1990s, with the express hope that they would be profitable. As technology advanced and the internet started to be commercialized, startup companies in the Internet and technology sector helped fuel the surge in the stock market that began in 1995. The subsequent bubble was formed by cheap money and easy capital. Many of these companies barely generated any profits or even a significant product. Regardless, they were able to offer initial public offerings (IPOs). Their stock prices saw incredible highs, creating a frenzy among interested investors. But as the market peaked, panic among investors ensued. This led to about a 10% loss in the stock market. The capital that was once easy to obtain started to dry up; companies with millions in market capitalization became worthless in a very short amount of time. As the year 2001 ended, a good portion of the public dot-com companies had folded. U.S. Housing Bubble The U.S. housing bubble was a real estate bubble that affected more than half of the United States in the mid-2000s. It was partially the result of the dot-com bubble. As the markets began to crash, values in real estate started to rise. At the same time, the demand for homeownership started to grow at almost alarming levels. Interest rates started to decline. A concurrent force was a lenient approach on the part of lenders; this meant that almost anyone could become a homeowner. Banks reduced their requirements to borrow and started to lower their interest rates. Adjustable-rate mortgages (ARMs) became a favorite, with low introductory rates and refinancing options within three to five years. Many people started to buy homes, and some people flipped them for profits. But when the stock market began to rise again, interest rates also started to rise. For homeowners with ARMs, their mortgages started to refinance at higher rates. The value of these homes took a nosedive, which triggered a sell-off in mortgage-backed securities (MBSs). This eventually led to an environment that resulted in millions of dollars in mortgage defaults.	[ [ "fundamentals", "https://www.investopedia.com/terms/f/fundamentals.asp" ], [ "credit cycle", "https://www.investopedia.com/terms/c/credit-cycle.asp" ], [ "asset", "https://www.investopedia.com/terms/a/asset.asp" ], [ "echo bubble", "https://www.investopedia.com/terms/e/echobubble.asp" ], [ "luxury good", "https://www.investopedia.com/terms/l/luxury-item.asp" ], [ "futures exchange", "https://www.investopedia.com/terms/f/futuresexchange.asp" ], [ "venture capital", "https://www.investopedia.com/terms/v/venturecapital.asp" ], [ "startup", "https://www.investopedia.com/terms/s/startup.asp" ], [ "initial public offerings (IPOs)", "https://www.investopedia.com/terms/i/ipo.asp" ], [ "real estate", "https://www.investopedia.com/terms/r/realestate.asp" ], [ "Adjustable-rate mortgages (ARMs)", "https://www.investopedia.com/terms/a/arm.asp" ], [ "mortgage-backed securities (MBSs)", "https://www.investopedia.com/terms/m/mbs.asp" ] ]
https://www.investopedia.com/student-loan-servicers-customer-service-5323796	What You Need to Know About Student Loan Servicers	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> When you get a federal student loan, you're assigned a servicer. This student loan servicer manages various aspects of your federal student loans, including repayment and what plan you end up on. </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"> Unfortunately, working with student loan servicers doesn't always result in the best outcome for student loan borrowers. Let's take a look at what you need to know about working with your loan servicer's customer service department. </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>In the past, student loan servicers have recommended programs that don't benefit borrowers.</li><li>The federal government assigns companies to handle different aspects of student loan borrowing, including billing and repayment. </li><li>Understanding your loan repayment options before you call your servicer can help you get the help you need.</li><li>Check with the National Student Loan Data System regularly to stay up to date on your loan and servicer information.</li><li>Be prepared before you contact your federal student loan provider if you need help during the repayment period.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-a-federal-student-loan-servicer"></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 Federal Student Loan Servicer? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Through its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federal-direct-student-loan-program.asp">Direct Loan Program</a>, the U.S. Department of Education provides student loans to borrowers who want to use the money to pay for their higher education.<span class="ql-inline-citation" data-cite="1"></span> Rather than managing the terms of your student loan repayment, however, the government assigns a company to handle various aspects of billing and repayment. The companies that manage your federal loan repayment are known as servicers.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> After your first loan amount is disbursed to your school, the government assigns you a servicer. You can find out who your student loan servicer is by visiting your Federal Student Aid (FSA) dashboard. You should have created an FSA ID when you applied for your student loans through the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federal-application-of-student-aid-fafsa.asp">Free Application for Federal Student Aid (FAFSA)</a>. You can use your FSA dashboard to get information about your student loans and your servicer.<span class="ql-inline-citation" data-cite="2"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-how-federal-student-loan-servicers-are-supposed-to-help"></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"> How Federal Student Loan Servicers Are Supposed to Help </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> There are many student loan servicers. It often happens that you will start your loan under one loan servicer and move to a second or third new servicer as time goes by. This is especially true if you had <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/navient-student-loan-servicer-review-5070561">Navient as your servicer</a> because they no longer handle federal student loans. </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"> Your federal student loan servicer is supposed to help you manage your student loans after you get through school—including the payment plans you're eligible for. If you can't afford your monthly payments, your student loan servicer is supposed to help you figure out which income-driven repayment plan is right for you.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Additionally, your servicer is supposed to help you keep track of your student loan payments and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a>. This information can be used later to help you obtain Public Service Loan Forgiveness (PSLF) or provide you with interest payment information that can be used to claim a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tax-deduction.asp">deduction on your taxes</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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Student loan interest payments are reported both to the Internal Revenue Service (IRS) and to you on IRS Form 1098-E, Student Loan Interest Statement.<br> </br></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"> Recently, some federal loan servicers have ended their contracts with the government. If this is the case for your servicer, you will be assigned a new servicer and notified of how to set up an account with them. Pay attention to both your mail and email to find out how to contact your new servicer.<span class="ql-inline-citation" data-cite="3"></span> You can also check the National Student Loan Data System (NSLDS) to find out who your servicer is and how to get in touch with them.<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> <span class="heading-toc" id="toc-complaints-against-student-loan-servicers"></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"> Complaints Against Student Loan Servicers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Unfortunately, there has been some controversy regarding how federal loan servicers have handled borrowers. For example, a National Consumer Law Center (NCLC) review found that student loan servicers haven't always implemented income-driven repayment appropriately. The NCLC found that only 32 borrowers had their loans canceled—even though at least 4.4 million had been repaying for at least 20 years.<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_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Additionally, an exclusive investigation by NPR found that, historically, some servicers have put borrowers into the wrong repayment plans or had favored putting borrowers into <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forbearance.asp">forbearance</a> instead of an income-driven plan that would have benefited them more.<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_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Finally, a report from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp">Consumer Financial Protection Bureau (CFPB)</a> found that approximately 3,400 of the 5,300 student loan complaints lodged between Sept. 1, 2020, and Aug. 31, 2021, were against federal loan servicers.<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_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>In March 2023, the Consumer Financial Protection Bureau (CFPB) issued a supervisory report on unlawful junk fees uncovered in deposit accounts and in multiple loan servicing markets, including in the student loan servicing market. According to the report, customer representatives of some student loan servicers, which had policies against allowing borrowers to pay via credit card, would erroneously accept credit card payments. The servicers would then cancel these payments without offering borrowers the chance to pay again. The servicers would instead claim no payment had been made, which they used to justify charging borrowers late fees and additional interest.<span class="ql-inline-citation" data-cite="15"></span></p></div></div></div> <span class="heading-toc" id="toc-what-to-do-if-you-need-help-paying-your-student-loans"></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"> What to Do if You Need Help Paying Your Student Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> While you're supposed to contact your federal loan servicer for help with student loans, it's important to be prepared before you begin. </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"> First, review the income-driven repayment plan information provided by the U.S. Department of Education. Determine which plan you are eligible for and make sure you understand the terms. That way, when you speak with a customer service representative for your loan servicer, you know what to ask for. </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-callout mntl-block" id="mntl-sc-block_37-0"><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_38-0"><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>If you have older student loans under the Federal Family Education Loan (FFEL) program, your loans might not be owned by the Department of Education.<span class="ql-inline-citation" data-cite="8"></span> You might not have access to the same programs and benefits associated with the Direct Loan Program. You can check the NSLDS for information about your servicer and see what programs you might be eligible for. You may also have the option to consolidate your loans into a direct loan, which would allow you to qualify for new income-based debt relief.<span class="ql-inline-citation" data-cite="16"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Next, if you plan to apply for PSLF, make sure to fill out an employment certification form each year. That way, you have a record of the qualifying payments you've made and it will be easier to obtain forgiveness. </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"> Finally, regularly review your information on the NSLDS to make sure everything matches both your records and your account information with your servicer. If you feel like the information is inaccurate or improperly applied, contact your servicer. You can also contact the Federal Student Aid Ombudsman Group for help resolving issues with your servicer.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_43-0"><span class="heading-toc" id="toc-how-can-i-find-out-who-is-servicing-my-federal-student-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Find Out Who Is Servicing My Federal Student Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can check your Federal Student Aid (FSA) dashboard or log into the National Student Loan Data System (NSLDS) for information on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/find-student-loan-servicer-5322700">your servicer and how to contact them</a>.<span class="ql-inline-citation" data-cite="12"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-can-i-choose-my-federal-student-loan-servicer"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Choose My Federal Student Loan Servicer?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. The federal government assigns you a servicer. However, if you consolidate your loans later, you can change student loan servicers.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_47-0"><span class="heading-toc" id="toc-what-if-my-student-loan-servicer-isnt-helping-me"></span> <h2 class="mntl-sc-block-questionandanswer__question">What if My Student Loan Servicer Isn't Helping Me?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you're having trouble with your student loan servicer, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or contact the Federal Student Aid Ombudsman Group.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Federal loan servicers handle your student loan repayment plan, including billing you and collecting interest. However, in the past, they haven't always provided satisfactory customer service. As a result, you need to diligently monitor your own records and consider filing a complaint if you don't think your servicer is providing you with the help you're entitled to. </p></div>	When you get a federal student loan, you're assigned a servicer. This student loan servicer manages various aspects of your federal student loans, including repayment and what plan you end up on. Unfortunately, working with student loan servicers doesn't always result in the best outcome for student loan borrowers. Let's take a look at what you need to know about working with your loan servicer's customer service department. ### Key Takeaways * In the past, student loan servicers have recommended programs that don't benefit borrowers. * The federal government assigns companies to handle different aspects of student loan borrowing, including billing and repayment. * Understanding your loan repayment options before you call your servicer can help you get the help you need. * Check with the National Student Loan Data System regularly to stay up to date on your loan and servicer information. * Be prepared before you contact your federal student loan provider if you need help during the repayment period. ## What Is a Federal Student Loan Servicer? Through its [Direct Loan Program](https://www.investopedia.com/terms/f/federal-direct-student-loan-program.asp), the U.S. Department of Education provides student loans to borrowers who want to use the money to pay for their higher education. Rather than managing the terms of your student loan repayment, however, the government assigns a company to handle various aspects of billing and repayment. The companies that manage your federal loan repayment are known as servicers. After your first loan amount is disbursed to your school, the government assigns you a servicer. You can find out who your student loan servicer is by visiting your Federal Student Aid (FSA) dashboard. You should have created an FSA ID when you applied for your student loans through the [Free Application for Federal Student Aid (FAFSA)](https://www.investopedia.com/terms/f/federal-application-of-student-aid-fafsa.asp). You can use your FSA dashboard to get information about your student loans and your servicer. ## How Federal Student Loan Servicers Are Supposed to Help There are many student loan servicers. It often happens that you will start your loan under one loan servicer and move to a second or third new servicer as time goes by. This is especially true if you had [Navient as your servicer](https://www.investopedia.com/navient-student-loan-servicer-review-5070561) because they no longer handle federal student loans. Your federal student loan servicer is supposed to help you manage your student loans after you get through school—including the payment plans you're eligible for. If you can't afford your monthly payments, your student loan servicer is supposed to help you figure out which income-driven repayment plan is right for you. Additionally, your servicer is supposed to help you keep track of your student loan payments and [interest](https://www.investopedia.com/terms/i/interest.asp). This information can be used later to help you obtain Public Service Loan Forgiveness (PSLF) or provide you with interest payment information that can be used to claim a [deduction on your taxes](https://www.investopedia.com/terms/t/tax-deduction.asp). Student loan interest payments are reported both to the Internal Revenue Service (IRS) and to you on IRS Form 1098-E, Student Loan Interest Statement. Recently, some federal loan servicers have ended their contracts with the government. If this is the case for your servicer, you will be assigned a new servicer and notified of how to set up an account with them. Pay attention to both your mail and email to find out how to contact your new servicer. You can also check the National Student Loan Data System (NSLDS) to find out who your servicer is and how to get in touch with them. ## Complaints Against Student Loan Servicers Unfortunately, there has been some controversy regarding how federal loan servicers have handled borrowers. For example, a National Consumer Law Center (NCLC) review found that student loan servicers haven't always implemented income-driven repayment appropriately. The NCLC found that only 32 borrowers had their loans canceled—even though at least 4.4 million had been repaying for at least 20 years. Additionally, an exclusive investigation by NPR found that, historically, some servicers have put borrowers into the wrong repayment plans or had favored putting borrowers into [forbearance](https://www.investopedia.com/terms/f/forbearance.asp) instead of an income-driven plan that would have benefited them more. Finally, a report from the [Consumer Financial Protection Bureau (CFPB)](https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp) found that approximately 3,400 of the 5,300 student loan complaints lodged between Sept. 1, 2020, and Aug. 31, 2021, were against federal loan servicers. ### In March 2023, the Consumer Financial Protection Bureau (CFPB) issued a supervisory report on unlawful junk fees uncovered in deposit accounts and in multiple loan servicing markets, including in the student loan servicing market. According to the report, customer representatives of some student loan servicers, which had policies against allowing borrowers to pay via credit card, would erroneously accept credit card payments. The servicers would then cancel these payments without offering borrowers the chance to pay again. The servicers would instead claim no payment had been made, which they used to justify charging borrowers late fees and additional interest. ## What to Do if You Need Help Paying Your Student Loans While you're supposed to contact your federal loan servicer for help with student loans, it's important to be prepared before you begin. First, review the income-driven repayment plan information provided by the U.S. Department of Education. Determine which plan you are eligible for and make sure you understand the terms. That way, when you speak with a customer service representative for your loan servicer, you know what to ask for. ### If you have older student loans under the Federal Family Education Loan (FFEL) program, your loans might not be owned by the Department of Education. You might not have access to the same programs and benefits associated with the Direct Loan Program. You can check the NSLDS for information about your servicer and see what programs you might be eligible for. You may also have the option to consolidate your loans into a direct loan, which would allow you to qualify for new income-based debt relief. Next, if you plan to apply for PSLF, make sure to fill out an employment certification form each year. That way, you have a record of the qualifying payments you've made and it will be easier to obtain forgiveness. Finally, regularly review your information on the NSLDS to make sure everything matches both your records and your account information with your servicer. If you feel like the information is inaccurate or improperly applied, contact your servicer. You can also contact the Federal Student Aid Ombudsman Group for help resolving issues with your servicer. ## How Can I Find Out Who Is Servicing My Federal Student Loan? You can check your Federal Student Aid (FSA) dashboard or log into the National Student Loan Data System (NSLDS) for information on [your servicer and how to contact them](https://www.investopedia.com/find-student-loan-servicer-5322700). ## Can I Choose My Federal Student Loan Servicer? No. The federal government assigns you a servicer. However, if you consolidate your loans later, you can change student loan servicers. ## What if My Student Loan Servicer Isn't Helping Me? If you're having trouble with your student loan servicer, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or contact the Federal Student Aid Ombudsman Group. ## The Bottom Line Federal loan servicers handle your student loan repayment plan, including billing you and collecting interest. However, in the past, they haven't always provided satisfactory customer service. As a result, you need to diligently monitor your own records and consider filing a complaint if you don't think your servicer is providing you with the help you're entitled to.	When you get a federal student loan, you're assigned a servicer. This student loan servicer manages various aspects of your federal student loans, including repayment and what plan you end up on. Unfortunately, working with student loan servicers doesn't always result in the best outcome for student loan borrowers. Let's take a look at what you need to know about working with your loan servicer's customer service department. Key Takeaways In the past, student loan servicers have recommended programs that don't benefit borrowers.The federal government assigns companies to handle different aspects of student loan borrowing, including billing and repayment. Understanding your loan repayment options before you call your servicer can help you get the help you need.Check with the National Student Loan Data System regularly to stay up to date on your loan and servicer information.Be prepared before you contact your federal student loan provider if you need help during the repayment period. What Is a Federal Student Loan Servicer? Through its Direct Loan Program, the U.S. Department of Education provides student loans to borrowers who want to use the money to pay for their higher education. Rather than managing the terms of your student loan repayment, however, the government assigns a company to handle various aspects of billing and repayment. The companies that manage your federal loan repayment are known as servicers. After your first loan amount is disbursed to your school, the government assigns you a servicer. You can find out who your student loan servicer is by visiting your Federal Student Aid (FSA) dashboard. You should have created an FSA ID when you applied for your student loans through the Free Application for Federal Student Aid (FAFSA). You can use your FSA dashboard to get information about your student loans and your servicer. How Federal Student Loan Servicers Are Supposed to Help There are many student loan servicers. It often happens that you will start your loan under one loan servicer and move to a second or third new servicer as time goes by. This is especially true if you had Navient as your servicer because they no longer handle federal student loans. Your federal student loan servicer is supposed to help you manage your student loans after you get through school—including the payment plans you're eligible for. If you can't afford your monthly payments, your student loan servicer is supposed to help you figure out which income-driven repayment plan is right for you. Additionally, your servicer is supposed to help you keep track of your student loan payments and interest. This information can be used later to help you obtain Public Service Loan Forgiveness (PSLF) or provide you with interest payment information that can be used to claim a deduction on your taxes. Student loan interest payments are reported both to the Internal Revenue Service (IRS) and to you on IRS Form 1098-E, Student Loan Interest Statement. Recently, some federal loan servicers have ended their contracts with the government. If this is the case for your servicer, you will be assigned a new servicer and notified of how to set up an account with them. Pay attention to both your mail and email to find out how to contact your new servicer. You can also check the National Student Loan Data System (NSLDS) to find out who your servicer is and how to get in touch with them. Complaints Against Student Loan Servicers Unfortunately, there has been some controversy regarding how federal loan servicers have handled borrowers. For example, a National Consumer Law Center (NCLC) review found that student loan servicers haven't always implemented income-driven repayment appropriately. The NCLC found that only 32 borrowers had their loans canceled—even though at least 4.4 million had been repaying for at least 20 years. Additionally, an exclusive investigation by NPR found that, historically, some servicers have put borrowers into the wrong repayment plans or had favored putting borrowers into forbearance instead of an income-driven plan that would have benefited them more. Finally, a report from the Consumer Financial Protection Bureau (CFPB) found that approximately 3,400 of the 5,300 student loan complaints lodged between Sept. 1, 2020, and Aug. 31, 2021, were against federal loan servicers. In March 2023, the Consumer Financial Protection Bureau (CFPB) issued a supervisory report on unlawful junk fees uncovered in deposit accounts and in multiple loan servicing markets, including in the student loan servicing market. According to the report, customer representatives of some student loan servicers, which had policies against allowing borrowers to pay via credit card, would erroneously accept credit card payments. The servicers would then cancel these payments without offering borrowers the chance to pay again. The servicers would instead claim no payment had been made, which they used to justify charging borrowers late fees and additional interest. What to Do if You Need Help Paying Your Student Loans While you're supposed to contact your federal loan servicer for help with student loans, it's important to be prepared before you begin. First, review the income-driven repayment plan information provided by the U.S. Department of Education. Determine which plan you are eligible for and make sure you understand the terms. That way, when you speak with a customer service representative for your loan servicer, you know what to ask for. If you have older student loans under the Federal Family Education Loan (FFEL) program, your loans might not be owned by the Department of Education. You might not have access to the same programs and benefits associated with the Direct Loan Program. You can check the NSLDS for information about your servicer and see what programs you might be eligible for. You may also have the option to consolidate your loans into a direct loan, which would allow you to qualify for new income-based debt relief. Next, if you plan to apply for PSLF, make sure to fill out an employment certification form each year. That way, you have a record of the qualifying payments you've made and it will be easier to obtain forgiveness. Finally, regularly review your information on the NSLDS to make sure everything matches both your records and your account information with your servicer. If you feel like the information is inaccurate or improperly applied, contact your servicer. You can also contact the Federal Student Aid Ombudsman Group for help resolving issues with your servicer. How Can I Find Out Who Is Servicing My Federal Student Loan? You can check your Federal Student Aid (FSA) dashboard or log into the National Student Loan Data System (NSLDS) for information on your servicer and how to contact them. Can I Choose My Federal Student Loan Servicer? No. The federal government assigns you a servicer. However, if you consolidate your loans later, you can change student loan servicers. What if My Student Loan Servicer Isn't Helping Me? If you're having trouble with your student loan servicer, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or contact the Federal Student Aid Ombudsman Group. The Bottom Line Federal loan servicers handle your student loan repayment plan, including billing you and collecting interest. However, in the past, they haven't always provided satisfactory customer service. As a result, you need to diligently monitor your own records and consider filing a complaint if you don't think your servicer is providing you with the help you're entitled to.	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https://www.investopedia.com/terms/g/ginniemae.asp	Government National Mortgage Association (Ginnie Mae): History and Programs	<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-government-national-mortgage-association"></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 Government National Mortgage Association? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Government National Mortgage Association is a federal government corporation that guarantees the timely payment of principal and interest on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp">mortgage-backed securities</a> (MBSs) issued by approved lenders. Ginnie Mae connects the United States housing market to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalmarkets.asp">capital markets</a>, providing low-cost financing for federal housing programs through the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fhaloan.asp">Federal Housing Administration (FHA)</a>, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valoan.asp">Veterans Affairs (VA)</a>, the Department of Agriculture, and <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/us-department-housing-urban-development-hud.asp">HUD</a>'s Public and Indian Housing.<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_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 Government National Mortgage Association (GNMA) is a federal corporation that guarantees principal and interest payments on mortgage-backed securities issued by approved lenders.</li><li>Ginnie Mae was established in 1968 as part of the U.S. Department of Housing and Urban Development (HUD) to promote affordable homeownership.</li><li>The GNMA is backed by the full faith and credit of the federal government, unlike Fannie Mae or Freddie Mac.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-does-ginnie-mae-do"></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"> What Does Ginnie Mae Do? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The Government National Mortgage Association was established in 1968 as part of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/us-department-housing-urban-development-hud.asp">U.S. Department of Housing and Urban Development</a> (HUD) to promote affordable homeownership.<span class="ql-inline-citation" data-cite="1"></span> Ginnie Mae does not create mortgages but guarantees them for single and multifamily homes. Since the government backs these loans, homeowners can secure lower <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a>, lowering their borrowing costs. Using a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/05/030905.asp">mortgage calculator</a> is an excellent resource for budgeting these costs. </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 mntl-sc-block-tool mntl-block mntl-sc-block--mortgage-loan-calculator" id="mntl-sc-block_9-0"><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_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Ginnie Mae operates behind the mortgage market, neither issuing, selling, or buying pass-through mortgage-backed securities nor purchasing mortgage loans. Instead, approved private <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lenders</a> originate eligible loans, pool them into <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 issue <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp">mortgage-backed securities</a> guaranteed by Ginnie Mae. In April 2023, Ginnie Mae's MBS portfolio balance was worth $2.4 trillion.<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> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Ginnie Mae guarantees mortgage-backed securities to help open the home mortgage market to first-time homemakers, low-income borrowers, and other underserved groups.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-ginnie-mae-guarantees"></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"> Ginnie Mae Guarantees </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Ginnie Mae guarantees the timely payment of principal and interest from approved issuers, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgagebanker.asp">mortgage bankers</a>, savings and loans, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commercialbank.asp">commercial banks</a>, of qualifying loans. An investor in a GNMA security doesn't know who the underlying issuer of the mortgages is, but that the security is guaranteed by Ginnie Mae and backed by the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/full-faith-credit.asp">full faith and credit</a> of the U.S. government, just like the instruments issued by the U.S. Treasury.<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"> The GNMA guarantee means that Investors with shares in Ginnie Mae funds never have to worry about the impact of late payments or mortgage defaults on their investment. When mortgage borrowers fail to make payments, Ginnie Mae covers them.<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_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Ginnie Mae's efforts aid those traditionally underserved in the mortgage market. Most mortgages securitized as Ginnie Mae MBSs are insured by the Federal Housing Administration (FHA), which typically insures mortgages to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/firsttimehomebuyer.asp">first-time home buyers</a> and low-income borrowers.<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> <span class="heading-toc" id="toc-history-of-ginnie-mae"></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 Ginnie Mae </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> After the Great Depression, when historically high unemployment rates led to unprecedented loan defaults, Congress passed the National Housing Act of 1934, a component of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/new-deal.asp">New Deal</a>, to help revive the U.S. housing market and protect lenders from mortgage default. </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 1968, thirty years after it was established, the Federal National Mortgage Association (FNMA), better known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/fannie-mae-loans/">Fannie Mae</a>, split into two entities with two separate functions. Fannie Mae would purchase conventional loans and Ginnie Mae government-backed mortgages.<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_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Fannie Mae was converted from a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gse.asp">government-sponsored enterprise </a>(GSE) to a publicly traded company. Ginnie Mae was established as a GSE and part of the Department of Housing and Urban Development, or HUD. Ginnie Mae is the only home-loan agency explicitly backed by the full faith and credit of the United States government.<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-ginnie-mae-vs-fannie-mae-and-freddie-mac"></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"> Ginnie Mae vs. Fannie Mae and Freddie Mac </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Several organizations are similar to Ginnie Mae, notably <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> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/fannie-mae-loans/">Fannie Mae</a>. Freddie Mac and Fannie Mae are <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gse.asp">government-sponsored enterprises</a> (GSEs), federally chartered corporations owned by private shareholders.<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_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Where Ginnie Mae guarantees only securities that comprise mortgages guaranteed by federal agencies, such as the FHA and VA, its relatives may back securities whose mortgages are not insured by the government. Fannie Mae has a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a> that invests in its own and other institutions' mortgage-backed securities. </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 GNMA is also ostensibly the only Mae or Mac backed by the full faith and credit of the federal government. In 2008, during the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/housing_bubble.asp">housing crisis</a>, Fannie Mae and Freddie Mac were overseen by the government via a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/conservatorship.asp">conservatorship</a> of the Federal Housing Finance Committee.<span class="ql-inline-citation" data-cite="7"></span> Some argue that the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bailout.asp">bailout</a> erased Ginnie Mae's distinction as the only federal agency guaranteeing mortgage securities that enjoy government protection against failure. </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-does-ginnie-mae-provide-mortgage-financing"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Ginnie Mae Provide Mortgage Financing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Ginnie Mae does not originate any loans or provide financing for mortgage issuers. The GNMA doesn't provide insurance to lenders against any credit risks that stem from borrowers. Furthermore, Ginnie Mae doesn't set any standards for loan issuers, such as underwriting or credit standards.</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-how-does-ginnie-mae-help-make-mortgages-more-affordable"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does Ginnie Mae Help Make Mortgages More Affordable?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>When mortgages are guaranteed by Ginnie Mae, lenders obtain a better price for their mortgage loans in the secondary mortgage market and can use the proceeds to fund new mortgage loans.<span class="ql-inline-citation" data-cite="18"></span> </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-why-are-ginnie-mae-securities-considered-a-safe-investment"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Are Ginnie Mae Securities Considered a Safe Investment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Ginnie Mae does not buy or sell loans or issue mortgage-backed securities (MBS) and its balance sheet doesn't use derivatives to hedge or carry long-term debt.<span class="ql-inline-citation" data-cite="5"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_42-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> The Government National Mortgage Association (GNMA), or Ginnie Mae, guarantees principal and interest payments on mortgage-backed securities issued by approved lenders. The GNMA is backed by the full faith and credit of the federal government, unlike Fannie Mae or Freddie Mac. Ginnie Mae was established in 1968 to promote affordable homeownership. </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 the Government National Mortgage Association? The Government National Mortgage Association is a federal government corporation that guarantees the timely payment of principal and interest on [mortgage-backed securities](https://www.investopedia.com/terms/m/mbs.asp) (MBSs) issued by approved lenders. Ginnie Mae connects the United States housing market to [capital markets](https://www.investopedia.com/terms/c/capitalmarkets.asp), providing low-cost financing for federal housing programs through the [Federal Housing Administration (FHA)](https://www.investopedia.com/terms/f/fhaloan.asp), [Veterans Affairs (VA)](https://www.investopedia.com/terms/v/valoan.asp), the Department of Agriculture, and [HUD](https://www.investopedia.com/terms/u/us-department-housing-urban-development-hud.asp)'s Public and Indian Housing. ### Key Takeaways * The Government National Mortgage Association (GNMA) is a federal corporation that guarantees principal and interest payments on mortgage-backed securities issued by approved lenders. * Ginnie Mae was established in 1968 as part of the U.S. Department of Housing and Urban Development (HUD) to promote affordable homeownership. * The GNMA is backed by the full faith and credit of the federal government, unlike Fannie Mae or Freddie Mac. ## What Does Ginnie Mae Do? The Government National Mortgage Association was established in 1968 as part of the [U.S. Department of Housing and Urban Development](https://www.investopedia.com/terms/u/us-department-housing-urban-development-hud.asp) (HUD) to promote affordable homeownership. Ginnie Mae does not create mortgages but guarantees them for single and multifamily homes. Since the government backs these loans, homeowners can secure lower [interest rates](https://www.investopedia.com/terms/i/interestrate.asp), lowering their borrowing costs. Using a [mortgage calculator](https://www.investopedia.com/articles/pf/05/030905.asp) is an excellent resource for budgeting these costs. Ginnie Mae operates behind the mortgage market, neither issuing, selling, or buying pass-through mortgage-backed securities nor purchasing mortgage loans. Instead, approved private [lenders](https://www.investopedia.com/terms/l/lender.asp) originate eligible loans, pool them into [securities](https://www.investopedia.com/terms/s/security.asp), and issue [mortgage-backed securities](https://www.investopedia.com/terms/m/mbs.asp) guaranteed by Ginnie Mae. In April 2023, Ginnie Mae's MBS portfolio balance was worth $2.4 trillion. ### Ginnie Mae guarantees mortgage-backed securities to help open the home mortgage market to first-time homemakers, low-income borrowers, and other underserved groups. ## Ginnie Mae Guarantees Ginnie Mae guarantees the timely payment of principal and interest from approved issuers, such as [mortgage bankers](https://www.investopedia.com/terms/m/mortgagebanker.asp), savings and loans, and [commercial banks](https://www.investopedia.com/terms/c/commercialbank.asp), of qualifying loans. An investor in a GNMA security doesn't know who the underlying issuer of the mortgages is, but that the security is guaranteed by Ginnie Mae and backed by the [full faith and credit](https://www.investopedia.com/terms/f/full-faith-credit.asp) of the U.S. government, just like the instruments issued by the U.S. Treasury. The GNMA guarantee means that Investors with shares in Ginnie Mae funds never have to worry about the impact of late payments or mortgage defaults on their investment. When mortgage borrowers fail to make payments, Ginnie Mae covers them. Ginnie Mae's efforts aid those traditionally underserved in the mortgage market. Most mortgages securitized as Ginnie Mae MBSs are insured by the Federal Housing Administration (FHA), which typically insures mortgages to [first-time home buyers](https://www.investopedia.com/terms/f/firsttimehomebuyer.asp) and low-income borrowers. ## History of Ginnie Mae After the Great Depression, when historically high unemployment rates led to unprecedented loan defaults, Congress passed the National Housing Act of 1934, a component of the [New Deal](https://www.investopedia.com/terms/n/new-deal.asp), to help revive the U.S. housing market and protect lenders from mortgage default. In 1968, thirty years after it was established, the Federal National Mortgage Association (FNMA), better known as [Fannie Mae](https://www.investopedia.com/mortgage/fannie-mae-loans/), split into two entities with two separate functions. Fannie Mae would purchase conventional loans and Ginnie Mae government-backed mortgages. Fannie Mae was converted from a [government-sponsored enterprise](https://www.investopedia.com/terms/g/gse.asp) (GSE) to a publicly traded company. Ginnie Mae was established as a GSE and part of the Department of Housing and Urban Development, or HUD. Ginnie Mae is the only home-loan agency explicitly backed by the full faith and credit of the United States government. ## Ginnie Mae vs. Fannie Mae and Freddie Mac Several organizations are similar to Ginnie Mae, notably [Freddie Mac](https://www.investopedia.com/terms/f/freddiemac.asp) and [Fannie Mae](https://www.investopedia.com/mortgage/fannie-mae-loans/). Freddie Mac and Fannie Mae are [government-sponsored enterprises](https://www.investopedia.com/terms/g/gse.asp) (GSEs), federally chartered corporations owned by private shareholders. Where Ginnie Mae guarantees only securities that comprise mortgages guaranteed by federal agencies, such as the FHA and VA, its relatives may back securities whose mortgages are not insured by the government. Fannie Mae has a [portfolio](https://www.investopedia.com/terms/p/portfolio.asp) that invests in its own and other institutions' mortgage-backed securities. The GNMA is also ostensibly the only Mae or Mac backed by the full faith and credit of the federal government. In 2008, during the [housing crisis](https://www.investopedia.com/terms/h/housing_bubble.asp), Fannie Mae and Freddie Mac were overseen by the government via a [conservatorship](https://www.investopedia.com/terms/c/conservatorship.asp) of the Federal Housing Finance Committee. Some argue that the [bailout](https://www.investopedia.com/terms/b/bailout.asp) erased Ginnie Mae's distinction as the only federal agency guaranteeing mortgage securities that enjoy government protection against failure. ## Does Ginnie Mae Provide Mortgage Financing? Ginnie Mae does not originate any loans or provide financing for mortgage issuers. The GNMA doesn't provide insurance to lenders against any credit risks that stem from borrowers. Furthermore, Ginnie Mae doesn't set any standards for loan issuers, such as underwriting or credit standards. ## How Does Ginnie Mae Help Make Mortgages More Affordable? When mortgages are guaranteed by Ginnie Mae, lenders obtain a better price for their mortgage loans in the secondary mortgage market and can use the proceeds to fund new mortgage loans. ## Why Are Ginnie Mae Securities Considered a Safe Investment? Ginnie Mae does not buy or sell loans or issue mortgage-backed securities (MBS) and its balance sheet doesn't use derivatives to hedge or carry long-term debt. ## The Bottom Line The Government National Mortgage Association (GNMA), or Ginnie Mae, guarantees principal and interest payments on mortgage-backed securities issued by approved lenders. The GNMA is backed by the full faith and credit of the federal government, unlike Fannie Mae or Freddie Mac. Ginnie Mae was established in 1968 to promote affordable homeownership.	What Is the Government National Mortgage Association? The Government National Mortgage Association is a federal government corporation that guarantees the timely payment of principal and interest on mortgage-backed securities (MBSs) issued by approved lenders. Ginnie Mae connects the United States housing market to capital markets, providing low-cost financing for federal housing programs through the Federal Housing Administration (FHA), Veterans Affairs (VA), the Department of Agriculture, and HUD's Public and Indian Housing. Key Takeaways The Government National Mortgage Association (GNMA) is a federal corporation that guarantees principal and interest payments on mortgage-backed securities issued by approved lenders.Ginnie Mae was established in 1968 as part of the U.S. Department of Housing and Urban Development (HUD) to promote affordable homeownership.The GNMA is backed by the full faith and credit of the federal government, unlike Fannie Mae or Freddie Mac. What Does Ginnie Mae Do? The Government National Mortgage Association was established in 1968 as part of the U.S. Department of Housing and Urban Development (HUD) to promote affordable homeownership. Ginnie Mae does not create mortgages but guarantees them for single and multifamily homes. Since the government backs these loans, homeowners can secure lower interest rates, lowering their borrowing costs. Using a mortgage calculator is an excellent resource for budgeting these costs. Ginnie Mae operates behind the mortgage market, neither issuing, selling, or buying pass-through mortgage-backed securities nor purchasing mortgage loans. Instead, approved private lenders originate eligible loans, pool them into securities, and issue mortgage-backed securities guaranteed by Ginnie Mae. In April 2023, Ginnie Mae's MBS portfolio balance was worth $2.4 trillion. Ginnie Mae guarantees mortgage-backed securities to help open the home mortgage market to first-time homemakers, low-income borrowers, and other underserved groups. Ginnie Mae Guarantees Ginnie Mae guarantees the timely payment of principal and interest from approved issuers, such as mortgage bankers, savings and loans, and commercial banks, of qualifying loans. An investor in a GNMA security doesn't know who the underlying issuer of the mortgages is, but that the security is guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S. government, just like the instruments issued by the U.S. Treasury. The GNMA guarantee means that Investors with shares in Ginnie Mae funds never have to worry about the impact of late payments or mortgage defaults on their investment. When mortgage borrowers fail to make payments, Ginnie Mae covers them. Ginnie Mae's efforts aid those traditionally underserved in the mortgage market. Most mortgages securitized as Ginnie Mae MBSs are insured by the Federal Housing Administration (FHA), which typically insures mortgages to first-time home buyers and low-income borrowers. History of Ginnie Mae After the Great Depression, when historically high unemployment rates led to unprecedented loan defaults, Congress passed the National Housing Act of 1934, a component of the New Deal, to help revive the U.S. housing market and protect lenders from mortgage default. In 1968, thirty years after it was established, the Federal National Mortgage Association (FNMA), better known as Fannie Mae, split into two entities with two separate functions. Fannie Mae would purchase conventional loans and Ginnie Mae government-backed mortgages. Fannie Mae was converted from a government-sponsored enterprise (GSE) to a publicly traded company. Ginnie Mae was established as a GSE and part of the Department of Housing and Urban Development, or HUD. Ginnie Mae is the only home-loan agency explicitly backed by the full faith and credit of the United States government. Ginnie Mae vs. Fannie Mae and Freddie Mac Several organizations are similar to Ginnie Mae, notably Freddie Mac and Fannie Mae. Freddie Mac and Fannie Mae are government-sponsored enterprises (GSEs), federally chartered corporations owned by private shareholders. Where Ginnie Mae guarantees only securities that comprise mortgages guaranteed by federal agencies, such as the FHA and VA, its relatives may back securities whose mortgages are not insured by the government. Fannie Mae has a portfolio that invests in its own and other institutions' mortgage-backed securities. The GNMA is also ostensibly the only Mae or Mac backed by the full faith and credit of the federal government. In 2008, during the housing crisis, Fannie Mae and Freddie Mac were overseen by the government via a conservatorship of the Federal Housing Finance Committee. Some argue that the bailout erased Ginnie Mae's distinction as the only federal agency guaranteeing mortgage securities that enjoy government protection against failure. Does Ginnie Mae Provide Mortgage Financing? Ginnie Mae does not originate any loans or provide financing for mortgage issuers. The GNMA doesn't provide insurance to lenders against any credit risks that stem from borrowers. Furthermore, Ginnie Mae doesn't set any standards for loan issuers, such as underwriting or credit standards. How Does Ginnie Mae Help Make Mortgages More Affordable? When mortgages are guaranteed by Ginnie Mae, lenders obtain a better price for their mortgage loans in the secondary mortgage market and can use the proceeds to fund new mortgage loans. Why Are Ginnie Mae Securities Considered a Safe Investment? Ginnie Mae does not buy or sell loans or issue mortgage-backed securities (MBS) and its balance sheet doesn't use derivatives to hedge or carry long-term debt. The Bottom Line The Government National Mortgage Association (GNMA), or Ginnie Mae, guarantees principal and interest payments on mortgage-backed securities issued by approved lenders. The GNMA is backed by the full faith and credit of the federal government, unlike Fannie Mae or Freddie Mac. Ginnie Mae was established in 1968 to promote affordable homeownership.	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https://www.investopedia.com/top-etfs-for-august-2023-7563857	Top ETFs for August 2023	<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"> Top exchange-traded funds (ETFs) offer a cost-effective way for investors to diversify their portfolios across various asset classes. ETFs track a particular index, sector, or commodity and trade on a stock exchange the same way that a regular stock does, providing investors with added flexibility.<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"> Below, we look at five top equity, bond, fixed income, commodities, and currency <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">ETFs</a> that have generated the best returns over the last month, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in <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 (AUM)</a>. All data below is as of July 21. </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>Top ETFs offer a cost-effective way for investors to diversify their portfolios across varied asset classes.</li><li>ETFs for August with the best 1-month return include BKCH, ICVT, PFFR, OILK, and FXF.</li><li>Blockchain and oil ETFs have performed well over the last month due to a positive outcome for cryptocurrencies in the SEC vs. Ripple lawsuit and rising energy prices.</li><li>The Invesco CurrencyShares Swiss Franc Trust<strong> </strong>has benefited from the Swiss National Bank (SNB)'s flagging additional rate hikes to reduce inflationary pressures.</li></ul></div></div></div> <span class="heading-toc" id="toc-equity-etf-with-the-best-1-month-return-global-x-blockchain-etf-bkch"></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"> Equity ETF with the Best 1-Month Return: Global X Blockchain ETF (BKCH) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <li>Performance 1 Month: 59.48%</li><li>Expense Ratio: 0.5%</li><li>Annual Dividend Yield: 0.72%</li><li>30-Day Average Daily Volume: 124,007</li><li>Assets Under Management: $108.86 million</li><li>Inception Date: July 12, 2021</li><li>Issuer: Mirae Asset Global Investments Co.<span class="ql-inline-citation" data-cite="2"></span><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_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> BKCH tracks the Solactive Blockchain Index, a benchmark comprising global companies involved in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp">blockchain</a> technologies, such as digital asset mining, digital asset transactions, and blockchain applications. Technology and financials top the sector allocations at 52.07% and 30.11%, respectively.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> This ETF’s top holdings include leading U.S.-based cryptocurrency exchange Coinbase Global Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=COIN">COIN</a>), digital asset mining company Marathon Digital Holdings Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=mara">MARA</a>), and Riot Platforms, Inc. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=riot">RIOT</a>), a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin-mining.asp">bitcoin mining</a> company. Although the fund doesn’t directly hold digital currencies, it has benefited from a positive outcome for cryptocurrencies in the <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission (SEC)</a> vs. Ripple Labs lawsuit, in which a judge deemed Ripple’s XRP token not to be a security.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-bond-etf-with-the-best-1-month-return-ishares-convertible-bond-etf-icvt"></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"> Bond ETF with the Best 1-Month Return: iShares Convertible Bond ETF (ICVT) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>Performance 1 Month: 3.72%</li><li>Expense Ratio: 0.2%</li><li>Annual Dividend Yield: 1.87%</li><li>30-Day Average Daily Volume: 242,214</li><li>Assets Under Management: $1.41 billion</li><li>Inception Date: June. 2, 2015</li><li>Issuer: BlackRock<span class="ql-inline-citation" data-cite="5"></span><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_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> ICVT aims to provide similar returns to the Bloomberg U.S. Convertible Cash Pay Bond > $250MM Index. This benchmark tracks an index of U.S. dollar (USD)-denominated <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/introduction-convertible-bonds/#:~:text=Convertible%20bonds%20are%20corporate%20bonds%20that%20can%20be%20exchanged%20for,investor%20will%20get%20for%20it.">convertible bonds</a> weighted by market value, specifically cash pay bonds, with outstanding issue sizes greater than $250 million.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> The fund's largest holding is in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technology_sector.asp">technology sector</a> with a 27.43% asset allocation, while healthcare and consumer services are also well-represented with allocations of 13.18% and 11.76%, respectively.<span class="ql-inline-citation" data-cite="5"></span> ICVT directly benefited from those three sectors outperforming the broader market in July.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-fixed-income-etf-with-the-best-1-month-return-infracap-reit-preferred-etf-pffr"></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"> Fixed Income ETF with the Best 1-Month Return: InfraCap REIT Preferred ETF (PFFR) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <li>Performance 1 Month: 4.68%</li><li>Expense Ratio: 0.45%</li><li>Annual Dividend Yield: 8.14%</li><li>30-Day Average Daily Volume: 15,887</li><li>Assets Under Management: $61.88 million</li><li>Inception Date: Feb. 7, 2017</li><li>Issuer: Virtus Investment Partners<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="7"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> PFFR tracks the Indxx REIT Preferred Stock Index, a benchmark consisting of U.S.-listed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/06/preferredstock.asp">preferred securities</a> issued by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reit.asp">real estate investment trusts (REITs)</a>. The fund, which rebalances semiannually, only selects securities with a yield of 3% or higher and limits any single issue to a 10% weighting.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Top holdings in the ETF’s portfolio include mortgage manager Annaly Capital Management Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=nly">NLY</a>), data-center operator Digital Realty Trust Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=dlr">DLR</a>), and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broadband.asp">broadband</a> service provider Digital Bridge Communications Corp.<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> <span class="heading-toc" id="toc-commodities-etf-with-the-best-1-month-return-proshares-k-1-free-crude-oil-strategy-etf-oilk"></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"> Commodities ETF with the Best 1-Month Return: ProShares K-1 Free Crude Oil Strategy ETF (OILK) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <li>Performance 1 Month: 5.28%</li><li>Expense Ratio: 0.67%</li><li>Annual Dividend Yield: 8.34%</li><li>30-Day Average Daily Volume: 35,528</li><li>Assets Under Management: $89.94 million</li><li>Inception Date: Sept. 26, 2016</li><li>Issuer: ProShares<span class="ql-inline-citation" data-cite="10"></span><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_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> OILK tracks the performance of the Bloomberg Commodity Balanced WTI Crude Oil Index, a benchmark holding three separate contracts at equal weighting with different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/073015/how-do-futures-contracts-roll-over.asp">roll</a> schedules. The first portion of the ETF’s portfolio follows a monthly roll schedule, while the second and third portions hold June and December contracts, respectively, that roll annually each March and September.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The fund has benefited from a recovery in oil prices throughout July on expectations that China will implement policies to support economic growth after an unexpected contraction in its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gdp.asp">gross domestic product (GDP)</a> and hopes that the Federal Reserve will stop raising interest rates soon. A slowdown in rate hikes typically facilitates economic output, which in turn increases demand for oil.<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_34-0"></div> <span class="heading-toc" id="toc-currency-etf-with-the-best-1-month-return-invesco-currencyshares-swiss-franc-trust-fxf"></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"> Currency ETF with the Best 1-Month Return: Invesco CurrencyShares Swiss Franc Trust (FXF) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <li>Performance 1 Month: 4.13%</li><li>Expense Ratio: 0.4%</li><li>Annual Dividend Yield: N/A</li><li>30-Day Average Daily Volume: 19,021</li><li>Assets Under Management: $165.54 million</li><li>Inception Date: June 21, 2006</li><li>Issuer: Invesco<span class="ql-inline-citation" data-cite="13"></span><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_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> FXF provides direct exposure to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/052915/how-invest-swiss-franc.asp#:~:text=The%20Swiss%20franc%20%28CHF%29%20is,seek%20out%20the%20Swiss%20franc.">Swiss franc (CHF)</a> by holding physical currency in a JP Morgan deposit account, ensuring the fund closely tracks the CHF/USD spot exchange rate. Investors should be aware that the ETF carries <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditrisk.asp">credit risk</a>, as there’s no <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">deposit insurance</a> on its holdings.<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_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> The fund outperformed other currency ETFs in July after the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/swiss-national-bank.asp">Swiss National Bank (SNB)</a> flagged additional rate hikes in coming months to reduce ongoing inflationary pressures.<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_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info.</em> </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"> <em>As of the date this article was written, the author does not own any of the above ETFs.</em><br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	Top exchange-traded funds (ETFs) offer a cost-effective way for investors to diversify their portfolios across various asset classes. ETFs track a particular index, sector, or commodity and trade on a stock exchange the same way that a regular stock does, providing investors with added flexibility. Below, we look at five top equity, bond, fixed income, commodities, and currency [ETFs](https://www.investopedia.com/terms/e/etf.asp) that have generated the best returns over the last month, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in [assets under management (AUM)](https://www.investopedia.com/terms/a/aum.asp). All data below is as of July 21. ### Key Takeaways * Top ETFs offer a cost-effective way for investors to diversify their portfolios across varied asset classes. * ETFs for August with the best 1-month return include BKCH, ICVT, PFFR, OILK, and FXF. * Blockchain and oil ETFs have performed well over the last month due to a positive outcome for cryptocurrencies in the SEC vs. Ripple lawsuit and rising energy prices. * The Invesco CurrencyShares Swiss Franc Trusthas benefited from the Swiss National Bank (SNB)'s flagging additional rate hikes to reduce inflationary pressures. ## Equity ETF with the Best 1-Month Return: Global X Blockchain ETF (BKCH) * Performance 1 Month: 59.48% * Expense Ratio: 0.5% * Annual Dividend Yield: 0.72% * 30-Day Average Daily Volume: 124,007 * Assets Under Management: $108.86 million * Inception Date: July 12, 2021 * Issuer: Mirae Asset Global Investments Co. BKCH tracks the Solactive Blockchain Index, a benchmark comprising global companies involved in [blockchain](https://www.investopedia.com/terms/b/blockchain.asp) technologies, such as digital asset mining, digital asset transactions, and blockchain applications. Technology and financials top the sector allocations at 52.07% and 30.11%, respectively. This ETF’s top holdings include leading U.S.-based cryptocurrency exchange Coinbase Global Inc. ([COIN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=COIN)), digital asset mining company Marathon Digital Holdings Inc. ([MARA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=mara)), and Riot Platforms, Inc. ([RIOT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=riot)), a [bitcoin mining](https://www.investopedia.com/terms/b/bitcoin-mining.asp) company. Although the fund doesn’t directly hold digital currencies, it has benefited from a positive outcome for cryptocurrencies in the [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp) vs. Ripple Labs lawsuit, in which a judge deemed Ripple’s XRP token not to be a security. ## Bond ETF with the Best 1-Month Return: iShares Convertible Bond ETF (ICVT) * Performance 1 Month: 3.72% * Expense Ratio: 0.2% * Annual Dividend Yield: 1.87% * 30-Day Average Daily Volume: 242,214 * Assets Under Management: $1.41 billion * Inception Date: June. 2, 2015 * Issuer: BlackRock ICVT aims to provide similar returns to the Bloomberg U.S. Convertible Cash Pay Bond > $250MM Index. This benchmark tracks an index of U.S. dollar (USD)-denominated [convertible bonds](https://www.investopedia.com/investing/introduction-convertible-bonds/#:~:text=Convertible%20bonds%20are%20corporate%20bonds%20that%20can%20be%20exchanged%20for,investor%20will%20get%20for%20it.) weighted by market value, specifically cash pay bonds, with outstanding issue sizes greater than $250 million. The fund's largest holding is in the [technology sector](https://www.investopedia.com/terms/t/technology_sector.asp) with a 27.43% asset allocation, while healthcare and consumer services are also well-represented with allocations of 13.18% and 11.76%, respectively. ICVT directly benefited from those three sectors outperforming the broader market in July. ## Fixed Income ETF with the Best 1-Month Return: InfraCap REIT Preferred ETF (PFFR) * Performance 1 Month: 4.68% * Expense Ratio: 0.45% * Annual Dividend Yield: 8.14% * 30-Day Average Daily Volume: 15,887 * Assets Under Management: $61.88 million * Inception Date: Feb. 7, 2017 * Issuer: Virtus Investment Partners PFFR tracks the Indxx REIT Preferred Stock Index, a benchmark consisting of U.S.-listed [preferred securities](https://www.investopedia.com/articles/stocks/06/preferredstock.asp) issued by [real estate investment trusts (REITs)](https://www.investopedia.com/terms/r/reit.asp). The fund, which rebalances semiannually, only selects securities with a yield of 3% or higher and limits any single issue to a 10% weighting. Top holdings in the ETF’s portfolio include mortgage manager Annaly Capital Management Inc. ([NLY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=nly)), data-center operator Digital Realty Trust Inc. ([DLR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=dlr)), and [broadband](https://www.investopedia.com/terms/b/broadband.asp) service provider Digital Bridge Communications Corp. ## Commodities ETF with the Best 1-Month Return: ProShares K-1 Free Crude Oil Strategy ETF (OILK) * Performance 1 Month: 5.28% * Expense Ratio: 0.67% * Annual Dividend Yield: 8.34% * 30-Day Average Daily Volume: 35,528 * Assets Under Management: $89.94 million * Inception Date: Sept. 26, 2016 * Issuer: ProShares OILK tracks the performance of the Bloomberg Commodity Balanced WTI Crude Oil Index, a benchmark holding three separate contracts at equal weighting with different [roll](https://www.investopedia.com/ask/answers/073015/how-do-futures-contracts-roll-over.asp) schedules. The first portion of the ETF’s portfolio follows a monthly roll schedule, while the second and third portions hold June and December contracts, respectively, that roll annually each March and September. The fund has benefited from a recovery in oil prices throughout July on expectations that China will implement policies to support economic growth after an unexpected contraction in its [gross domestic product (GDP)](https://www.investopedia.com/terms/g/gdp.asp) and hopes that the Federal Reserve will stop raising interest rates soon. A slowdown in rate hikes typically facilitates economic output, which in turn increases demand for oil. ## Currency ETF with the Best 1-Month Return: Invesco CurrencyShares Swiss Franc Trust (FXF) * Performance 1 Month: 4.13% * Expense Ratio: 0.4% * Annual Dividend Yield: N/A * 30-Day Average Daily Volume: 19,021 * Assets Under Management: $165.54 million * Inception Date: June 21, 2006 * Issuer: Invesco FXF provides direct exposure to the [Swiss franc (CHF)](https://www.investopedia.com/articles/investing/052915/how-invest-swiss-franc.asp#:~:text=The%20Swiss%20franc%20%28CHF%29%20is,seek%20out%20the%20Swiss%20franc.) by holding physical currency in a JP Morgan deposit account, ensuring the fund closely tracks the CHF/USD spot exchange rate. Investors should be aware that the ETF carries [credit risk](https://www.investopedia.com/terms/c/creditrisk.asp), as there’s no [deposit insurance](https://www.investopedia.com/terms/f/fdic.asp) on its holdings. The fund outperformed other currency ETFs in July after the [Swiss National Bank (SNB)](https://www.investopedia.com/terms/s/swiss-national-bank.asp) flagged additional rate hikes in coming months to reduce ongoing inflationary pressures. The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. 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 ETFs. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	Top exchange-traded funds (ETFs) offer a cost-effective way for investors to diversify their portfolios across various asset classes. ETFs track a particular index, sector, or commodity and trade on a stock exchange the same way that a regular stock does, providing investors with added flexibility. Below, we look at five top equity, bond, fixed income, commodities, and currency ETFs that have generated the best returns over the last month, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). All data below is as of July 21. Key Takeaways Top ETFs offer a cost-effective way for investors to diversify their portfolios across varied asset classes.ETFs for August with the best 1-month return include BKCH, ICVT, PFFR, OILK, and FXF.Blockchain and oil ETFs have performed well over the last month due to a positive outcome for cryptocurrencies in the SEC vs. Ripple lawsuit and rising energy prices.The Invesco CurrencyShares Swiss Franc Trust has benefited from the Swiss National Bank (SNB)'s flagging additional rate hikes to reduce inflationary pressures. Equity ETF with the Best 1-Month Return: Global X Blockchain ETF (BKCH) Performance 1 Month: 59.48%Expense Ratio: 0.5%Annual Dividend Yield: 0.72%30-Day Average Daily Volume: 124,007Assets Under Management: $108.86 millionInception Date: July 12, 2021Issuer: Mirae Asset Global Investments Co. BKCH tracks the Solactive Blockchain Index, a benchmark comprising global companies involved in blockchain technologies, such as digital asset mining, digital asset transactions, and blockchain applications. Technology and financials top the sector allocations at 52.07% and 30.11%, respectively. This ETF’s top holdings include leading U.S.-based cryptocurrency exchange Coinbase Global Inc. (COIN), digital asset mining company Marathon Digital Holdings Inc. (MARA), and Riot Platforms, Inc. (RIOT), a bitcoin mining company. Although the fund doesn’t directly hold digital currencies, it has benefited from a positive outcome for cryptocurrencies in the Securities and Exchange Commission (SEC) vs. Ripple Labs lawsuit, in which a judge deemed Ripple’s XRP token not to be a security. Bond ETF with the Best 1-Month Return: iShares Convertible Bond ETF (ICVT) Performance 1 Month: 3.72%Expense Ratio: 0.2%Annual Dividend Yield: 1.87%30-Day Average Daily Volume: 242,214Assets Under Management: $1.41 billionInception Date: June. 2, 2015Issuer: BlackRock ICVT aims to provide similar returns to the Bloomberg U.S. Convertible Cash Pay Bond > $250MM Index. This benchmark tracks an index of U.S. dollar (USD)-denominated convertible bonds weighted by market value, specifically cash pay bonds, with outstanding issue sizes greater than $250 million. The fund's largest holding is in the technology sector with a 27.43% asset allocation, while healthcare and consumer services are also well-represented with allocations of 13.18% and 11.76%, respectively. ICVT directly benefited from those three sectors outperforming the broader market in July. Fixed Income ETF with the Best 1-Month Return: InfraCap REIT Preferred ETF (PFFR) Performance 1 Month: 4.68%Expense Ratio: 0.45%Annual Dividend Yield: 8.14%30-Day Average Daily Volume: 15,887Assets Under Management: $61.88 millionInception Date: Feb. 7, 2017Issuer: Virtus Investment Partners PFFR tracks the Indxx REIT Preferred Stock Index, a benchmark consisting of U.S.-listed preferred securities issued by real estate investment trusts (REITs). The fund, which rebalances semiannually, only selects securities with a yield of 3% or higher and limits any single issue to a 10% weighting. Top holdings in the ETF’s portfolio include mortgage manager Annaly Capital Management Inc. (NLY), data-center operator Digital Realty Trust Inc. (DLR), and broadband service provider Digital Bridge Communications Corp. Commodities ETF with the Best 1-Month Return: ProShares K-1 Free Crude Oil Strategy ETF (OILK) Performance 1 Month: 5.28%Expense Ratio: 0.67%Annual Dividend Yield: 8.34%30-Day Average Daily Volume: 35,528Assets Under Management: $89.94 millionInception Date: Sept. 26, 2016Issuer: ProShares OILK tracks the performance of the Bloomberg Commodity Balanced WTI Crude Oil Index, a benchmark holding three separate contracts at equal weighting with different roll schedules. The first portion of the ETF’s portfolio follows a monthly roll schedule, while the second and third portions hold June and December contracts, respectively, that roll annually each March and September. The fund has benefited from a recovery in oil prices throughout July on expectations that China will implement policies to support economic growth after an unexpected contraction in its gross domestic product (GDP) and hopes that the Federal Reserve will stop raising interest rates soon. A slowdown in rate hikes typically facilitates economic output, which in turn increases demand for oil. Currency ETF with the Best 1-Month Return: Invesco CurrencyShares Swiss Franc Trust (FXF) Performance 1 Month: 4.13%Expense Ratio: 0.4%Annual Dividend Yield: N/A30-Day Average Daily Volume: 19,021Assets Under Management: $165.54 millionInception Date: June 21, 2006Issuer: Invesco FXF provides direct exposure to the Swiss franc (CHF) by holding physical currency in a JP Morgan deposit account, ensuring the fund closely tracks the CHF/USD spot exchange rate. Investors should be aware that the ETF carries credit risk, as there’s no deposit insurance on its holdings. The fund outperformed other currency ETFs in July after the Swiss National Bank (SNB) flagged additional rate hikes in coming months to reduce ongoing inflationary pressures. The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. 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 ETFs. Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "ETFs", "https://www.investopedia.com/terms/e/etf.asp" ], [ "assets under management (AUM)", "https://www.investopedia.com/terms/a/aum.asp" ], [ "blockchain", "https://www.investopedia.com/terms/b/blockchain.asp" ], [ "COIN", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=COIN" ], [ "MARA", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=mara" ], [ "RIOT", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=riot" ], [ "bitcoin mining", "https://www.investopedia.com/terms/b/bitcoin-mining.asp" ], [ "Securities and Exchange Commission (SEC)", "https://www.investopedia.com/terms/s/sec.asp" ], [ "convertible bonds", "https://www.investopedia.com/investing/introduction-convertible-bonds/#:~:text=Convertible%20bonds%20are%20corporate%20bonds%20that%20can%20be%20exchanged%20for,investor%20will%20get%20for%20it." ], [ "technology sector", "https://www.investopedia.com/terms/t/technology_sector.asp" ], [ "preferred securities", "https://www.investopedia.com/articles/stocks/06/preferredstock.asp" ], [ "real estate investment trusts (REITs)", "https://www.investopedia.com/terms/r/reit.asp" ], [ "NLY", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=nly" ], [ "DLR", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=dlr" ], [ "broadband", "https://www.investopedia.com/terms/b/broadband.asp" ], [ "roll", "https://www.investopedia.com/ask/answers/073015/how-do-futures-contracts-roll-over.asp" ], [ "gross domestic product (GDP)", "https://www.investopedia.com/terms/g/gdp.asp" ], [ "Swiss franc (CHF)", "https://www.investopedia.com/articles/investing/052915/how-invest-swiss-franc.asp#:~:text=The%20Swiss%20franc%20%28CHF%29%20is,seek%20out%20the%20Swiss%20franc." ], [ "credit risk", "https://www.investopedia.com/terms/c/creditrisk.asp" ], [ "deposit insurance", "https://www.investopedia.com/terms/f/fdic.asp" ], [ "Swiss National Bank (SNB)", "https://www.investopedia.com/terms/s/swiss-national-bank.asp" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/credit-card-debt-consolidation-a-step-by-step-guide-8418444	Credit Card Debt Consolidation: A Step-by-Step 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"> Credit card <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtconsolidation.asp">debt consolidation</a> is the process of combining all of your outstanding <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-card-debt.asp">credit card debt</a> into one payment. By doing so, you could achieve a more manageable monthly payment plus pay less in interest on the total debt. Consolidating debt involves basic steps like gathering information on your debts, comparing debt consolidation loan options terms, and taking action. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>Credit card debt consolidation can simplify your monthly payments and save you money on interest.</li> <li>Methods of consolidation include balance transfer credit cards, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">personal loans</a>, home equity loans, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-debt-consolidation-4779764">debt consolidation loans</a>.</li> <li>Consider factors such as interest rates, fees, and potential credit score impact before consolidating, to make sure it will save you money.</li> <li>Consolidating debt involves basic steps like gathering information on your debts (creditor names, account numbers, amounts owed, payment addresses), comparing debt consolidation loan options terms, and taking action.</li> </ul></div></div></div> <span class="heading-toc" id="toc-benefits-of-consolidating-credit-card-debt"></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"> Benefits of Consolidating Credit Card Debt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Combining all of your credit card debt into one account could provide several benefits. They include: </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"> Lower interest rates </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> By consolidating your credit card debt, you could obtain a lower interest rate than you pay on your current credit cards. Not only will that save you money, but you could use those savings to pay your debt down faster. You could also use some of your savings to create an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergency_fund.asp">emergency fund</a> if you don't already have one.<br/> </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"> Simplified payments </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> By consolidating your credit card debt, you will have just one payment to worry about each month instead of several. That could make it easier to budget and to avoid missing any payments. </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-methods-of-consolidating-credit-card-debt"></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"> Methods of Consolidating Credit Card Debt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> There are several ways you can consolidate your credit card debt to make it more manageable. The major ones are: </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"> Balance Transfer Credit Cards </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Many credit card companies offer cards with low or 0% interest rates on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-cards/balance-transfer-credit-card/">balance transfers</a>. Typically the promotional interest rate is for a limited time, so one of these cards can be a great deal if you are able to pay off the balance before the promotion expires. If you choose this option, you likely will be charged a balance transfer fee, which could be a set amount or a percentage of the transferred balance, usually whichever is higher.<span class="ql-inline-citation" data-cite="1"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> "This fee is usually 3% to 5% of the transferred amount," says Christopher M. Naghibi, executive vice president and chief operating officer at First Foundation Bank in Irvine, Calif. "If you're considering a balance transfer credit card, you really owe it to yourself to weigh this cost against the potential interest savings or other benefit to you. Sometimes, it doesn't make sense economically."<br> </br></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"> There are other potential drawbacks to these cards, too. For instance, if you don't pay off the balance before the promotional interest rate expires, your rate could increase substantially. Also, if you make late payments, you could lose the promotional interest rate.<span class="ql-inline-citation" data-cite="1"></span> What's more, if you use the card for new purchases and don't pay them off right away, you will generally have to pay interest on that amount, likely at a higher interest rate than the promotional rate. <br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> To apply for a credit card balance transfer, you will need to fill out an application for the card. The credit card company will run 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 if your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> is not great, you may get denied. Also, when searching for a balance transfer offer, you may need to look at credit cards from lenders other than your existing credit card company. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> "You'll likely need to find a balance transfer card from a different bank than where your current debt resides if they don't specifically allow you to do it in their fine print," Naghibi says. "So if JP Morgan Chase offers a balance transfer credit card, you can't transfer your existing Chase Sapphire Preferred card balance to it." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_28-0"><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_29-0"><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>Depending on your creditworthiness, many credit card issuers will lower the interest rate on your existing balances if you call their customer service departments and let them know you are otherwise considering transferring balances in response to a balance transfer offer from another card issuer.</p></div></div></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"> Personal Loans </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Many lenders, such as banks and credit unions, offer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-debt-consolidation-4779764">personal loans</a> that can be used for a variety of purposes, including consolidating credit card debt. With such a loan, you could trade in many payments for just one, often at a lower interest rate. <br/> </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"> However, a personal loan may come with added upfront costs, such as application fees and origination fees. So it's important to review these costs and determine whether the long-term savings would be worth the expense. <br> </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"> To apply for a personal loan, you will need to fill out an application and submit to a credit check. You may also be asked to supply bank statements, pay stubs, and tax returns so the lender can evaluate your ability to repay the loan.<br> </br></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"> Home Equity Loans </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/homeequityloan.asp">Home equity loans</a> are backed by the equity you have accumulated in your home. They may offer lower interest rates than other kinds of loans, but they can also have higher fees. "These loans generally come with origination fees, usually around 2% to 7% of the loan amount," says Sean Fox, president of debt resolutions at Achieve, a digital personal finance company in San Mateo, Calif. "Some lenders charge late fees and/or early repayment fees, so be sure to get all the specifics."<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> And because your home serves as collateral for the loan, bear in mind that if you fail to repay it, the lender could <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreclosure.asp">foreclose</a> on your home to recoup its funds. <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"> You can apply for a home equity loan with lenders including banks, credit unions, and mortgage brokers. You will have to fill out an application and supply any required financial records, such as pay stubs, tax returns, and bank statements. The lender also will run a credit check.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-subheading__text"> Debt Consolidation Loan </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-a-debt-consolidation-loan-8350809">debt consolidation loan</a> is the same as a personal loan except that the money can only be used to pay off other debts. It has the same potential benefits and drawbacks as a personal loan, as well as the same application process. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-subheading__text"> Credit Counseling </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> While <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-counseling.asp">credit counseling</a> doesn't actually pay off any debt on your behalf, it can be a valuable service to help manage your debt and make it easier to pay off. Credit counseling services are usually available through non-profit organizations such as the National Foundation for Credit Counseling. Counselors can help you set up a budget as well as payment plans or agreements with your creditors. These payment plans are not negotiations to reduce how much you owe; instead, they are agreements wherein the creditors agree to waive late fees or postpone collection efforts for a specific time period.<span class="ql-inline-citation" data-cite="2"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Credit counselors may also help you create a debt management plan, in which you make a single payment to the organization, which then pays your creditors each month. This may or may not incur fees. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <span class="heading-toc" id="toc-considerations-before-consolidating-credit-card-debt"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-heading__text"> Considerations Before Consolidating Credit Card Debt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Before choosing one credit card debt consolidation option over another, it's important to compare all of their fees and other terms. "Look beyond rates," Fox says. "Every lender will have different rates, as well as ways of working with customers. Sometimes, getting the absolute lowest rate may not be the best answer for someone's particular situation."<br> </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-steps-to-consolidate-credit-card-debt"></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"> Steps to Consolidate Credit Card Debt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> The process for consolidating your credit card debt is basically the same regardless of which option you choose: <br> </br></p> <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"> 1. Gather information </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> First, gather the information on your debts (creditor names, account numbers, amounts owed, payment addresses). You then need to do some research on debt consolidation solutions and determine each option's terms and conditions. Shopping around with different credit card companies, online lenders, banks, and credit unions is also important because their terms can vary. Bear in mind that your credit score and other individual factors will affect which options you qualify for and the rates you'll pay if you do qualify.<br> </br></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"> 2. Compare options </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Once you have all the information on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/where-get-debt-consolidation-loan-8422778">the options you might qualify for</a>, compare them to determine which one offers the best savings at the lowest cost. Consider how much you would save in both the short term and over the long term.<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"> 3. Take action </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Once you narrow down your choice, you can apply for the credit card debt consolidation tool that works best for your situation.<br> </br></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-tips-for-successful-credit-card-debt-consolidation"></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"> Tips for Successful Credit Card Debt Consolidation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> Once you consolidate your old credit card debt, it's important to pay down the new debt as efficiently as possible. That means:<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> <li><strong>Create a budget, and stick with it.</strong> Reining in spending will help keep your debt down and could even create additional savings you could apply to your existing debt. </li><li><strong>Avoid new debt.</strong> Paying off your credit cards through debt consolidation could free up your cards for new purchases. Resist the temptation to do this so you don't fall into the cycle of more credit card debt<strong>. </strong></li><li><strong>Set up automatic payments.</strong> To avoid late or missed payments, set up an automatic payment plan to pay your monthly bill from your checking account. </li> </ul> <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-does-credit-card-debt-consolidation-hurt-your-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Credit Card Debt Consolidation Hurt Your Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You could see a small and brief negative impact on your credit score at the outset. That's because any new lenders you apply to will run a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hard-inquiry.asp">hard inquiry</a> on your credit, which can ding your credit score.<span class="ql-inline-citation" data-cite="4"></span></p><p>In addition, if the lender requires you to close your existing credit card accounts, that could also have a negative effect. One of the major factors in your credit score is your <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 ratio</a>, which compares how much debt you currently have outstanding to all of the credit you have available to you. The higher that ratio, the better. By paying off your credit cards with a new loan or credit card, but keeping those old accounts open, you can actually improve your credit utilization ratio. Closing the old accounts, however, could hurt it, at least until you've paid down enough of the new debt.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_74-0"><span class="heading-toc" id="toc-can-i-use-my-credit-cards-if-i-consolidate-my-debt"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Use My Credit Cards if I Consolidate My Debt?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If a credit card account remains open after you've paid it off through debt consolidation, you can still use it. However, running up another balance could make it difficult to pay off your debt consolidation account. </p></div> </div> <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-is-it-better-to-consolidate-debt-or-pay-cards-off-individually"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is It Better to Consolidate Debt or Pay Cards Off Individually?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>That depends on your financial situation. It may be simpler just to pay the cards off individually if you have the money to do so readily available. However, if paying off your cards is likely to take a long time, consolidation could most likely save you money and speed the process of becoming debt-free. </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-how-long-does-debt-settlement-stay-on-your-credit-report"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Does Debt Settlement Stay on Your Credit Report?</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/articles/pf/09/debt-settlement.asp">Debt settlement</a> and debt consolidation are two different things. In debt consolidation you refinance your debt but ultimately pay it off in full. In debt settlement <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-does-credit-card-debt-relief-work-8426359">you negotiate with your creditors</a> to see if they will accept a partial payment as payment in full.</p><p>Debt settlement has a negative impact on your credit and can remain on your credit reports for up to seven years.<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_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-do-banks-consolidate-debt"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Banks Consolidate Debt?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Many banks do offer loan options to consolidate credit card debt. So you might want to start your search with a bank that you already do business with.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_82-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> When credit card debt becomes overwhelming, consolidating those debts into one account can often provide a manageable, and less costly, way to pay them all off. However, to be successful, it's important to avoid taking on additional debt and to apply your savings to paying down the credit card or loan you're using to consolidate. </p></div>	Credit card [debt consolidation](https://www.investopedia.com/terms/d/debtconsolidation.asp) is the process of combining all of your outstanding [credit card debt](https://www.investopedia.com/terms/c/credit-card-debt.asp) into one payment. By doing so, you could achieve a more manageable monthly payment plus pay less in interest on the total debt. Consolidating debt involves basic steps like gathering information on your debts, comparing debt consolidation loan options terms, and taking action. ### Key Takeaways * Credit card debt consolidation can simplify your monthly payments and save you money on interest. * Methods of consolidation include balance transfer credit cards, [personal loans](https://www.investopedia.com/best-personal-loans-4773300), home equity loans, and [debt consolidation loans](https://www.investopedia.com/best-personal-loans-for-debt-consolidation-4779764). * Consider factors such as interest rates, fees, and potential credit score impact before consolidating, to make sure it will save you money. * Consolidating debt involves basic steps like gathering information on your debts (creditor names, account numbers, amounts owed, payment addresses), comparing debt consolidation loan options terms, and taking action. ## Benefits of Consolidating Credit Card Debt Combining all of your credit card debt into one account could provide several benefits. They include: ### Lower interest rates By consolidating your credit card debt, you could obtain a lower interest rate than you pay on your current credit cards. Not only will that save you money, but you could use those savings to pay your debt down faster. You could also use some of your savings to create an [emergency fund](https://www.investopedia.com/terms/e/emergency_fund.asp) if you don't already have one. ### Simplified payments By consolidating your credit card debt, you will have just one payment to worry about each month instead of several. That could make it easier to budget and to avoid missing any payments. ## Methods of Consolidating Credit Card Debt There are several ways you can consolidate your credit card debt to make it more manageable. The major ones are: ### Balance Transfer Credit Cards Many credit card companies offer cards with low or 0% interest rates on [balance transfers](https://www.investopedia.com/credit-cards/balance-transfer-credit-card/). Typically the promotional interest rate is for a limited time, so one of these cards can be a great deal if you are able to pay off the balance before the promotion expires. If you choose this option, you likely will be charged a balance transfer fee, which could be a set amount or a percentage of the transferred balance, usually whichever is higher. "This fee is usually 3% to 5% of the transferred amount," says Christopher M. Naghibi, executive vice president and chief operating officer at First Foundation Bank in Irvine, Calif. "If you're considering a balance transfer credit card, you really owe it to yourself to weigh this cost against the potential interest savings or other benefit to you. Sometimes, it doesn't make sense economically." There are other potential drawbacks to these cards, too. For instance, if you don't pay off the balance before the promotional interest rate expires, your rate could increase substantially. Also, if you make late payments, you could lose the promotional interest rate. What's more, if you use the card for new purchases and don't pay them off right away, you will generally have to pay interest on that amount, likely at a higher interest rate than the promotional rate. To apply for a credit card balance transfer, you will need to fill out an application for the card. The credit card company will run a [credit check](https://www.investopedia.com/terms/c/credit-inquiry.asp), so if your [credit score](https://www.investopedia.com/terms/c/credit_score.asp) is not great, you may get denied. Also, when searching for a balance transfer offer, you may need to look at credit cards from lenders other than your existing credit card company. "You'll likely need to find a balance transfer card from a different bank than where your current debt resides if they don't specifically allow you to do it in their fine print," Naghibi says. "So if JP Morgan Chase offers a balance transfer credit card, you can't transfer your existing Chase Sapphire Preferred card balance to it." ### Depending on your creditworthiness, many credit card issuers will lower the interest rate on your existing balances if you call their customer service departments and let them know you are otherwise considering transferring balances in response to a balance transfer offer from another card issuer. ### Personal Loans Many lenders, such as banks and credit unions, offer [personal loans](https://www.investopedia.com/best-personal-loans-for-debt-consolidation-4779764) that can be used for a variety of purposes, including consolidating credit card debt. With such a loan, you could trade in many payments for just one, often at a lower interest rate. However, a personal loan may come with added upfront costs, such as application fees and origination fees. So it's important to review these costs and determine whether the long-term savings would be worth the expense. To apply for a personal loan, you will need to fill out an application and submit to a credit check. You may also be asked to supply bank statements, pay stubs, and tax returns so the lender can evaluate your ability to repay the loan. ### Home Equity Loans [Home equity loans](https://www.investopedia.com/terms/h/homeequityloan.asp) are backed by the equity you have accumulated in your home. They may offer lower interest rates than other kinds of loans, but they can also have higher fees. "These loans generally come with origination fees, usually around 2% to 7% of the loan amount," says Sean Fox, president of debt resolutions at Achieve, a digital personal finance company in San Mateo, Calif. "Some lenders charge late fees and/or early repayment fees, so be sure to get all the specifics." And because your home serves as collateral for the loan, bear in mind that if you fail to repay it, the lender could [foreclose](https://www.investopedia.com/terms/f/foreclosure.asp) on your home to recoup its funds. You can apply for a home equity loan with lenders including banks, credit unions, and mortgage brokers. You will have to fill out an application and supply any required financial records, such as pay stubs, tax returns, and bank statements. The lender also will run a credit check. ### Debt Consolidation Loan A [debt consolidation loan](https://www.investopedia.com/how-to-get-a-debt-consolidation-loan-8350809) is the same as a personal loan except that the money can only be used to pay off other debts. It has the same potential benefits and drawbacks as a personal loan, as well as the same application process. ### Credit Counseling While [credit counseling](https://www.investopedia.com/terms/c/credit-counseling.asp) doesn't actually pay off any debt on your behalf, it can be a valuable service to help manage your debt and make it easier to pay off. Credit counseling services are usually available through non-profit organizations such as the National Foundation for Credit Counseling. Counselors can help you set up a budget as well as payment plans or agreements with your creditors. These payment plans are not negotiations to reduce how much you owe; instead, they are agreements wherein the creditors agree to waive late fees or postpone collection efforts for a specific time period. Credit counselors may also help you create a debt management plan, in which you make a single payment to the organization, which then pays your creditors each month. This may or may not incur fees. ## Considerations Before Consolidating Credit Card Debt Before choosing one credit card debt consolidation option over another, it's important to compare all of their fees and other terms. "Look beyond rates," Fox says. "Every lender will have different rates, as well as ways of working with customers. Sometimes, getting the absolute lowest rate may not be the best answer for someone's particular situation." ## Steps to Consolidate Credit Card Debt The process for consolidating your credit card debt is basically the same regardless of which option you choose: ### 1. Gather information First, gather the information on your debts (creditor names, account numbers, amounts owed, payment addresses). You then need to do some research on debt consolidation solutions and determine each option's terms and conditions. Shopping around with different credit card companies, online lenders, banks, and credit unions is also important because their terms can vary. Bear in mind that your credit score and other individual factors will affect which options you qualify for and the rates you'll pay if you do qualify. ### 2. Compare options Once you have all the information on [the options you might qualify for](https://www.investopedia.com/where-get-debt-consolidation-loan-8422778), compare them to determine which one offers the best savings at the lowest cost. Consider how much you would save in both the short term and over the long term. ### 3. Take action Once you narrow down your choice, you can apply for the credit card debt consolidation tool that works best for your situation. ## Tips for Successful Credit Card Debt Consolidation Once you consolidate your old credit card debt, it's important to pay down the new debt as efficiently as possible. That means: * Create a budget, and stick with it. Reining in spending will help keep your debt down and could even create additional savings you could apply to your existing debt. * Avoid new debt. Paying off your credit cards through debt consolidation could free up your cards for new purchases. Resist the temptation to do this so you don't fall into the cycle of more credit card debt. * Set up automatic payments. To avoid late or missed payments, set up an automatic payment plan to pay your monthly bill from your checking account. ## Does Credit Card Debt Consolidation Hurt Your Credit Score? You could see a small and brief negative impact on your credit score at the outset. That's because any new lenders you apply to will run a [hard inquiry](https://www.investopedia.com/terms/h/hard-inquiry.asp) on your credit, which can ding your credit score. In addition, if the lender requires you to close your existing credit card accounts, that could also have a negative effect. One of the major factors in your credit score is your [credit utilization ratio](https://www.investopedia.com/terms/c/credit-utilization-rate.asp), which compares how much debt you currently have outstanding to all of the credit you have available to you. The higher that ratio, the better. By paying off your credit cards with a new loan or credit card, but keeping those old accounts open, you can actually improve your credit utilization ratio. Closing the old accounts, however, could hurt it, at least until you've paid down enough of the new debt. ## Can I Use My Credit Cards if I Consolidate My Debt? If a credit card account remains open after you've paid it off through debt consolidation, you can still use it. However, running up another balance could make it difficult to pay off your debt consolidation account. ## Is It Better to Consolidate Debt or Pay Cards Off Individually? That depends on your financial situation. It may be simpler just to pay the cards off individually if you have the money to do so readily available. However, if paying off your cards is likely to take a long time, consolidation could most likely save you money and speed the process of becoming debt-free. ## How Long Does Debt Settlement Stay on Your Credit Report? [Debt settlement](https://www.investopedia.com/articles/pf/09/debt-settlement.asp) and debt consolidation are two different things. In debt consolidation you refinance your debt but ultimately pay it off in full. In debt settlement [you negotiate with your creditors](https://www.investopedia.com/how-does-credit-card-debt-relief-work-8426359) to see if they will accept a partial payment as payment in full. Debt settlement has a negative impact on your credit and can remain on your credit reports for up to seven years. ## Do Banks Consolidate Debt? Many banks do offer loan options to consolidate credit card debt. So you might want to start your search with a bank that you already do business with. ## The Bottom Line When credit card debt becomes overwhelming, consolidating those debts into one account can often provide a manageable, and less costly, way to pay them all off. However, to be successful, it's important to avoid taking on additional debt and to apply your savings to paying down the credit card or loan you're using to consolidate.	Credit card debt consolidation is the process of combining all of your outstanding credit card debt into one payment. By doing so, you could achieve a more manageable monthly payment plus pay less in interest on the total debt. Consolidating debt involves basic steps like gathering information on your debts, comparing debt consolidation loan options terms, and taking action. Key Takeaways Credit card debt consolidation can simplify your monthly payments and save you money on interest. Methods of consolidation include balance transfer credit cards, personal loans, home equity loans, and debt consolidation loans. Consider factors such as interest rates, fees, and potential credit score impact before consolidating, to make sure it will save you money. Consolidating debt involves basic steps like gathering information on your debts (creditor names, account numbers, amounts owed, payment addresses), comparing debt consolidation loan options terms, and taking action. Benefits of Consolidating Credit Card Debt Combining all of your credit card debt into one account could provide several benefits. They include: Lower interest rates By consolidating your credit card debt, you could obtain a lower interest rate than you pay on your current credit cards. Not only will that save you money, but you could use those savings to pay your debt down faster. You could also use some of your savings to create an emergency fund if you don't already have one. Simplified payments By consolidating your credit card debt, you will have just one payment to worry about each month instead of several. That could make it easier to budget and to avoid missing any payments. Methods of Consolidating Credit Card Debt There are several ways you can consolidate your credit card debt to make it more manageable. The major ones are: Balance Transfer Credit Cards Many credit card companies offer cards with low or 0% interest rates on balance transfers. Typically the promotional interest rate is for a limited time, so one of these cards can be a great deal if you are able to pay off the balance before the promotion expires. If you choose this option, you likely will be charged a balance transfer fee, which could be a set amount or a percentage of the transferred balance, usually whichever is higher. "This fee is usually 3% to 5% of the transferred amount," says Christopher M. Naghibi, executive vice president and chief operating officer at First Foundation Bank in Irvine, Calif. "If you're considering a balance transfer credit card, you really owe it to yourself to weigh this cost against the potential interest savings or other benefit to you. Sometimes, it doesn't make sense economically." There are other potential drawbacks to these cards, too. For instance, if you don't pay off the balance before the promotional interest rate expires, your rate could increase substantially. Also, if you make late payments, you could lose the promotional interest rate. What's more, if you use the card for new purchases and don't pay them off right away, you will generally have to pay interest on that amount, likely at a higher interest rate than the promotional rate. To apply for a credit card balance transfer, you will need to fill out an application for the card. The credit card company will run a credit check, so if your credit score is not great, you may get denied. Also, when searching for a balance transfer offer, you may need to look at credit cards from lenders other than your existing credit card company. "You'll likely need to find a balance transfer card from a different bank than where your current debt resides if they don't specifically allow you to do it in their fine print," Naghibi says. "So if JP Morgan Chase offers a balance transfer credit card, you can't transfer your existing Chase Sapphire Preferred card balance to it." Depending on your creditworthiness, many credit card issuers will lower the interest rate on your existing balances if you call their customer service departments and let them know you are otherwise considering transferring balances in response to a balance transfer offer from another card issuer. Personal Loans Many lenders, such as banks and credit unions, offer personal loans that can be used for a variety of purposes, including consolidating credit card debt. With such a loan, you could trade in many payments for just one, often at a lower interest rate. However, a personal loan may come with added upfront costs, such as application fees and origination fees. So it's important to review these costs and determine whether the long-term savings would be worth the expense. To apply for a personal loan, you will need to fill out an application and submit to a credit check. You may also be asked to supply bank statements, pay stubs, and tax returns so the lender can evaluate your ability to repay the loan. Home Equity Loans Home equity loans are backed by the equity you have accumulated in your home. They may offer lower interest rates than other kinds of loans, but they can also have higher fees. "These loans generally come with origination fees, usually around 2% to 7% of the loan amount," says Sean Fox, president of debt resolutions at Achieve, a digital personal finance company in San Mateo, Calif. "Some lenders charge late fees and/or early repayment fees, so be sure to get all the specifics." And because your home serves as collateral for the loan, bear in mind that if you fail to repay it, the lender could foreclose on your home to recoup its funds. You can apply for a home equity loan with lenders including banks, credit unions, and mortgage brokers. You will have to fill out an application and supply any required financial records, such as pay stubs, tax returns, and bank statements. The lender also will run a credit check. Debt Consolidation Loan A debt consolidation loan is the same as a personal loan except that the money can only be used to pay off other debts. It has the same potential benefits and drawbacks as a personal loan, as well as the same application process. Credit Counseling While credit counseling doesn't actually pay off any debt on your behalf, it can be a valuable service to help manage your debt and make it easier to pay off. Credit counseling services are usually available through non-profit organizations such as the National Foundation for Credit Counseling. Counselors can help you set up a budget as well as payment plans or agreements with your creditors. These payment plans are not negotiations to reduce how much you owe; instead, they are agreements wherein the creditors agree to waive late fees or postpone collection efforts for a specific time period. Credit counselors may also help you create a debt management plan, in which you make a single payment to the organization, which then pays your creditors each month. This may or may not incur fees. Considerations Before Consolidating Credit Card Debt Before choosing one credit card debt consolidation option over another, it's important to compare all of their fees and other terms. "Look beyond rates," Fox says. "Every lender will have different rates, as well as ways of working with customers. Sometimes, getting the absolute lowest rate may not be the best answer for someone's particular situation." Steps to Consolidate Credit Card Debt The process for consolidating your credit card debt is basically the same regardless of which option you choose: 1. Gather information First, gather the information on your debts (creditor names, account numbers, amounts owed, payment addresses). You then need to do some research on debt consolidation solutions and determine each option's terms and conditions. Shopping around with different credit card companies, online lenders, banks, and credit unions is also important because their terms can vary. Bear in mind that your credit score and other individual factors will affect which options you qualify for and the rates you'll pay if you do qualify. 2. Compare options Once you have all the information on the options you might qualify for, compare them to determine which one offers the best savings at the lowest cost. Consider how much you would save in both the short term and over the long term. 3. Take action Once you narrow down your choice, you can apply for the credit card debt consolidation tool that works best for your situation. Tips for Successful Credit Card Debt Consolidation Once you consolidate your old credit card debt, it's important to pay down the new debt as efficiently as possible. That means: Create a budget, and stick with it. Reining in spending will help keep your debt down and could even create additional savings you could apply to your existing debt. Avoid new debt. Paying off your credit cards through debt consolidation could free up your cards for new purchases. Resist the temptation to do this so you don't fall into the cycle of more credit card debt. Set up automatic payments. To avoid late or missed payments, set up an automatic payment plan to pay your monthly bill from your checking account. Does Credit Card Debt Consolidation Hurt Your Credit Score? You could see a small and brief negative impact on your credit score at the outset. That's because any new lenders you apply to will run a hard inquiry on your credit, which can ding your credit score.In addition, if the lender requires you to close your existing credit card accounts, that could also have a negative effect. One of the major factors in your credit score is your credit utilization ratio, which compares how much debt you currently have outstanding to all of the credit you have available to you. The higher that ratio, the better. By paying off your credit cards with a new loan or credit card, but keeping those old accounts open, you can actually improve your credit utilization ratio. Closing the old accounts, however, could hurt it, at least until you've paid down enough of the new debt. Can I Use My Credit Cards if I Consolidate My Debt? If a credit card account remains open after you've paid it off through debt consolidation, you can still use it. However, running up another balance could make it difficult to pay off your debt consolidation account. Is It Better to Consolidate Debt or Pay Cards Off Individually? That depends on your financial situation. It may be simpler just to pay the cards off individually if you have the money to do so readily available. However, if paying off your cards is likely to take a long time, consolidation could most likely save you money and speed the process of becoming debt-free. How Long Does Debt Settlement Stay on Your Credit Report? Debt settlement and debt consolidation are two different things. In debt consolidation you refinance your debt but ultimately pay it off in full. In debt settlement you negotiate with your creditors to see if they will accept a partial payment as payment in full.Debt settlement has a negative impact on your credit and can remain on your credit reports for up to seven years. Do Banks Consolidate Debt? Many banks do offer loan options to consolidate credit card debt. So you might want to start your search with a bank that you already do business with. The Bottom Line When credit card debt becomes overwhelming, consolidating those debts into one account can often provide a manageable, and less costly, way to pay them all off. However, to be successful, it's important to avoid taking on additional debt and to apply your savings to paying down the credit card or loan you're using to consolidate.	[ [ "debt consolidation", "https://www.investopedia.com/terms/d/debtconsolidation.asp" ], [ "credit card debt", "https://www.investopedia.com/terms/c/credit-card-debt.asp" ], [ "personal loans", "https://www.investopedia.com/best-personal-loans-4773300" ], [ "debt consolidation loans", "https://www.investopedia.com/best-personal-loans-for-debt-consolidation-4779764" ], [ "emergency fund", "https://www.investopedia.com/terms/e/emergency_fund.asp" ], [ "balance transfers", "https://www.investopedia.com/credit-cards/balance-transfer-credit-card/" ], [ "credit check", "https://www.investopedia.com/terms/c/credit-inquiry.asp" ], [ "credit score", "https://www.investopedia.com/terms/c/credit_score.asp" ], [ "personal loans", "https://www.investopedia.com/best-personal-loans-for-debt-consolidation-4779764" ], [ "Home equity loans", "https://www.investopedia.com/terms/h/homeequityloan.asp" ], [ "foreclose", "https://www.investopedia.com/terms/f/foreclosure.asp" ], [ "debt consolidation loan", "https://www.investopedia.com/how-to-get-a-debt-consolidation-loan-8350809" ], [ "credit counseling", "https://www.investopedia.com/terms/c/credit-counseling.asp" ], [ "the options you might qualify for", "https://www.investopedia.com/where-get-debt-consolidation-loan-8422778" ], [ "hard inquiry", "https://www.investopedia.com/terms/h/hard-inquiry.asp" ], [ "credit utilization ratio", "https://www.investopedia.com/terms/c/credit-utilization-rate.asp" ], [ "Debt settlement", "https://www.investopedia.com/articles/pf/09/debt-settlement.asp" ], [ "you negotiate with your creditors", "https://www.investopedia.com/how-does-credit-card-debt-relief-work-8426359" ] ]
https://www.investopedia.com/is-it-possible-to-get-a-usd-100000-personal-loan-7963262	Is It Possible to Get a $100,000 Personal Loan?	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> It is possible to get a $100,000 personal loan, but it’s difficult. Even the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">best personal loan providers</a> don’t typically offer loans of more than $50,000, and they require a high credit score. They also can have fairly high interest rates. </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"> Personal loans are a type of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecuredloan.asp">unsecured</a> debt. Since they are riskier for lenders because they are not backed by an asset, lenders may be hesitant to lend you a large amount of money, especially if you don’t have an existing relationship with them. </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"> However, if you are looking for a large personal loan, you can find options. Learn more about your choices for personal loans for $100,000 and about some common qualification criteria. </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>It is possible to get a $100,000 personal loan, but it’s difficult.</li> <li>Lenders don’t typically offer loans as large as $100,000, with most banks and credit unions offering a maximum of $50,000.</li> <li>To qualify for a $100,000 personal loan, you’ll need a credit score of 720 or above and a high income.</li> <li>Large unsecured loans tend to be expensive because they have high interest rates and long <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/loan-terms-5075341">loan terms</a>.</li> <li>If you need a large amount of money, also consider home equity loans or home equity lines of credit (HELOCs), or borrowing from your retirement account.</li> </ul></div></div></div> <span class="heading-toc" id="toc-how-to-qualify-for-a-100000-personal-loan"></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 Qualify for a $100,000 Personal Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Every loan provider has its own set of requirements to qualify for a personal loan. To qualify for a large loan, however, you’ll generally need: </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>A high credit score</strong>: You’ll often need a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-score-needed-personal-loan-7553033">credit score</a> of at least 670 to 739 be approved for a personal loan. Loans above $50,000 may require a higher credit score, but requirements will vary by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lender</a>.<span class="ql-inline-citation" data-cite="10"></span></li> <li><strong>A high income</strong>: Your lender will want to see that you can repay the loan with your <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a>. For a $100,000 loan over a two-year term, you’ll have to have more than $4,000 in extra income that you can put toward the loan.</li> <li><strong>A relatively low debt-to-income (DTI) ratio</strong>: Most lenders look for borrowers who have a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dti.asp">debt-to-income (DTI) ratio</a> of less than 36%.<span class="ql-inline-citation" data-cite="11"></span></li> <li><strong>Documentation</strong>: You should be ready to prove your income by providing a <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-read-your-paycheck-5094518">pay stub</a> or <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank-statement.asp">bank statement</a>. Your lender will likely ask you for a photo ID and a proof of address.<span class="ql-inline-citation" data-cite="8"></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-where-to-get-a-100000-personal-loan"></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"> Where to Get a $100,000 Personal Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Not many personal loan providers offer $100,000 loans, but here are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank.asp">banks</a> that do: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_17-0"> <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><b>Lender</b></td> <td><b>Loan Range</b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp" rel="noopener noreferrer">Annual Percentage Rate (APR)</a></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/sofi-personal-loans-review-4797398" rel="noopener noreferrer">SoFi</a><span data-cite="3"></span></td> <td>$5,000–$100,000</td> <td>8.99%–29.49% </td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lightstream-personal-loans-review-4800841" rel="noopener noreferrer">LightStream</a><span data-cite="4"></span></td> <td>$5,000–$100,000</td> <td>6.99%–25.49% </td> </tr> <tr> <td>BHG Money<span data-cite="5"></span></td> <td>$20,000–$200,000</td> <td>13.39%–24.91%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wells-fargo-personal-loans-review-4842091" rel="noopener noreferrer">Wells Fargo</a><span data-cite="6"></span></td> <td>$3,000–$100,000</td> <td>7.49%–24.49%</td> </tr> </tbody> </table> </div></figure> <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"> Though all of these lenders will provide personal loans to borrowers with a “good” <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a>, which is one from 670 to 739, you’ll likely need a significantly higher credit score to be approved for the largest loans.<span class="ql-inline-citation" data-cite="10"></span> Similarly, the <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a> on large loans are likely to be much higher than on smaller loans, even if you have a good credit score.<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_20-0"></div> <span class="heading-toc" id="toc-how-to-get-a-100000-personal-loan"></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 to Get a $100,000 Personal Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Getting a personal loan for $100,000 is similar to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp">getting any personal loan</a>. The difference is that you’ll typically need a high credit score, a high income, and perhaps an existing relationship with your lender to be approved. </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"> Here are the main steps for getting a large personal loan: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <li><strong>Determine how much money you need</strong>: If you can apply for a loan for less than $100,000 by finding money from other sources, you are more likely to be approved.</li> <li><strong>Review your finances</strong>: A large loan will have high monthly repayments over a long period, so make sure you can easily afford them.</li> <li><strong>Research and compare lenders</strong>: Your options for a loan of $100,000 are fairly limited, but make sure you compare your offers. Even a small difference in the interest rate could be substantial in terms of the total <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> cost.<span class="ql-inline-citation" data-cite="13"></span></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prequalification.asp"><strong>Pre-qualify</strong></a>: Most lenders will allow you to pre-qualify for a loan via a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/soft-inquiry.asp">soft credit check</a>. </li> <li><strong>Apply</strong>: You can generally apply online for personal loans, but for large loans, you may need to speak to your lender or provide extra documentation.<br/></li> </ol> <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-how-much-does-a-100000-personal-loan-cost-over-time"></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"> How Much Does a $100,000 Personal Loan Cost Over Time? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> The cost of any personal loan over time mainly depends on two factors: the interest rate and the loan term (length of the loan). Loans with a high interest rate and a long term cost more, and vice versa.<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_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_31-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_32-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>You can use Investopedia’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-calculator-5082130">personal loan calculator</a> to compare the total costs of loans with different interest rates and terms.<br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Let’s take two examples and calculate the cost of the loans.<br> </br></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"> Scenario 1: $100,000 Over 2 Years at 15% </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> A loan for $100,000, paid back over just two years, would have a high monthly repayment of $4,848.66 per month, so you would need a high income to afford these repayments. However, paying back this loan over such a short period means that you’ll lower the total cost you’ll pay in interest, which will be $16,367.96. </p> <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"> Scenario 2: $100,000 Over 4 Years at 10% </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> If you take out the same loan, but pay it back more slowly, your monthly repayments will be lower at $2,536.26 per month. However, even if you get a better interest rate of 10%, you’ll pay more interest over the lifetime of the loan, with a total cost of $21,740.40. </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-how-do-people-use-personal-loans"></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"> How Do People Use Personal Loans? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Investopedia commissioned <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">a national survey</a> of 962 U.S. adults between Aug. 14, 2023, to Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574">most common reason people borrowed money</a>, followed by home improvement and other large expenditures.<br/> </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/T6dEU/9/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="How People Use Personal Loans"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <span class="heading-toc" id="toc-alternatives-to-a-100000-personal-loan"></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"> Alternatives to a $100,000 Personal Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> If you need to borrow a large amount of money, you can consider other sources of funding in addition to a personal loan. If you can get a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secured-loans-5076025">secured loan</a>, you will likely have better rates. </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"> For example, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/heloc/home-equity-vs-heloc/">home equity loans and home equity lines of credit (HELOCs)</a> use your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/home_equity.asp">home equity</a> to back a large-size loan or line of credit. If you have a substantial amount of money saved in a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tax-advantaged.asp">tax-advantaged</a> retirement account like a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k)</a> or an <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">individual retirement account (IRA)</a>, you can potentially borrow money from it. You could also borrow money from any cash value you accrued with a <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/permanentlife.asp">permanent life insurance</a> policy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-how-fast-can-you-get-a-100000-personal-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Fast Can You Get a $100,000 Personal Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>With a high credit score and income, you might be approved for a $100,000 loan the same day you apply. However, lenders sometimes do extra credit and financial checks for large loans, which can slow the process.</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-can-you-get-a-100000-personal-loan-with-bad-credit"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Get a $100,000 Personal Loan With Bad Credit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You cannot get a $100,000 loan with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349">bad credit</a>. To get a large personal loan, you will need a good credit score. The exact score you will need will vary by lender.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-what-is-the-largest-personal-loan-possible"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Largest Personal Loan Possible?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most lenders don’t offer loans above $100,000, and many don’t offer loans of more than $30,000 or $50,000. However, private banks that cater to wealthy individuals might offer personal loans of $100,000 or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-a-usd200-thousand-personal-loan-8410202">more</a>.<span class="ql-inline-citation" data-cite="14"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-how-big-of-a-loan-is-too-much"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Big of a Loan Is Too Much?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The size of loan that is right for you depends on your finances and your needs. Any personal loan that you will struggle to meet the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">repayments</a> for is too large. If you fail to repay the loan, your credit score will suffer and you will find it more difficult to get approved for loans in the future.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></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_59-0"> <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_60-0"> Loans larger than $100,000 are not common. When you need to make a large purchase, other loan products such as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage.asp">mortgage</a> may be more suitable than a personal loan. If you do need $100,000 or more in financing, and you don’t qualify for a personal loan, you can consider alternatives like home equity loans or home equity lines of credit (HELOCs), or borrowing from your retirement account. </p></div>	It is possible to get a $100,000 personal loan, but it’s difficult. Even the [best personal loan providers](https://www.investopedia.com/best-personal-loans-4773300) don’t typically offer loans of more than $50,000, and they require a high credit score. They also can have fairly high interest rates. Personal loans are a type of [unsecured](https://www.investopedia.com/terms/u/unsecuredloan.asp) debt. Since they are riskier for lenders because they are not backed by an asset, lenders may be hesitant to lend you a large amount of money, especially if you don’t have an existing relationship with them. However, if you are looking for a large personal loan, you can find options. Learn more about your choices for personal loans for $100,000 and about some common qualification criteria. ### Key Takeaways * It is possible to get a $100,000 personal loan, but it’s difficult. * Lenders don’t typically offer loans as large as $100,000, with most banks and credit unions offering a maximum of $50,000. * To qualify for a $100,000 personal loan, you’ll need a credit score of 720 or above and a high income. * Large unsecured loans tend to be expensive because they have high interest rates and long [loan terms](https://www.investopedia.com/loan-terms-5075341). * If you need a large amount of money, also consider home equity loans or home equity lines of credit (HELOCs), or borrowing from your retirement account. ## How to Qualify for a $100,000 Personal Loan Every loan provider has its own set of requirements to qualify for a personal loan. To qualify for a large loan, however, you’ll generally need: * A high credit score: You’ll often need a [credit score](https://www.investopedia.com/credit-score-needed-personal-loan-7553033) of at least 670 to 739 be approved for a personal loan. Loans above $50,000 may require a higher credit score, but requirements will vary by [lender](https://www.investopedia.com/terms/l/lender.asp). * A high income: Your lender will want to see that you can repay the loan with your [income](https://www.investopedia.com/terms/i/income.asp). For a $100,000 loan over a two-year term, you’ll have to have more than $4,000 in extra income that you can put toward the loan. * A relatively low debt-to-income (DTI) ratio: Most lenders look for borrowers who have a [debt-to-income (DTI) ratio](https://www.investopedia.com/terms/d/dti.asp) of less than 36%. * Documentation: You should be ready to prove your income by providing a [pay stub](https://www.investopedia.com/how-to-read-your-paycheck-5094518) or [bank statement](https://www.investopedia.com/terms/b/bank-statement.asp). Your lender will likely ask you for a photo ID and a proof of address. ## Where to Get a $100,000 Personal Loan Not many personal loan providers offer $100,000 loans, but here are [banks](https://www.investopedia.com/terms/b/bank.asp) that do: \| Lender \| Loan Range \| [Annual Percentage Rate (APR)](https://www.investopedia.com/terms/a/apr.asp) \| \| --- \| --- \| --- \| \| [SoFi](https://www.investopedia.com/sofi-personal-loans-review-4797398) \| $5,000–$100,000 \| 8.99%–29.49% \| \| [LightStream](https://www.investopedia.com/lightstream-personal-loans-review-4800841) \| $5,000–$100,000 \| 6.99%–25.49% \| \| BHG Money \| $20,000–$200,000 \| 13.39%–24.91% \| \| [Wells Fargo](https://www.investopedia.com/wells-fargo-personal-loans-review-4842091) \| $3,000–$100,000 \| 7.49%–24.49% \| Though all of these lenders will provide personal loans to borrowers with a “good” [credit score](https://www.investopedia.com/terms/c/credit_score.asp), which is one from 670 to 739, you’ll likely need a significantly higher credit score to be approved for the largest loans. Similarly, the [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) on large loans are likely to be much higher than on smaller loans, even if you have a good credit score. ## How to Get a $100,000 Personal Loan Getting a personal loan for $100,000 is similar to [getting any personal loan](https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp). The difference is that you’ll typically need a high credit score, a high income, and perhaps an existing relationship with your lender to be approved. Here are the main steps for getting a large personal loan: 1. Determine how much money you need: If you can apply for a loan for less than $100,000 by finding money from other sources, you are more likely to be approved. 2. Review your finances: A large loan will have high monthly repayments over a long period, so make sure you can easily afford them. 3. Research and compare lenders: Your options for a loan of $100,000 are fairly limited, but make sure you compare your offers. Even a small difference in the interest rate could be substantial in terms of the total [interest](https://www.investopedia.com/terms/i/interest.asp) cost. 4. [Pre-qualify](https://www.investopedia.com/terms/p/prequalification.asp): Most lenders will allow you to pre-qualify for a loan via a [soft credit check](https://www.investopedia.com/terms/s/soft-inquiry.asp). 5. Apply: You can generally apply online for personal loans, but for large loans, you may need to speak to your lender or provide extra documentation. ## How Much Does a $100,000 Personal Loan Cost Over Time? The cost of any personal loan over time mainly depends on two factors: the interest rate and the loan term (length of the loan). Loans with a high interest rate and a long term cost more, and vice versa. ### You can use Investopedia’s [personal loan calculator](https://www.investopedia.com/personal-loan-calculator-5082130) to compare the total costs of loans with different interest rates and terms. Let’s take two examples and calculate the cost of the loans. ### Scenario 1: $100,000 Over 2 Years at 15% A loan for $100,000, paid back over just two years, would have a high monthly repayment of $4,848.66 per month, so you would need a high income to afford these repayments. However, paying back this loan over such a short period means that you’ll lower the total cost you’ll pay in interest, which will be $16,367.96. ### Scenario 2: $100,000 Over 4 Years at 10% If you take out the same loan, but pay it back more slowly, your monthly repayments will be lower at $2,536.26 per month. However, even if you get a better interest rate of 10%, you’ll pay more interest over the lifetime of the loan, with a total cost of $21,740.40. ## How Do People Use Personal Loans? Investopedia commissioned [a national survey](https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574) of 962 U.S. adults between Aug. 14, 2023, to Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the [most common reason people borrowed money](https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574), followed by home improvement and other large expenditures. ## Alternatives to a $100,000 Personal Loan If you need to borrow a large amount of money, you can consider other sources of funding in addition to a personal loan. If you can get a [secured loan](https://www.investopedia.com/secured-loans-5076025), you will likely have better rates. For example, [home equity loans and home equity lines of credit (HELOCs)](https://www.investopedia.com/mortgage/heloc/home-equity-vs-heloc/) use your [home equity](https://www.investopedia.com/terms/h/home_equity.asp) to back a large-size loan or line of credit. If you have a substantial amount of money saved in a [tax-advantaged](https://www.investopedia.com/terms/t/tax-advantaged.asp) retirement account like a [401(k)](https://www.investopedia.com/terms/1/401kplan.asp) or an [individual retirement account (IRA)](https://www.investopedia.com/terms/i/ira.asp), you can potentially borrow money from it. You could also borrow money from any cash value you accrued with a [permanent life insurance](https://www.investopedia.com/terms/p/permanentlife.asp) policy. ## How Fast Can You Get a $100,000 Personal Loan? With a high credit score and income, you might be approved for a $100,000 loan the same day you apply. However, lenders sometimes do extra credit and financial checks for large loans, which can slow the process. ## Can You Get a $100,000 Personal Loan With Bad Credit? You cannot get a $100,000 loan with [bad credit](https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349). To get a large personal loan, you will need a good credit score. The exact score you will need will vary by lender. ## What Is the Largest Personal Loan Possible? Most lenders don’t offer loans above $100,000, and many don’t offer loans of more than $30,000 or $50,000. However, private banks that cater to wealthy individuals might offer personal loans of $100,000 or [more](https://www.investopedia.com/how-to-get-a-usd200-thousand-personal-loan-8410202). ## How Big of a Loan Is Too Much? The size of loan that is right for you depends on your finances and your needs. Any personal loan that you will struggle to meet the [repayments](https://www.investopedia.com/terms/r/repayment.asp) for is too large. If you fail to repay the loan, your credit score will suffer and you will find it more difficult to get approved for loans in the future. ## The Bottom Line Loans larger than $100,000 are not common. When you need to make a large purchase, other loan products such as a [mortgage](https://www.investopedia.com/terms/m/mortgage.asp) may be more suitable than a personal loan. If you do need $100,000 or more in financing, and you don’t qualify for a personal loan, you can consider alternatives like home equity loans or home equity lines of credit (HELOCs), or borrowing from your retirement account.	It is possible to get a $100,000 personal loan, but it’s difficult. Even the best personal loan providers don’t typically offer loans of more than $50,000, and they require a high credit score. They also can have fairly high interest rates. Personal loans are a type of unsecured debt. Since they are riskier for lenders because they are not backed by an asset, lenders may be hesitant to lend you a large amount of money, especially if you don’t have an existing relationship with them. However, if you are looking for a large personal loan, you can find options. Learn more about your choices for personal loans for $100,000 and about some common qualification criteria. Key Takeaways It is possible to get a $100,000 personal loan, but it’s difficult. Lenders don’t typically offer loans as large as $100,000, with most banks and credit unions offering a maximum of $50,000. To qualify for a $100,000 personal loan, you’ll need a credit score of 720 or above and a high income. Large unsecured loans tend to be expensive because they have high interest rates and long loan terms. If you need a large amount of money, also consider home equity loans or home equity lines of credit (HELOCs), or borrowing from your retirement account. How to Qualify for a $100,000 Personal Loan Every loan provider has its own set of requirements to qualify for a personal loan. To qualify for a large loan, however, you’ll generally need: A high credit score: You’ll often need a credit score of at least 670 to 739 be approved for a personal loan. Loans above $50,000 may require a higher credit score, but requirements will vary by lender. A high income: Your lender will want to see that you can repay the loan with your income. For a $100,000 loan over a two-year term, you’ll have to have more than $4,000 in extra income that you can put toward the loan. A relatively low debt-to-income (DTI) ratio: Most lenders look for borrowers who have a debt-to-income (DTI) ratio of less than 36%. Documentation: You should be ready to prove your income by providing a pay stub or bank statement. Your lender will likely ask you for a photo ID and a proof of address. Where to Get a $100,000 Personal Loan Not many personal loan providers offer $100,000 loans, but here are banks that do: Lender Loan Range Annual Percentage Rate (APR) SoFi $5,000–$100,000 8.99%–29.49% LightStream $5,000–$100,000 6.99%–25.49% BHG Money $20,000–$200,000 13.39%–24.91% Wells Fargo $3,000–$100,000 7.49%–24.49% Though all of these lenders will provide personal loans to borrowers with a “good” credit score, which is one from 670 to 739, you’ll likely need a significantly higher credit score to be approved for the largest loans. Similarly, the interest rates on large loans are likely to be much higher than on smaller loans, even if you have a good credit score. How to Get a $100,000 Personal Loan Getting a personal loan for $100,000 is similar to getting any personal loan. The difference is that you’ll typically need a high credit score, a high income, and perhaps an existing relationship with your lender to be approved. Here are the main steps for getting a large personal loan: Determine how much money you need: If you can apply for a loan for less than $100,000 by finding money from other sources, you are more likely to be approved. Review your finances: A large loan will have high monthly repayments over a long period, so make sure you can easily afford them. Research and compare lenders: Your options for a loan of $100,000 are fairly limited, but make sure you compare your offers. Even a small difference in the interest rate could be substantial in terms of the total interest cost. Pre-qualify: Most lenders will allow you to pre-qualify for a loan via a soft credit check. Apply: You can generally apply online for personal loans, but for large loans, you may need to speak to your lender or provide extra documentation. How Much Does a $100,000 Personal Loan Cost Over Time? The cost of any personal loan over time mainly depends on two factors: the interest rate and the loan term (length of the loan). Loans with a high interest rate and a long term cost more, and vice versa. You can use Investopedia’s personal loan calculator to compare the total costs of loans with different interest rates and terms. Let’s take two examples and calculate the cost of the loans. Scenario 1: $100,000 Over 2 Years at 15% A loan for $100,000, paid back over just two years, would have a high monthly repayment of $4,848.66 per month, so you would need a high income to afford these repayments. However, paying back this loan over such a short period means that you’ll lower the total cost you’ll pay in interest, which will be $16,367.96. Scenario 2: $100,000 Over 4 Years at 10% If you take out the same loan, but pay it back more slowly, your monthly repayments will be lower at $2,536.26 per month. However, even if you get a better interest rate of 10%, you’ll pay more interest over the lifetime of the loan, with a total cost of $21,740.40. How Do People Use Personal Loans? Investopedia commissioned a national survey of 962 U.S. adults between Aug. 14, 2023, to Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the most common reason people borrowed money, followed by home improvement and other large expenditures. Alternatives to a $100,000 Personal Loan If you need to borrow a large amount of money, you can consider other sources of funding in addition to a personal loan. If you can get a secured loan, you will likely have better rates. For example, home equity loans and home equity lines of credit (HELOCs) use your home equity to back a large-size loan or line of credit. If you have a substantial amount of money saved in a tax-advantaged retirement account like a 401(k) or an individual retirement account (IRA), you can potentially borrow money from it. You could also borrow money from any cash value you accrued with a permanent life insurance policy. How Fast Can You Get a $100,000 Personal Loan? With a high credit score and income, you might be approved for a $100,000 loan the same day you apply. However, lenders sometimes do extra credit and financial checks for large loans, which can slow the process. Can You Get a $100,000 Personal Loan With Bad Credit? You cannot get a $100,000 loan with bad credit. To get a large personal loan, you will need a good credit score. The exact score you will need will vary by lender. What Is the Largest Personal Loan Possible? Most lenders don’t offer loans above $100,000, and many don’t offer loans of more than $30,000 or $50,000. However, private banks that cater to wealthy individuals might offer personal loans of $100,000 or more. How Big of a Loan Is Too Much? The size of loan that is right for you depends on your finances and your needs. Any personal loan that you will struggle to meet the repayments for is too large. If you fail to repay the loan, your credit score will suffer and you will find it more difficult to get approved for loans in the future. The Bottom Line Loans larger than $100,000 are not common. When you need to make a large purchase, other loan products such as a mortgage may be more suitable than a personal loan. If you do need $100,000 or more in financing, and you don’t qualify for a personal loan, you can consider alternatives like home equity loans or home equity lines of credit (HELOCs), or borrowing from your retirement account.	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https://www.investopedia.com/use-atms-safely-5184201	How to Safely and Securely Use ATMs	<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 of 2018 (the latest data available), there were more than 470,135 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/atm.asp">automated teller machines</a> (ATMs) in the U.S., including 191,741 owned by banks and 278,394 independently owned. </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"> ATMs make withdrawing funds, checking balances, and conducting other transactions quick and convenient, but they can also be targets for criminal activity. There are no routinely collected national statistics on ATM-related crime in the U.S.<span class="ql-inline-citation" data-cite="6"></span> However, Travelers Insurance reported a 220% increase in “smash and grab” ATM thefts from 2019 to 2020, as reported by Claims Journal.<span class="ql-inline-citation" data-cite="7"></span> As the COVID-19 pandemic shifts the banking landscape to encourage more-frequent ATM use, as opposed to visiting the teller window, safety is more important than ever. </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>ATMs offer a simple way to access your money, but they can also become a target for criminals.</li><li>Learning basic safety and security practices can help you protect yourself when using your bank’s or another provider’s ATM.</li><li>In addition to direct criminal attacks, ATMs can also be used to scam bank customers out of their money or personal information.</li><li>If you suspect ATM fraud, it’s important to report it to your bank to limit losses for unauthorized charges.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-to-use-atms-safely"></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 to Use ATMs Safely </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Staying safe at the ATM starts with exercising common sense. With that in mind, here are some of the most important safety tips to know when using ATMs. </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><strong>Be mindful of location. </strong>Safely visiting an ATM starts with location awareness. For instance, using an ATM that’s in a well-lit area that many people pass through may be more secure than using an ATM that’s tucked in an out-of-the-way, poorly lit spot. Be aware of possible blind spots, such as corners or alcoves, that could shield a criminal from your view.</li> <li><strong>Use your bank’s ATM whenever possible. </strong>Free-standing ATMs, such as the kind you might see in grocery stores or malls, may be easier for criminals to tamper with than an ATM that’s located at your bank. For example, criminals may be able to attach devices that can steal your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/personal-identification-number.asp">personal identification number</a> (PIN) or account number. Visiting your bank to use the ATM could cut down some of the risks if the machine is not easily accessible to those who aren’t customers or is monitored by bank security cameras.</li> <li><strong>Inspect the machine. </strong>If you’re using an ATM that doesn’t belong to your bank, then give it a quick once-over to look for anything that seems out of place. If the keypad seems loose or wobbly, a key sticks, or the on-screen instructions aren’t what you’re used to seeing at an ATM, it could be a red flag that it’s been tampered with by a scammer.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Use built-in security measures if they’re available. </strong>If your bank’s ATM is located inside an enclosed vestibule that requires your card to enter, choose it over an ATM that anyone can walk or drive up to. Ensure that the door closes behind you and don’t open the door for anyone who doesn’t have a card and asks you to let them in.</li> <li><strong>Keep your distance. </strong>When using the ATM in a public space, keep some distance between yourself and others. Don’t allow anyone to stand close behind you, as they may be able to see your PIN as you enter it. And avoid writing your PIN on the back of your card, as this could make you an easy target for theft if you lose it.</li> <li><strong>Be aware of your surroundings. </strong>When using an ATM, be cognizant of who is around you. For example, take note of people who seem to be hanging around the machine or walking past it repeatedly. Be aware of anyone who may be sitting in a parked car or any vehicles that appear to follow you after you leave the ATM.</li> <li><strong>Stay secure at the drive-thru. </strong>If you pull up to a drive-thru ATM, keep your doors locked and your car running. Keep the windows up, other than the one you’re using to access the machine.<span class="ql-inline-citation" data-cite="8"></span> Don’t exit the vehicle for any reason, even if the ATM eats your card and refuses to return it.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Don’t linger. </strong>When visiting the ATM, consider beforehand what you need to do, so you can get in and out as quickly as possible. If you need to make a deposit, prepare your deposit envelope at home to save time at the ATM. Don’t count cash while standing near the machine; wait until you can get to a safe space. For example, if you have driven to the ATM, wait until you’ve returned to your car and locked the doors. If you must wait until you get home, don’t worry. The bank is aware of security risks involving ATMs and should understand the delay in reporting a mistake.</li> <li><strong>Keep track of receipts. </strong>Be sure to get a receipt for any ATM transactions you conduct and check them against your bank statements later. This can help you spot inaccuracies or potential fraud if you used your debit or ATM card at a machine you don’t normally use. (It can also help you get fees charged for using an ATM <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/060616/how-atm-fee-reimbursement-works-ally-ever.asp">that isn’t your bank’s reimbursed</a>.) Never leave a receipt behind. Many times you can request your receipt be sent by email.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Trust your instincts. </strong>If something seems off about an ATM, a transaction, or someone who’s nearby, trust your gut. Cancel the transaction and promptly exit. If you suspect you’re being followed, get to a safe public location, such as a busy store or hotel lobby, then call 911 if the person following you is still there. If you’re in a car, drive to the nearest police station.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_12-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_13-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If someone attempts to rob you at an ATM, it’s important to comply to avoid physical harm, then call the police as soon as the robber leaves.</p></div></div></div> <span class="heading-toc" id="toc-what-to-do-if-your-atm-or-debit-card-is-stolen"></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 to Do If Your ATM or Debit Card Is Stolen </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> A stolen ATM or debit card can be a financial liability if the thief is able to use it to access your accounts. If your card is lost or stolen, it’s important to report it to the bank as soon as possible. This can help to limit your liability for losses. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ftc.asp">U.S. Federal Trade Commission</a> (FTC) outlines the guidelines for losses as follows:<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> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_17-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Lost or Stolen ATM and Debit Card Liability Limits</th> </tr> </thead> <tbody data-check="-1"> <tr> <td> <b>If You Report</b></td> <td><b>Your Maximum Loss</b></td> </tr> <tr> <td>Before unauthorized charges are made</td> <td>$0</td> </tr> <tr> <td>Within two business days of learning about the loss or theft</td> <td>$50</td> </tr> <tr> <td>More than two business days after you learn about the loss or theft but less than 60 calendar days after your statement is sent to you</td> <td> $500</td> </tr> <tr> <td>More than 60 calendar days after your statement is sent to you</td> <td>All the money taken from your ATM/debit card account and possibly more, such as money in accounts linked to your debit account</td> </tr> </tbody> </table> </div></figure> <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"> As you can see, the longer you wait to report a lost or stolen ATM or debit card, the more responsibility you end up bearing for any unauthorized withdrawals or purchases. Credit cards can offer greater <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/z/zero-liability-policy.asp">liability protection</a>, so you may consider opting for credit in place of debit for making purchases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> If a stolen ATM or debit card is the result of a criminal assault at an ATM, you also need to report that to the police. Providing as much detail as possible about the person who took your card is important for helping law enforcement identify the suspect. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_24-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Entering your PIN backward at the ATM will not automatically summon the police, so don’t believe this banking myth.<span class="ql-inline-citation" data-cite="4"></span></p></div></div></div> <span class="heading-toc" id="toc-a-final-tip"></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"> A Final Tip </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> One final tip for staying safe at the ATM is finding other ways to manage banking transactions. If you need to deposit a check, for example, you could use a drive-up teller window instead, or your bank’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/remote-deposit-capture-definition-4684027">mobile check deposit</a> option if one is available. If you need cash to pay back a friend, you could send it using your bank’s person-to-person payment service. Thinking along these lines can help you reduce the odds of being targeted at an ATM, as you won’t have to visit them as often. If you’re shopping around for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-checking-accounts-with-no-atm-fees-5079489">the best checking accounts</a>, keep those kinds of features in mind. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_28-0"><span class="heading-toc" id="toc-how-can-using-an-atm-be-unsafe"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can Using an ATM Be Unsafe?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A criminal can tamper with an ATM to acquire your PIN or account number. That’s why it’s better to use one inside a bank instead of a free-standing one at a mall or store. Also, ATMs located in dimly lit, less-traveled places put you at risk of being physically robbed of your cash, especially if you choose to count cash at the machine. Wait instead until you are in a safe place: your locked car or your home, for example.</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-if-my-atm-or-debit-card-is-stolen-what-am-i-liable-for"></span> <h2 class="mntl-sc-block-questionandanswer__question">If My ATM or Debit Card Is Stolen, What Am I Liable for?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you report it before any charges are made on it, you are not liable for anything at all, even if a charge does go through after your report. If you report it within two business days of the theft, you are liable for up to $50. If you report it after more than two business days but fewer than 60 calendar days, you are liable for up to $500. After that, you are liable for the entire amount stolen, including money taken from other accounts linked to the card.</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-does-entering-my-pin-backward-call-the-police"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Entering My PIN Backward Call the Police?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. This is a myth often promulgated on the internet. Use better, more trusted sources for your information than social media accounts and dodgy websites.</p></div> </div></div>	As of 2018 (the latest data available), there were more than 470,135 [automated teller machines](https://www.investopedia.com/terms/a/atm.asp) (ATMs) in the U.S., including 191,741 owned by banks and 278,394 independently owned. ATMs make withdrawing funds, checking balances, and conducting other transactions quick and convenient, but they can also be targets for criminal activity. There are no routinely collected national statistics on ATM-related crime in the U.S. However, Travelers Insurance reported a 220% increase in “smash and grab” ATM thefts from 2019 to 2020, as reported by Claims Journal. As the COVID-19 pandemic shifts the banking landscape to encourage more-frequent ATM use, as opposed to visiting the teller window, safety is more important than ever. ### Key Takeaways * ATMs offer a simple way to access your money, but they can also become a target for criminals. * Learning basic safety and security practices can help you protect yourself when using your bank’s or another provider’s ATM. * In addition to direct criminal attacks, ATMs can also be used to scam bank customers out of their money or personal information. * If you suspect ATM fraud, it’s important to report it to your bank to limit losses for unauthorized charges. ## How to Use ATMs Safely Staying safe at the ATM starts with exercising common sense. With that in mind, here are some of the most important safety tips to know when using ATMs. * Be mindful of location. Safely visiting an ATM starts with location awareness. For instance, using an ATM that’s in a well-lit area that many people pass through may be more secure than using an ATM that’s tucked in an out-of-the-way, poorly lit spot. Be aware of possible blind spots, such as corners or alcoves, that could shield a criminal from your view. * Use your bank’s ATM whenever possible. Free-standing ATMs, such as the kind you might see in grocery stores or malls, may be easier for criminals to tamper with than an ATM that’s located at your bank. For example, criminals may be able to attach devices that can steal your [personal identification number](https://www.investopedia.com/terms/p/personal-identification-number.asp) (PIN) or account number. Visiting your bank to use the ATM could cut down some of the risks if the machine is not easily accessible to those who aren’t customers or is monitored by bank security cameras. * Inspect the machine. If you’re using an ATM that doesn’t belong to your bank, then give it a quick once-over to look for anything that seems out of place. If the keypad seems loose or wobbly, a key sticks, or the on-screen instructions aren’t what you’re used to seeing at an ATM, it could be a red flag that it’s been tampered with by a scammer. * Use built-in security measures if they’re available. If your bank’s ATM is located inside an enclosed vestibule that requires your card to enter, choose it over an ATM that anyone can walk or drive up to. Ensure that the door closes behind you and don’t open the door for anyone who doesn’t have a card and asks you to let them in. * Keep your distance. When using the ATM in a public space, keep some distance between yourself and others. Don’t allow anyone to stand close behind you, as they may be able to see your PIN as you enter it. And avoid writing your PIN on the back of your card, as this could make you an easy target for theft if you lose it. * Be aware of your surroundings. When using an ATM, be cognizant of who is around you. For example, take note of people who seem to be hanging around the machine or walking past it repeatedly. Be aware of anyone who may be sitting in a parked car or any vehicles that appear to follow you after you leave the ATM. * Stay secure at the drive-thru. If you pull up to a drive-thru ATM, keep your doors locked and your car running. Keep the windows up, other than the one you’re using to access the machine. Don’t exit the vehicle for any reason, even if the ATM eats your card and refuses to return it. * Don’t linger. When visiting the ATM, consider beforehand what you need to do, so you can get in and out as quickly as possible. If you need to make a deposit, prepare your deposit envelope at home to save time at the ATM. Don’t count cash while standing near the machine; wait until you can get to a safe space. For example, if you have driven to the ATM, wait until you’ve returned to your car and locked the doors. If you must wait until you get home, don’t worry. The bank is aware of security risks involving ATMs and should understand the delay in reporting a mistake. * Keep track of receipts. Be sure to get a receipt for any ATM transactions you conduct and check them against your bank statements later. This can help you spot inaccuracies or potential fraud if you used your debit or ATM card at a machine you don’t normally use. (It can also help you get fees charged for using an ATM [that isn’t your bank’s reimbursed](https://www.investopedia.com/ask/answers/060616/how-atm-fee-reimbursement-works-ally-ever.asp).) Never leave a receipt behind. Many times you can request your receipt be sent by email. * Trust your instincts. If something seems off about an ATM, a transaction, or someone who’s nearby, trust your gut. Cancel the transaction and promptly exit. If you suspect you’re being followed, get to a safe public location, such as a busy store or hotel lobby, then call 911 if the person following you is still there. If you’re in a car, drive to the nearest police station. ### If someone attempts to rob you at an ATM, it’s important to comply to avoid physical harm, then call the police as soon as the robber leaves. ## What to Do If Your ATM or Debit Card Is Stolen A stolen ATM or debit card can be a financial liability if the thief is able to use it to access your accounts. If your card is lost or stolen, it’s important to report it to the bank as soon as possible. This can help to limit your liability for losses. The [U.S. Federal Trade Commission](https://www.investopedia.com/terms/f/ftc.asp) (FTC) outlines the guidelines for losses as follows: \| Lost or Stolen ATM and Debit Card Liability Limits \| \| \| --- \| --- \| \| If You Report \| Your Maximum Loss \| \| Before unauthorized charges are made \| $0 \| \| Within two business days of learning about the loss or theft \| $50 \| \| More than two business days after you learn about the loss or theft but less than 60 calendar days after your statement is sent to you \| $500 \| \| More than 60 calendar days after your statement is sent to you \| All the money taken from your ATM/debit card account and possibly more, such as money in accounts linked to your debit account \| As you can see, the longer you wait to report a lost or stolen ATM or debit card, the more responsibility you end up bearing for any unauthorized withdrawals or purchases. Credit cards can offer greater [liability protection](https://www.investopedia.com/terms/z/zero-liability-policy.asp), so you may consider opting for credit in place of debit for making purchases. If a stolen ATM or debit card is the result of a criminal assault at an ATM, you also need to report that to the police. Providing as much detail as possible about the person who took your card is important for helping law enforcement identify the suspect. ### Entering your PIN backward at the ATM will not automatically summon the police, so don’t believe this banking myth. ## A Final Tip One final tip for staying safe at the ATM is finding other ways to manage banking transactions. If you need to deposit a check, for example, you could use a drive-up teller window instead, or your bank’s [mobile check deposit](https://www.investopedia.com/remote-deposit-capture-definition-4684027) option if one is available. If you need cash to pay back a friend, you could send it using your bank’s person-to-person payment service. Thinking along these lines can help you reduce the odds of being targeted at an ATM, as you won’t have to visit them as often. If you’re shopping around for [the best checking accounts](https://www.investopedia.com/best-checking-accounts-with-no-atm-fees-5079489), keep those kinds of features in mind. ## How Can Using an ATM Be Unsafe? A criminal can tamper with an ATM to acquire your PIN or account number. That’s why it’s better to use one inside a bank instead of a free-standing one at a mall or store. Also, ATMs located in dimly lit, less-traveled places put you at risk of being physically robbed of your cash, especially if you choose to count cash at the machine. Wait instead until you are in a safe place: your locked car or your home, for example. ## If My ATM or Debit Card Is Stolen, What Am I Liable for? If you report it before any charges are made on it, you are not liable for anything at all, even if a charge does go through after your report. If you report it within two business days of the theft, you are liable for up to $50. If you report it after more than two business days but fewer than 60 calendar days, you are liable for up to $500. After that, you are liable for the entire amount stolen, including money taken from other accounts linked to the card. ## Does Entering My PIN Backward Call the Police? No. This is a myth often promulgated on the internet. Use better, more trusted sources for your information than social media accounts and dodgy websites.	As of 2018 (the latest data available), there were more than 470,135 automated teller machines (ATMs) in the U.S., including 191,741 owned by banks and 278,394 independently owned. ATMs make withdrawing funds, checking balances, and conducting other transactions quick and convenient, but they can also be targets for criminal activity. There are no routinely collected national statistics on ATM-related crime in the U.S. However, Travelers Insurance reported a 220% increase in “smash and grab” ATM thefts from 2019 to 2020, as reported by Claims Journal. As the COVID-19 pandemic shifts the banking landscape to encourage more-frequent ATM use, as opposed to visiting the teller window, safety is more important than ever. Key Takeaways ATMs offer a simple way to access your money, but they can also become a target for criminals.Learning basic safety and security practices can help you protect yourself when using your bank’s or another provider’s ATM.In addition to direct criminal attacks, ATMs can also be used to scam bank customers out of their money or personal information.If you suspect ATM fraud, it’s important to report it to your bank to limit losses for unauthorized charges. How to Use ATMs Safely Staying safe at the ATM starts with exercising common sense. With that in mind, here are some of the most important safety tips to know when using ATMs. Be mindful of location. Safely visiting an ATM starts with location awareness. For instance, using an ATM that’s in a well-lit area that many people pass through may be more secure than using an ATM that’s tucked in an out-of-the-way, poorly lit spot. Be aware of possible blind spots, such as corners or alcoves, that could shield a criminal from your view. Use your bank’s ATM whenever possible. Free-standing ATMs, such as the kind you might see in grocery stores or malls, may be easier for criminals to tamper with than an ATM that’s located at your bank. For example, criminals may be able to attach devices that can steal your personal identification number (PIN) or account number. Visiting your bank to use the ATM could cut down some of the risks if the machine is not easily accessible to those who aren’t customers or is monitored by bank security cameras. Inspect the machine. If you’re using an ATM that doesn’t belong to your bank, then give it a quick once-over to look for anything that seems out of place. If the keypad seems loose or wobbly, a key sticks, or the on-screen instructions aren’t what you’re used to seeing at an ATM, it could be a red flag that it’s been tampered with by a scammer. Use built-in security measures if they’re available. If your bank’s ATM is located inside an enclosed vestibule that requires your card to enter, choose it over an ATM that anyone can walk or drive up to. Ensure that the door closes behind you and don’t open the door for anyone who doesn’t have a card and asks you to let them in. Keep your distance. When using the ATM in a public space, keep some distance between yourself and others. Don’t allow anyone to stand close behind you, as they may be able to see your PIN as you enter it. And avoid writing your PIN on the back of your card, as this could make you an easy target for theft if you lose it. Be aware of your surroundings. When using an ATM, be cognizant of who is around you. For example, take note of people who seem to be hanging around the machine or walking past it repeatedly. Be aware of anyone who may be sitting in a parked car or any vehicles that appear to follow you after you leave the ATM. Stay secure at the drive-thru. If you pull up to a drive-thru ATM, keep your doors locked and your car running. Keep the windows up, other than the one you’re using to access the machine. Don’t exit the vehicle for any reason, even if the ATM eats your card and refuses to return it. Don’t linger. When visiting the ATM, consider beforehand what you need to do, so you can get in and out as quickly as possible. If you need to make a deposit, prepare your deposit envelope at home to save time at the ATM. Don’t count cash while standing near the machine; wait until you can get to a safe space. For example, if you have driven to the ATM, wait until you’ve returned to your car and locked the doors. If you must wait until you get home, don’t worry. The bank is aware of security risks involving ATMs and should understand the delay in reporting a mistake. Keep track of receipts. Be sure to get a receipt for any ATM transactions you conduct and check them against your bank statements later. This can help you spot inaccuracies or potential fraud if you used your debit or ATM card at a machine you don’t normally use. (It can also help you get fees charged for using an ATM that isn’t your bank’s reimbursed.) Never leave a receipt behind. Many times you can request your receipt be sent by email. Trust your instincts. If something seems off about an ATM, a transaction, or someone who’s nearby, trust your gut. Cancel the transaction and promptly exit. If you suspect you’re being followed, get to a safe public location, such as a busy store or hotel lobby, then call 911 if the person following you is still there. If you’re in a car, drive to the nearest police station. If someone attempts to rob you at an ATM, it’s important to comply to avoid physical harm, then call the police as soon as the robber leaves. What to Do If Your ATM or Debit Card Is Stolen A stolen ATM or debit card can be a financial liability if the thief is able to use it to access your accounts. If your card is lost or stolen, it’s important to report it to the bank as soon as possible. This can help to limit your liability for losses. The U.S. Federal Trade Commission (FTC) outlines the guidelines for losses as follows: Lost or Stolen ATM and Debit Card Liability Limits If You Report Your Maximum Loss Before unauthorized charges are made $0 Within two business days of learning about the loss or theft $50 More than two business days after you learn about the loss or theft but less than 60 calendar days after your statement is sent to you $500 More than 60 calendar days after your statement is sent to you All the money taken from your ATM/debit card account and possibly more, such as money in accounts linked to your debit account As you can see, the longer you wait to report a lost or stolen ATM or debit card, the more responsibility you end up bearing for any unauthorized withdrawals or purchases. Credit cards can offer greater liability protection, so you may consider opting for credit in place of debit for making purchases. If a stolen ATM or debit card is the result of a criminal assault at an ATM, you also need to report that to the police. Providing as much detail as possible about the person who took your card is important for helping law enforcement identify the suspect. Entering your PIN backward at the ATM will not automatically summon the police, so don’t believe this banking myth. A Final Tip One final tip for staying safe at the ATM is finding other ways to manage banking transactions. If you need to deposit a check, for example, you could use a drive-up teller window instead, or your bank’s mobile check deposit option if one is available. If you need cash to pay back a friend, you could send it using your bank’s person-to-person payment service. Thinking along these lines can help you reduce the odds of being targeted at an ATM, as you won’t have to visit them as often. If you’re shopping around for the best checking accounts, keep those kinds of features in mind. How Can Using an ATM Be Unsafe? A criminal can tamper with an ATM to acquire your PIN or account number. That’s why it’s better to use one inside a bank instead of a free-standing one at a mall or store. Also, ATMs located in dimly lit, less-traveled places put you at risk of being physically robbed of your cash, especially if you choose to count cash at the machine. Wait instead until you are in a safe place: your locked car or your home, for example. If My ATM or Debit Card Is Stolen, What Am I Liable for? If you report it before any charges are made on it, you are not liable for anything at all, even if a charge does go through after your report. If you report it within two business days of the theft, you are liable for up to $50. If you report it after more than two business days but fewer than 60 calendar days, you are liable for up to $500. After that, you are liable for the entire amount stolen, including money taken from other accounts linked to the card. Does Entering My PIN Backward Call the Police? No. This is a myth often promulgated on the internet. Use better, more trusted sources for your information than social media accounts and dodgy websites.	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https://www.investopedia.com/cheap-tech-stocks-april-2024-8627971	5 Tech Stocks for Less Than $50 for 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"> Tech stocks performed well in the first quarter of 2024, defying hotter-than-expected inflation numbers, as AI enthusiasm and strong fourth-quarter earnings gave the sector a vibrant heartbeat. </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 top-performing tech stocks for April 2024 include several that cross over with <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>, such as software that analyzes videos for security threats, a platform for autonomous aerial vehicles, and a semiconductor company that builds sensors for AI-powered robots. The following five tech stocks have posted impressive one-month gains, outpacing the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp">Nasdaq Composite Index</a> over the same period. </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"> All data are current as of market close on April 4, 2024.<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>Tech companies that develop or leverage AI make up some of April's top-performing tech stocks. </li><li>While tech growth stocks can give exposure to the sector's leading innovations, they can also be more volatile. </li><li>April kicks off the first-quarter earnings season, during which tech companies will report financial results for the first fiscal quarter. </li><li>The leading tech stocks for April 2024 by one-month return include Airship AI, Ouster, Ehang Holdings Limited, Cardlytics, and Semtech. </li></ul></div></div></div> <span class="heading-toc" id="toc-airship-ai-holdings-inc-aisp"></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=AISP" rel="nocaes">Airship AI Holdings, Inc (AISP)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <li>Sector/Industry: Technology services / Packaged software</li><li>Price: $9.79</li><li>Market Cap: $220.29 million</li><li>1-month Total Return: 192.12% </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"> Airship is a software company that helps law enforcement and defense organizations analyze videos for potential threats. Its flagship products include Airship Acropolis OS, Airship Command, and Airship Outpost, otherwise known as the Airship Suite. In early March, the company got a huge boost after it was awarded a “large” contract with an agency within the U.S. Department of Justice.<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-ouster-inc-oust"></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=OUST" rel="nocaes">Ouster, Inc. (OUST)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>Sector/Industry: Electronic technology / Semiconductors </li><li>Price: $9.99</li><li>Market Cap: $406.31 million </li><li>1-month Total Return: 88.49%</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"> <br/>Ouster designs and manufactures high-resolution lidar sensors for a variety of industries, including automotive, robotics, security, industrial, and crowd analytics. In a nutshell, Ouster’s lidar technology uses laser-based radar to help certain machines “see” their surroundings, which has applications for self-driving cars or AI-powered robots. The company reported a record $83 million in revenue for 2023 (up 103% year-over-year) plus an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ebitda.asp">EBITDA</a> loss of $14 million for the fourth quarter, an improvement from $18 million in the previous quarter.<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-ehang-holdings-limited-eh"></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=EH" rel="nocaes">Ehang Holdings Limited (EH)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li>Sector/Industry: Technology services / Packaged software</li><li>Price: $18.60</li><li>Market Cap: $1.14 billion </li><li>1-month Total Return: 74.98%</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"> Ehang is an autonomous aerial vehicle (AAV) platform with operations in China, East and West Asia, Europe, and other countries. The company specializes in making aerial vehicles with an AI-based command-and-control system that provides autonomous take-off, cruising, and landing. The company reported total revenues equaling about $8 million for 2023, a 260.9% increase from the previous year.<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> <span class="heading-toc" id="toc-cardlytics-cdlx"></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=CDLX" rel="nocaes">Cardlytics (CDLX)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <li>Sector/Industry: Technology services / Internet software </li><li>Price: $13,07</li><li>Market Cap: $576.51 million </li><li>1-month Total Return: 73.34%</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"> Cardlytics is a digital advertising platform. The company partners with over 1,500 financial institutions—including big names like Chase, Bank of America, Wells Fargo, and PNC, among others—and analyzes their clients’ consumer behavior to build more personalized rewards programs.<span class="ql-inline-citation" data-cite="5"></span> Cardlytics reported total revenue of $309.2 million for 2023, compared with $298.5 million the year before. It also reported an adjusted EBITDA of $3.8 million for 2023, compared to $45.2 million reported in 2022.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-semtech-corporation-smtc"></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=SMTC" rel="nocaes">Semtech Corporation (SMTC)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <li>Sector/Industry: Electronic technology / Semiconductors </li><li>Price: $33.06</li><li>Market Cap: $2.13 billion </li><li>1-month Total Return: 53.77%</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"> Semtech manufactures analog and mixed-signal semiconductors, primarily for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/internet-things.asp">Internet of Things (IoT).</a> On March 26, the company was named a "bullish fresh pick” by an analyst at the investment firm Robert W. Baird, which led to a market rally that pushed the stock up by about 21% before the beginning of April. The company reported net sales of $192.9 million for the fourth quarter of 2023, an improvement over the $152.5 million it reported the year before.<span class="ql-inline-citation" data-cite="8"></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_33-0"></div> <span class="heading-toc" id="toc-how-we-selected-cheap-tech-stocks"></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"> How We Selected Cheap Tech Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> We selected top technology stocks based on their percentage return over the last 30 days. We only included companies trading below $50 per share that are listed on the Nasdaq or the New York Stock Exchange (NYSE). </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"> Firms developing AI technology have largely been the matador behind the stock market's most recent bull run. Several semiconductor companies, like NVIDIA (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>), posted record-breaking revenue growth for 2023, as demand for generative AI chips continued to grow.<span class="ql-inline-citation" data-cite="9"></span> By some predictions, AI chip sales are expected to make up around two-thirds of all semiconductor sales in 2024.<span class="ql-inline-citation" data-cite="12"></span> Meanwhile, tech companies leveraging AI software for their platforms, like Symbotic (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SYM">SYM</a>) and ServiceNow (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NOW">NOW</a>), also posted strong revenue growth for 2023.<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_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> While AI technology has generated a lot of enthusiasm, investors should continue looking deeply into a company's fundamentals to see if its finances can sustain it over the long run. This is especially important as April kicks off the first-quarter earnings season for 2024, during which investors can assess the financial strength of many tech companies. It's also prudent to pay attention to the Federal Reserve's rate decisions, as expectations around rate cuts (or lack thereof) could influence how tech companies perform for the remainder of 2024. </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"> <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_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> <em>As of the date this article was written, the author does not own any of the above stocks.</em><br> </br></p></div>	Tech stocks performed well in the first quarter of 2024, defying hotter-than-expected inflation numbers, as AI enthusiasm and strong fourth-quarter earnings gave the sector a vibrant heartbeat. The top-performing tech stocks for April 2024 include several that cross over with [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp), such as software that analyzes videos for security threats, a platform for autonomous aerial vehicles, and a semiconductor company that builds sensors for AI-powered robots. The following five tech stocks have posted impressive one-month gains, outpacing the [Nasdaq Composite Index](https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp) over the same period. All data are current as of market close on April 4, 2024. ### Key Takeaways * Tech companies that develop or leverage AI make up some of April's top-performing tech stocks. * While tech growth stocks can give exposure to the sector's leading innovations, they can also be more volatile. * April kicks off the first-quarter earnings season, during which tech companies will report financial results for the first fiscal quarter. * The leading tech stocks for April 2024 by one-month return include Airship AI, Ouster, Ehang Holdings Limited, Cardlytics, and Semtech. ## [Airship AI Holdings, Inc (AISP)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AISP) * Sector/Industry: Technology services / Packaged software * Price: $9.79 * Market Cap: $220.29 million * 1-month Total Return: 192.12% Airship is a software company that helps law enforcement and defense organizations analyze videos for potential threats. Its flagship products include Airship Acropolis OS, Airship Command, and Airship Outpost, otherwise known as the Airship Suite. In early March, the company got a huge boost after it was awarded a “large” contract with an agency within the U.S. Department of Justice. ## [Ouster, Inc. (OUST)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=OUST) * Sector/Industry: Electronic technology / Semiconductors * Price: $9.99 * Market Cap: $406.31 million * 1-month Total Return: 88.49% Ouster designs and manufactures high-resolution lidar sensors for a variety of industries, including automotive, robotics, security, industrial, and crowd analytics. In a nutshell, Ouster’s lidar technology uses laser-based radar to help certain machines “see” their surroundings, which has applications for self-driving cars or AI-powered robots. The company reported a record $83 million in revenue for 2023 (up 103% year-over-year) plus an [EBITDA](https://www.investopedia.com/terms/e/ebitda.asp) loss of $14 million for the fourth quarter, an improvement from $18 million in the previous quarter. ## [Ehang Holdings Limited (EH)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EH) * Sector/Industry: Technology services / Packaged software * Price: $18.60 * Market Cap: $1.14 billion * 1-month Total Return: 74.98% Ehang is an autonomous aerial vehicle (AAV) platform with operations in China, East and West Asia, Europe, and other countries. The company specializes in making aerial vehicles with an AI-based command-and-control system that provides autonomous take-off, cruising, and landing. The company reported total revenues equaling about $8 million for 2023, a 260.9% increase from the previous year. ## [Cardlytics (CDLX)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CDLX) * Sector/Industry: Technology services / Internet software * Price: $13,07 * Market Cap: $576.51 million * 1-month Total Return: 73.34% Cardlytics is a digital advertising platform. The company partners with over 1,500 financial institutions—including big names like Chase, Bank of America, Wells Fargo, and PNC, among others—and analyzes their clients’ consumer behavior to build more personalized rewards programs. Cardlytics reported total revenue of $309.2 million for 2023, compared with $298.5 million the year before. It also reported an adjusted EBITDA of $3.8 million for 2023, compared to $45.2 million reported in 2022. ## [Semtech Corporation (SMTC)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMTC) * Sector/Industry: Electronic technology / Semiconductors * Price: $33.06 * Market Cap: $2.13 billion * 1-month Total Return: 53.77% Semtech manufactures analog and mixed-signal semiconductors, primarily for the [Internet of Things (IoT).](https://www.investopedia.com/terms/i/internet-things.asp) On March 26, the company was named a "bullish fresh pick” by an analyst at the investment firm Robert W. Baird, which led to a market rally that pushed the stock up by about 21% before the beginning of April. The company reported net sales of $192.9 million for the fourth quarter of 2023, an improvement over the $152.5 million it reported the year before. ## How We Selected Cheap Tech Stocks We selected top technology stocks based on their percentage return over the last 30 days. We only included companies trading below $50 per share that are listed on the Nasdaq or the New York Stock Exchange (NYSE). Firms developing AI technology have largely been the matador behind the stock market's most recent bull run. Several semiconductor companies, like NVIDIA ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)), posted record-breaking revenue growth for 2023, as demand for generative AI chips continued to grow. By some predictions, AI chip sales are expected to make up around two-thirds of all semiconductor sales in 2024. Meanwhile, tech companies leveraging AI software for their platforms, like Symbotic ([SYM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SYM)) and ServiceNow ([NOW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NOW)), also posted strong revenue growth for 2023. While AI technology has generated a lot of enthusiasm, investors should continue looking deeply into a company's fundamentals to see if its finances can sustain it over the long run. This is especially important as April kicks off the first-quarter earnings season for 2024, during which investors can assess the financial strength of many tech companies. It's also prudent to pay attention to the Federal Reserve's rate decisions, as expectations around rate cuts (or lack thereof) could influence how tech companies perform for the remainder of 2024. 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.	Tech stocks performed well in the first quarter of 2024, defying hotter-than-expected inflation numbers, as AI enthusiasm and strong fourth-quarter earnings gave the sector a vibrant heartbeat. The top-performing tech stocks for April 2024 include several that cross over with artificial intelligence (AI), such as software that analyzes videos for security threats, a platform for autonomous aerial vehicles, and a semiconductor company that builds sensors for AI-powered robots. The following five tech stocks have posted impressive one-month gains, outpacing the Nasdaq Composite Index over the same period. All data are current as of market close on April 4, 2024. Key Takeaways Tech companies that develop or leverage AI make up some of April's top-performing tech stocks. While tech growth stocks can give exposure to the sector's leading innovations, they can also be more volatile. April kicks off the first-quarter earnings season, during which tech companies will report financial results for the first fiscal quarter. The leading tech stocks for April 2024 by one-month return include Airship AI, Ouster, Ehang Holdings Limited, Cardlytics, and Semtech. Airship AI Holdings, Inc (AISP) Sector/Industry: Technology services / Packaged softwarePrice: $9.79Market Cap: $220.29 million1-month Total Return: 192.12% Airship is a software company that helps law enforcement and defense organizations analyze videos for potential threats. Its flagship products include Airship Acropolis OS, Airship Command, and Airship Outpost, otherwise known as the Airship Suite. In early March, the company got a huge boost after it was awarded a “large” contract with an agency within the U.S. Department of Justice. Ouster, Inc. (OUST) Sector/Industry: Electronic technology / Semiconductors Price: $9.99Market Cap: $406.31 million 1-month Total Return: 88.49% Ouster designs and manufactures high-resolution lidar sensors for a variety of industries, including automotive, robotics, security, industrial, and crowd analytics. In a nutshell, Ouster’s lidar technology uses laser-based radar to help certain machines “see” their surroundings, which has applications for self-driving cars or AI-powered robots. The company reported a record $83 million in revenue for 2023 (up 103% year-over-year) plus an EBITDA loss of $14 million for the fourth quarter, an improvement from $18 million in the previous quarter. Ehang Holdings Limited (EH) Sector/Industry: Technology services / Packaged softwarePrice: $18.60Market Cap: $1.14 billion 1-month Total Return: 74.98% Ehang is an autonomous aerial vehicle (AAV) platform with operations in China, East and West Asia, Europe, and other countries. The company specializes in making aerial vehicles with an AI-based command-and-control system that provides autonomous take-off, cruising, and landing. The company reported total revenues equaling about $8 million for 2023, a 260.9% increase from the previous year. Cardlytics (CDLX) Sector/Industry: Technology services / Internet software Price: $13,07Market Cap: $576.51 million 1-month Total Return: 73.34% Cardlytics is a digital advertising platform. The company partners with over 1,500 financial institutions—including big names like Chase, Bank of America, Wells Fargo, and PNC, among others—and analyzes their clients’ consumer behavior to build more personalized rewards programs. Cardlytics reported total revenue of $309.2 million for 2023, compared with $298.5 million the year before. It also reported an adjusted EBITDA of $3.8 million for 2023, compared to $45.2 million reported in 2022. Semtech Corporation (SMTC) Sector/Industry: Electronic technology / Semiconductors Price: $33.06Market Cap: $2.13 billion 1-month Total Return: 53.77% Semtech manufactures analog and mixed-signal semiconductors, primarily for the Internet of Things (IoT). On March 26, the company was named a "bullish fresh pick” by an analyst at the investment firm Robert W. Baird, which led to a market rally that pushed the stock up by about 21% before the beginning of April. The company reported net sales of $192.9 million for the fourth quarter of 2023, an improvement over the $152.5 million it reported the year before. How We Selected Cheap Tech Stocks We selected top technology stocks based on their percentage return over the last 30 days. We only included companies trading below $50 per share that are listed on the Nasdaq or the New York Stock Exchange (NYSE). Firms developing AI technology have largely been the matador behind the stock market's most recent bull run. Several semiconductor companies, like NVIDIA (NVDA), posted record-breaking revenue growth for 2023, as demand for generative AI chips continued to grow. By some predictions, AI chip sales are expected to make up around two-thirds of all semiconductor sales in 2024. Meanwhile, tech companies leveraging AI software for their platforms, like Symbotic (SYM) and ServiceNow (NOW), also posted strong revenue growth for 2023. While AI technology has generated a lot of enthusiasm, investors should continue looking deeply into a company's fundamentals to see if its finances can sustain it over the long run. This is especially important as April kicks off the first-quarter earnings season for 2024, during which investors can assess the financial strength of many tech companies. It's also prudent to pay attention to the Federal Reserve's rate decisions, as expectations around rate cuts (or lack thereof) could influence how tech companies perform for the remainder of 2024. 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.	[ [ "artificial intelligence (AI)", "https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp" ], [ "Nasdaq Composite Index", "https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp" ], [ "Airship AI Holdings, Inc (AISP)", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=AISP" ], [ "Ouster, Inc. (OUST)", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=OUST" ], [ "EBITDA", "https://www.investopedia.com/terms/e/ebitda.asp" ], [ "Ehang Holdings Limited (EH)", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=EH" ], [ "Cardlytics (CDLX)", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=CDLX" ], [ "Semtech Corporation (SMTC)", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMTC" ], [ "Internet of Things (IoT).", "https://www.investopedia.com/terms/i/internet-things.asp" ], [ "NVDA", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA" ], [ "SYM", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=SYM" ], [ "NOW", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=NOW" ], [ "warranty and liability disclaimer", "https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer" ] ]
https://www.investopedia.com/articles/investing/092215/debit-vs-credit-card-paying-gas.asp	Paying for Gas With Debit vs. Credit Card: 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-paying-for-gas-with-debit-card-vs-credit-card-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"> Paying for Gas With Debit Card vs. Credit Card: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Which should you use for everyday purchases, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/050214/credit-vs-debit-cards-which-better.asp">a debit or a credit card</a>? You may not think that there is much of a difference between these two options but a closer examination reveals there are a number of advantages to using a credit card, especially when you're filling up your tank at the gas pump. Not only does using credit provide a greater sense of security from possible <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fraud.asp">fraud</a>, but most credit card companies also offer cardholders some sort of reward for using their cards for gas. </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>Debit cards allow you to pay for your gas immediately without any interest charges.</li><li>A credit card offers additional protection at the pump because the funds are not immediately withdrawn from your account.</li><li>Some gas stations provide you with the cash rate when you use your debit card but there are others that treat debit card purchases in the same manner as credit cards by charging a premium.</li><li>Using a debit card for gas is risky, as credit thieves favor gas stations and might be able to access your account with your PIN by using a device called a skimmer.<br/></li><li>Aside from additional protection, credit cards may offer you rewards whenever you pay at the pump.</li></ul></div></div></div> <span class="heading-toc" id="toc-using-a-debit-card-at-gas-stations"></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"> Using a Debit Card at Gas Stations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Using a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitcard.asp">debit card</a> to pay for gas may seem like the better option. That's because you don't have to worry about not paying for your gas later. Since you're using a debit card, the money generally comes out of your account immediately. This allows you to avoid paying heavy interest charges. And to top it all off, you can certainly avoid overspending because you can only spend the amount of money available in your bank account.<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_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Some stations offer tiered pricing—one for cash and one for credit. In most cases, you'll get the cash rate if you use your debit card. These retailers generally charge their customers less (sometimes as much as a dime) if they pay for their gas with cash or a debit card. But to avoid any confusion, be sure to ask the attendant before you use your card to fill up. </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"> But there are drawbacks to being able to access your money instantaneously when you're at the pump. Gas stations aren't immune to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/data-breach.asp">data breaches</a>, resulting in millions of stolen debit card numbers and account information. Federal regulations treat debit cards differently than credit cards and your liability is based on how quickly you report your being compromised. This could be $500 or more.<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_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>While it may be more convenient to pay at the pump, the best way to avoid debit and credit card fraud may be to pay for your gas inside the gas station.</p></div></div></div> <span class="heading-toc" id="toc-using-a-credit-card-at-gas-stations"></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"> Using a Credit Card at Gas Stations </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/c/creditcard.asp">Credit cards</a> allow you to purchase fuel (or other goods and services at gas stations) without having to worry about having to part ways with your money right away. This is true as long as you have the available balance on your credit line. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/10/credit-card-debit-card.asp">Using a credit card</a> gives you as many as 25 days until the balance is due.<span class="ql-inline-citation" data-cite="6"></span> And you'll avoid interest charges if you pay off your balance every month. If you don't, you will incur interest and other fees (late fees if you don't pay on time), which can make that fill-up even more expensive. </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"> Many credit card companies offer their cardholders more protection against <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> than is available to debit cardholders.<span class="ql-inline-citation" data-cite="7"></span> This alone is a strong vote in favor of using your credit card at the gas pump. Additionally, avoiding identity theft protection isn’t the only benefit. Some credit cards <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/kroger-rewards-world-mastercard-review-4843573">offer rewards</a> in the form of airline miles, hotel points, or cash-back incentives. </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 key is to use your credit card like a debit card and only charge what you can pay at the end of the month. You don’t want to be charged an extra 20% in interest to put gas in your car, but if you can’t pay off your balance each month, then you will incur interest at 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</a> (APR) associated with your card.<span class="ql-inline-citation" data-cite="6"></span> In the case of people who have problems controlling their spending, debit card purchases are a clear choice. </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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>No matter what the reward, the key is that you’re gaining something in exchange for using a credit card.</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_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"> Think about the many stories you’ve heard about data breaches and consumer fraud, then consider that gas stations are on the front line of this trend. The gas pump is one of the easiest places for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0512/the-most-common-types-of-consumer-fraud.aspx">fraudulent activity to occur</a> against anyone using a card. </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"> Debit and credit cards both have consumer protections that leave you free of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liability.asp">liability</a> for most transactions. However, you get a little less protection with a debit card if you don’t notice the fraudulent charges within two days. You could be on the hook for as much as $500 if you report the problem from three to 60 days after the transaction.<span class="ql-inline-citation" data-cite="8"></span> Credit cards set your maximum liability at $50, and many advertise <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/z/zero-liability-policy.asp">zero liability</a>.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-top-credit-cards-for-purchasing-gas"></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"> Top Credit Cards for Purchasing Gas </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> In addition to some of the rewards you can earn by using a credit card at the pump, there are a few particular cards that offer bonus points on gas purchases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-subheading__text"> American Express Blue Cash Preferred Card </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/012715/how-american-express-makes-its-money.asp">American Express</a> Blue Cash Preferred Card provides cash rewards. If you're a new cardholder, you can benefit from: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <li>0% intro APR for the first 12 months</li><li>N fees on Buy Now, Pay Later plans (which allows you to break up large purchases into smaller, equal payments) for the first 12 months</li><li>$300 in cash in the form of a statement credit when you spend $3,000 on the card within the first six months<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_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> After the intro <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/offer.asp">offer</a>, you'll earn 6% on groceries, 6% on streaming services, and 3% on transit (taxis, ridesharing, and tolls among others).<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> The card has a $95 annual fee. Part of the welcome bonus for this card includes waiving the annual fee as well as an introductory APR of 0% for the first year.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-subheading__text"> Bank of America Customized Cash Rewards Credit Card </span> </h3> <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/bank-of-america-bank-review-5069877">Bank of America's</a> Customized Cash Rewards Credit Card is another cashback option. As the name implies, you can customize how the card pays you your rewards so you can earn 3% in the category of your choosing, including gas, online shopping, and home improvement. Bank of America pays you 2% when you use the card at grocery stores and wholesale clubs (like <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-costco-makes-money-5094774">Costco</a>) and 1% on all other purchases.<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_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> New cardholders can earn $200 if they make $1,000 or more in purchases within the first 90 days of opening the card. There's also a 0% intro APR offer for the first 15 months after which the APR ranges becomes 13.99% to 23.99%. And there's no <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0711/credit-cards-should-you-ever-pay-an-annual-fee.aspx">annual fee</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_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"> Citi Premier Card </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> If you’re a frequent traveler who believes that earning travel rewards is essential, then consider using the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/031815/how-citigroup-makes-its-money.asp">Citi</a> Premier Card for gas purchases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> In addition to earning 60,000 bonus points after you spend $4,000 in the first three months of usage (redeemable for $600 in gift cards), you can earn three points for every dollar you spend on any travel purchase, which includes not only gas but also airfare, restaurants, hotels, and more.<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_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> The card has a $95 annual fee and it offers a variable APR, which ranges between 15.99% and 23.99%.<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_52-0"></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"> PenFed Platinum Rewards Visa Signature Card </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/penfed-credit-union-review-5070277">PenFed</a> Platinum Rewards Visa Signature Card requires you to become a PenFed <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditunion.asp">Credit Union</a> member but has no annual fee and offers a variable APR based on your credit rating of 3.49% to 17.99%.<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_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> New cardholders can take advantage of the intro offer of 0% for balance transfers for the first 12 months and a welcome offer of 15,000 bonus points when you spend $1,500 in the first 90 days of opening your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/account.asp">account</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_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> You can also earn five points for every $1 you spend at gas and electric vehicle charging stations and three points for every dollar you spend at grocery stores, including most Walmart and Target locations, restaurants, and streaming services.<span class="ql-inline-citation" data-cite="4"></span> </p></div>	## Paying for Gas With Debit Card vs. Credit Card: An Overview Which should you use for everyday purchases, [a debit or a credit card](https://www.investopedia.com/articles/personal-finance/050214/credit-vs-debit-cards-which-better.asp)? You may not think that there is much of a difference between these two options but a closer examination reveals there are a number of advantages to using a credit card, especially when you're filling up your tank at the gas pump. Not only does using credit provide a greater sense of security from possible [fraud](https://www.investopedia.com/terms/f/fraud.asp), but most credit card companies also offer cardholders some sort of reward for using their cards for gas. ### Key Takeaways * Debit cards allow you to pay for your gas immediately without any interest charges. * A credit card offers additional protection at the pump because the funds are not immediately withdrawn from your account. * Some gas stations provide you with the cash rate when you use your debit card but there are others that treat debit card purchases in the same manner as credit cards by charging a premium. * Using a debit card for gas is risky, as credit thieves favor gas stations and might be able to access your account with your PIN by using a device called a skimmer. * Aside from additional protection, credit cards may offer you rewards whenever you pay at the pump. ## Using a Debit Card at Gas Stations Using a [debit card](https://www.investopedia.com/terms/d/debitcard.asp) to pay for gas may seem like the better option. That's because you don't have to worry about not paying for your gas later. Since you're using a debit card, the money generally comes out of your account immediately. This allows you to avoid paying heavy interest charges. And to top it all off, you can certainly avoid overspending because you can only spend the amount of money available in your bank account. Some stations offer tiered pricing—one for cash and one for credit. In most cases, you'll get the cash rate if you use your debit card. These retailers generally charge their customers less (sometimes as much as a dime) if they pay for their gas with cash or a debit card. But to avoid any confusion, be sure to ask the attendant before you use your card to fill up. But there are drawbacks to being able to access your money instantaneously when you're at the pump. Gas stations aren't immune to [data breaches](https://www.investopedia.com/terms/d/data-breach.asp), resulting in millions of stolen debit card numbers and account information. Federal regulations treat debit cards differently than credit cards and your liability is based on how quickly you report your being compromised. This could be $500 or more. ### While it may be more convenient to pay at the pump, the best way to avoid debit and credit card fraud may be to pay for your gas inside the gas station. ## Using a Credit Card at Gas Stations [Credit cards](https://www.investopedia.com/terms/c/creditcard.asp) allow you to purchase fuel (or other goods and services at gas stations) without having to worry about having to part ways with your money right away. This is true as long as you have the available balance on your credit line. [Using a credit card](https://www.investopedia.com/articles/pf/10/credit-card-debit-card.asp) gives you as many as 25 days until the balance is due. And you'll avoid interest charges if you pay off your balance every month. If you don't, you will incur interest and other fees (late fees if you don't pay on time), which can make that fill-up even more expensive. Many credit card companies offer their cardholders more protection against [identity theft](https://www.investopedia.com/terms/i/identitytheft.asp) than is available to debit cardholders. This alone is a strong vote in favor of using your credit card at the gas pump. Additionally, avoiding identity theft protection isn’t the only benefit. Some credit cards [offer rewards](https://www.investopedia.com/kroger-rewards-world-mastercard-review-4843573) in the form of airline miles, hotel points, or cash-back incentives. The key is to use your credit card like a debit card and only charge what you can pay at the end of the month. You don’t want to be charged an extra 20% in interest to put gas in your car, but if you can’t pay off your balance each month, then you will incur interest at the [annual percentage rate](https://www.investopedia.com/terms/a/apr.asp) (APR) associated with your card. In the case of people who have problems controlling their spending, debit card purchases are a clear choice. ### No matter what the reward, the key is that you’re gaining something in exchange for using a credit card. ## Special Considerations Think about the many stories you’ve heard about data breaches and consumer fraud, then consider that gas stations are on the front line of this trend. The gas pump is one of the easiest places for [fraudulent activity to occur](https://www.investopedia.com/financial-edge/0512/the-most-common-types-of-consumer-fraud.aspx) against anyone using a card. Debit and credit cards both have consumer protections that leave you free of [liability](https://www.investopedia.com/terms/l/liability.asp) for most transactions. However, you get a little less protection with a debit card if you don’t notice the fraudulent charges within two days. You could be on the hook for as much as $500 if you report the problem from three to 60 days after the transaction. Credit cards set your maximum liability at $50, and many advertise [zero liability](https://www.investopedia.com/terms/z/zero-liability-policy.asp). ## Top Credit Cards for Purchasing Gas In addition to some of the rewards you can earn by using a credit card at the pump, there are a few particular cards that offer bonus points on gas purchases. ### American Express Blue Cash Preferred Card The [American Express](https://www.investopedia.com/articles/markets/012715/how-american-express-makes-its-money.asp) Blue Cash Preferred Card provides cash rewards. If you're a new cardholder, you can benefit from: * 0% intro APR for the first 12 months * N fees on Buy Now, Pay Later plans (which allows you to break up large purchases into smaller, equal payments) for the first 12 months * $300 in cash in the form of a statement credit when you spend $3,000 on the card within the first six months After the intro [offer](https://www.investopedia.com/terms/o/offer.asp), you'll earn 6% on groceries, 6% on streaming services, and 3% on transit (taxis, ridesharing, and tolls among others). The card has a $95 annual fee. Part of the welcome bonus for this card includes waiving the annual fee as well as an introductory APR of 0% for the first year. ### Bank of America Customized Cash Rewards Credit Card [Bank of America's](https://www.investopedia.com/bank-of-america-bank-review-5069877) Customized Cash Rewards Credit Card is another cashback option. As the name implies, you can customize how the card pays you your rewards so you can earn 3% in the category of your choosing, including gas, online shopping, and home improvement. Bank of America pays you 2% when you use the card at grocery stores and wholesale clubs (like [Costco](https://www.investopedia.com/how-costco-makes-money-5094774)) and 1% on all other purchases. New cardholders can earn $200 if they make $1,000 or more in purchases within the first 90 days of opening the card. There's also a 0% intro APR offer for the first 15 months after which the APR ranges becomes 13.99% to 23.99%. And there's no [annual fee](https://www.investopedia.com/financial-edge/0711/credit-cards-should-you-ever-pay-an-annual-fee.aspx). ### Citi Premier Card If you’re a frequent traveler who believes that earning travel rewards is essential, then consider using the [Citi](https://www.investopedia.com/articles/markets/031815/how-citigroup-makes-its-money.asp) Premier Card for gas purchases. In addition to earning 60,000 bonus points after you spend $4,000 in the first three months of usage (redeemable for $600 in gift cards), you can earn three points for every dollar you spend on any travel purchase, which includes not only gas but also airfare, restaurants, hotels, and more. The card has a $95 annual fee and it offers a variable APR, which ranges between 15.99% and 23.99%. ### PenFed Platinum Rewards Visa Signature Card The [PenFed](https://www.investopedia.com/penfed-credit-union-review-5070277) Platinum Rewards Visa Signature Card requires you to become a PenFed [Credit Union](https://www.investopedia.com/terms/c/creditunion.asp) member but has no annual fee and offers a variable APR based on your credit rating of 3.49% to 17.99%. New cardholders can take advantage of the intro offer of 0% for balance transfers for the first 12 months and a welcome offer of 15,000 bonus points when you spend $1,500 in the first 90 days of opening your [account](https://www.investopedia.com/terms/a/account.asp). You can also earn five points for every $1 you spend at gas and electric vehicle charging stations and three points for every dollar you spend at grocery stores, including most Walmart and Target locations, restaurants, and streaming services.	Paying for Gas With Debit Card vs. Credit Card: An Overview Which should you use for everyday purchases, a debit or a credit card? You may not think that there is much of a difference between these two options but a closer examination reveals there are a number of advantages to using a credit card, especially when you're filling up your tank at the gas pump. Not only does using credit provide a greater sense of security from possible fraud, but most credit card companies also offer cardholders some sort of reward for using their cards for gas. Key Takeaways Debit cards allow you to pay for your gas immediately without any interest charges.A credit card offers additional protection at the pump because the funds are not immediately withdrawn from your account.Some gas stations provide you with the cash rate when you use your debit card but there are others that treat debit card purchases in the same manner as credit cards by charging a premium.Using a debit card for gas is risky, as credit thieves favor gas stations and might be able to access your account with your PIN by using a device called a skimmer.Aside from additional protection, credit cards may offer you rewards whenever you pay at the pump. Using a Debit Card at Gas Stations Using a debit card to pay for gas may seem like the better option. That's because you don't have to worry about not paying for your gas later. Since you're using a debit card, the money generally comes out of your account immediately. This allows you to avoid paying heavy interest charges. And to top it all off, you can certainly avoid overspending because you can only spend the amount of money available in your bank account. Some stations offer tiered pricing—one for cash and one for credit. In most cases, you'll get the cash rate if you use your debit card. These retailers generally charge their customers less (sometimes as much as a dime) if they pay for their gas with cash or a debit card. But to avoid any confusion, be sure to ask the attendant before you use your card to fill up. But there are drawbacks to being able to access your money instantaneously when you're at the pump. Gas stations aren't immune to data breaches, resulting in millions of stolen debit card numbers and account information. Federal regulations treat debit cards differently than credit cards and your liability is based on how quickly you report your being compromised. This could be $500 or more. While it may be more convenient to pay at the pump, the best way to avoid debit and credit card fraud may be to pay for your gas inside the gas station. Using a Credit Card at Gas Stations Credit cards allow you to purchase fuel (or other goods and services at gas stations) without having to worry about having to part ways with your money right away. This is true as long as you have the available balance on your credit line. Using a credit card gives you as many as 25 days until the balance is due. And you'll avoid interest charges if you pay off your balance every month. If you don't, you will incur interest and other fees (late fees if you don't pay on time), which can make that fill-up even more expensive. Many credit card companies offer their cardholders more protection against identity theft than is available to debit cardholders. This alone is a strong vote in favor of using your credit card at the gas pump. Additionally, avoiding identity theft protection isn’t the only benefit. Some credit cards offer rewards in the form of airline miles, hotel points, or cash-back incentives. The key is to use your credit card like a debit card and only charge what you can pay at the end of the month. You don’t want to be charged an extra 20% in interest to put gas in your car, but if you can’t pay off your balance each month, then you will incur interest at the annual percentage rate (APR) associated with your card. In the case of people who have problems controlling their spending, debit card purchases are a clear choice. No matter what the reward, the key is that you’re gaining something in exchange for using a credit card. Special Considerations Think about the many stories you’ve heard about data breaches and consumer fraud, then consider that gas stations are on the front line of this trend. The gas pump is one of the easiest places for fraudulent activity to occur against anyone using a card. Debit and credit cards both have consumer protections that leave you free of liability for most transactions. However, you get a little less protection with a debit card if you don’t notice the fraudulent charges within two days. You could be on the hook for as much as $500 if you report the problem from three to 60 days after the transaction. Credit cards set your maximum liability at $50, and many advertise zero liability. Top Credit Cards for Purchasing Gas In addition to some of the rewards you can earn by using a credit card at the pump, there are a few particular cards that offer bonus points on gas purchases. American Express Blue Cash Preferred Card The American Express Blue Cash Preferred Card provides cash rewards. If you're a new cardholder, you can benefit from: 0% intro APR for the first 12 monthsN fees on Buy Now, Pay Later plans (which allows you to break up large purchases into smaller, equal payments) for the first 12 months$300 in cash in the form of a statement credit when you spend $3,000 on the card within the first six months After the intro offer, you'll earn 6% on groceries, 6% on streaming services, and 3% on transit (taxis, ridesharing, and tolls among others). The card has a $95 annual fee. Part of the welcome bonus for this card includes waiving the annual fee as well as an introductory APR of 0% for the first year. Bank of America Customized Cash Rewards Credit Card Bank of America's Customized Cash Rewards Credit Card is another cashback option. As the name implies, you can customize how the card pays you your rewards so you can earn 3% in the category of your choosing, including gas, online shopping, and home improvement. Bank of America pays you 2% when you use the card at grocery stores and wholesale clubs (like Costco) and 1% on all other purchases. New cardholders can earn $200 if they make $1,000 or more in purchases within the first 90 days of opening the card. There's also a 0% intro APR offer for the first 15 months after which the APR ranges becomes 13.99% to 23.99%. And there's no annual fee. Citi Premier Card If you’re a frequent traveler who believes that earning travel rewards is essential, then consider using the Citi Premier Card for gas purchases. In addition to earning 60,000 bonus points after you spend $4,000 in the first three months of usage (redeemable for $600 in gift cards), you can earn three points for every dollar you spend on any travel purchase, which includes not only gas but also airfare, restaurants, hotels, and more. The card has a $95 annual fee and it offers a variable APR, which ranges between 15.99% and 23.99%. PenFed Platinum Rewards Visa Signature Card The PenFed Platinum Rewards Visa Signature Card requires you to become a PenFed Credit Union member but has no annual fee and offers a variable APR based on your credit rating of 3.49% to 17.99%. New cardholders can take advantage of the intro offer of 0% for balance transfers for the first 12 months and a welcome offer of 15,000 bonus points when you spend $1,500 in the first 90 days of opening your account. You can also earn five points for every $1 you spend at gas and electric vehicle charging stations and three points for every dollar you spend at grocery stores, including most Walmart and Target locations, restaurants, and streaming services.	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https://www.investopedia.com/tech/what-cryptocurrency-public-ledger/	What Is a Cryptocurrency Public Ledger, 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-cryptocurrency-public-ledger"></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 Cryptocurrency Public Ledger? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A public ledger derives its name from the age-old record-keeping system used to record information, such as agricultural <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodity.asp" rel="noopener noreferrer">commodity</a> prices, news, and analysis. The public ledger was available for general public viewing as well as for verification. As <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp" rel="noopener noreferrer">cryptocurrency</a>-based blockchain systems emerged, which rely on a similar record-keeping and public verification mechanism, the use of the public ledger gained popularity in the world of cryptocurrency. This article explores cryptocurrency public ledgers, how they work, and the challenges they face. </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 cryptocurrency public ledger is a record-keeping system</li><li>The ledger maintains participants’ identities anonymously, their respective cryptocurrency balances, and a record of all the genuine transactions executed between network participants.</li><li>Scaling and security concerns are one challenge for cryptocurrency public ledgers and transactions. </li></ul></div></div></div> <span class="heading-toc" id="toc-how-cryptocurrency-public-ledgers-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 Cryptocurrency Public Ledgers Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A cryptocurrency is an encrypted, decentralized <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/digital-currency.asp" rel="noopener noreferrer">digital currency</a> that facilitates the exchange of value by transfer of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crypto-token.asp" rel="noopener noreferrer">cryptotokens</a> between network participants. The public ledger is used as a record-keeping system that maintains participants’ identities in secure and (pseudo-)anonymous form, their respective cryptocurrency balances, and a record book of all the genuine transactions executed between network 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"> To draw a parallel, think about writing a check to a friend, or making an online transfer to their bank account for $200. In both cases, the details of the transaction will be updated in the bank's records—the sender’s account is debited by $200 while the receiver’s account is credited by the same amount. The bank’s accounting systems maintain the record of balances and ensure that the sender’s account has sufficient funds; otherwise, the check bounces or the online transfer will not be allowed. If the sender has only $200 in their account, and they issue two $100 checks, the order in which the checks are presented determines who will receive the money and whose check will bounce. </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"> Verifying Transaction Details </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The transaction's details in the bank's records can be queried and verified by the two parties between whom the transaction took place. Additionally, the bank record is accessible only by the designated bank officials and the concerned (central) authorities like the tax department or the government on a need basis. No one else can have access to those details. </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"> Public ledgers work the same way as bank records, although with a few differences. </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"> Similar to the bank records, the transaction details on a cryptocurrency public ledger can be verified and queried by the two transacting participants. However, no central authority or network participants can know the identity of the participants. Transactions are allowed and recorded only after suitable verification of the sender’s liquidity; otherwise, they are discarded. </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"> Since no central authority controls or maintains the ledger records, how is fairness regulated on cryptocurrency ledgers? </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"> Cryptocurrency Transactions on the Public Ledger </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Physically, a public ledger can be viewed as a data management or storage system similar to a database system of bank records. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp" rel="noopener noreferrer">blockchain</a> is a form of public ledger, which is a series (or chain) of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/block-bitcoin-block.asp" rel="noopener noreferrer">blocks</a> on which transaction details are recorded after suitable authentication and verification by the designated network participants. </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 recording and storage of all confirmed transactions on such public ledgers begin at the creation and start of a cryptocurrency. As a block is filled to capacity with transaction details, new ones are mined and added to the blockchain by the network participants called miners. </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"> Select network participants, often called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/running-full-bitcoin-node-investors/" rel="noopener noreferrer">full nodes</a>, maintain a copy of the whole ledger on their devices that are connected to the cryptocurrency network. Depending on the participants’ interest and their spread across the globe, the public ledger is distributed as participants connect and contribute to the blockchain network activities keeping it agile and functional. </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"> Since hundreds and thousands of participants maintain a copy of the ledger, they are aware of the true state of the network in terms of who holds cryptotokens, how many tokens are held, whether transactions are authentic and recorded to prevent any misuse like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/doublespending.asp" rel="noopener noreferrer">double spending</a>. A combination of the various intrinsic features of the public ledger, such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consensus-mechanism-cryptocurrency.asp" rel="noopener noreferrer">consensus algorithms</a>, encryption, and reward mechanisms, ensure that the participants’ identities are protected, and only genuine transactions are conducted on the network. </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"> Another Example </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> To complete a transaction, for example, if Alice wants to send one bitcoin to Bob, she only needs to broadcast the encrypted account numbers (wallet addresses) for herself and Bob and the transaction amount of one bitcoin. Even the amount can be obfuscated, depending upon the network configuration. An internal digital signature mechanism ensures that only the person with the necessary cryptocoins is conduct transactions from their wallets or accounts. </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"> All full nodes on the network see this transaction broadcast, verify it for authenticity, and can update the public ledger records on the various nodes that form the part of the blockchain cryptocurrency network. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-subheading__text"> Risks of Public Ledger-Based Cryptocurrencies </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Despite the advantages of public ledgers, there has been rising concern over their use for cryptocurrencies. </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"> For instance, the blockchain's working mechanism mandates the recording of every single transaction that has ever occurred on the network. Balancing the maintenance of this long-running detailed history while scaling capacity to process the growing number of transactions is a challenge. </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"> Similarly, there are concerns that maintaining a public ledger that records every transaction in perpetuity would also allow hackers, governments, and security agencies to track public records as well as network participants. This would put the anonymity and privacy of the blockchain participants at risk, the most important aspects of cryptocurrency use. </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"> In fact, American security agency <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/nsa-worked-track-down-bitcoin-users-snowden-papers-reveal/" rel="noopener noreferrer">NSA</a> is already accused of attempting to track down bitcoin users. Additionally, any public ledger-based cryptocurrency is always vulnerable to hacking attempts, stealing of cryptocoins, and network clogging by hackers. </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"> As a data storage container, the public ledger forms the backbone of a cryptocurrency by storing information after verification. While its use is being widely adopted, configuring the public ledger with the right parameters is important to maintain decentralized and anonymous features for hassle-free transactions in cryptocurrencies. </p></div>	## What Is a Cryptocurrency Public Ledger? A public ledger derives its name from the age-old record-keeping system used to record information, such as agricultural [commodity](https://www.investopedia.com/terms/c/commodity.asp) prices, news, and analysis. The public ledger was available for general public viewing as well as for verification. As [cryptocurrency](https://www.investopedia.com/terms/c/cryptocurrency.asp)-based blockchain systems emerged, which rely on a similar record-keeping and public verification mechanism, the use of the public ledger gained popularity in the world of cryptocurrency. This article explores cryptocurrency public ledgers, how they work, and the challenges they face. ### Key Takeaways: * A cryptocurrency public ledger is a record-keeping system * The ledger maintains participants’ identities anonymously, their respective cryptocurrency balances, and a record of all the genuine transactions executed between network participants. * Scaling and security concerns are one challenge for cryptocurrency public ledgers and transactions. ## How Cryptocurrency Public Ledgers Work A cryptocurrency is an encrypted, decentralized [digital currency](https://www.investopedia.com/terms/d/digital-currency.asp) that facilitates the exchange of value by transfer of [cryptotokens](https://www.investopedia.com/terms/c/crypto-token.asp) between network participants. The public ledger is used as a record-keeping system that maintains participants’ identities in secure and (pseudo-)anonymous form, their respective cryptocurrency balances, and a record book of all the genuine transactions executed between network participants. To draw a parallel, think about writing a check to a friend, or making an online transfer to their bank account for $200. In both cases, the details of the transaction will be updated in the bank's records—the sender’s account is debited by $200 while the receiver’s account is credited by the same amount. The bank’s accounting systems maintain the record of balances and ensure that the sender’s account has sufficient funds; otherwise, the check bounces or the online transfer will not be allowed. If the sender has only $200 in their account, and they issue two $100 checks, the order in which the checks are presented determines who will receive the money and whose check will bounce. ### Verifying Transaction Details The transaction's details in the bank's records can be queried and verified by the two parties between whom the transaction took place. Additionally, the bank record is accessible only by the designated bank officials and the concerned (central) authorities like the tax department or the government on a need basis. No one else can have access to those details. Public ledgers work the same way as bank records, although with a few differences. Similar to the bank records, the transaction details on a cryptocurrency public ledger can be verified and queried by the two transacting participants. However, no central authority or network participants can know the identity of the participants. Transactions are allowed and recorded only after suitable verification of the sender’s liquidity; otherwise, they are discarded. Since no central authority controls or maintains the ledger records, how is fairness regulated on cryptocurrency ledgers? ### Cryptocurrency Transactions on the Public Ledger Physically, a public ledger can be viewed as a data management or storage system similar to a database system of bank records. A [blockchain](https://www.investopedia.com/terms/b/blockchain.asp) is a form of public ledger, which is a series (or chain) of [blocks](https://www.investopedia.com/terms/b/block-bitcoin-block.asp) on which transaction details are recorded after suitable authentication and verification by the designated network participants. The recording and storage of all confirmed transactions on such public ledgers begin at the creation and start of a cryptocurrency. As a block is filled to capacity with transaction details, new ones are mined and added to the blockchain by the network participants called miners. Select network participants, often called [full nodes](https://www.investopedia.com/news/running-full-bitcoin-node-investors/), maintain a copy of the whole ledger on their devices that are connected to the cryptocurrency network. Depending on the participants’ interest and their spread across the globe, the public ledger is distributed as participants connect and contribute to the blockchain network activities keeping it agile and functional. Since hundreds and thousands of participants maintain a copy of the ledger, they are aware of the true state of the network in terms of who holds cryptotokens, how many tokens are held, whether transactions are authentic and recorded to prevent any misuse like [double spending](https://www.investopedia.com/terms/d/doublespending.asp). A combination of the various intrinsic features of the public ledger, such as [consensus algorithms](https://www.investopedia.com/terms/c/consensus-mechanism-cryptocurrency.asp), encryption, and reward mechanisms, ensure that the participants’ identities are protected, and only genuine transactions are conducted on the network. ### Another Example To complete a transaction, for example, if Alice wants to send one bitcoin to Bob, she only needs to broadcast the encrypted account numbers (wallet addresses) for herself and Bob and the transaction amount of one bitcoin. Even the amount can be obfuscated, depending upon the network configuration. An internal digital signature mechanism ensures that only the person with the necessary cryptocoins is conduct transactions from their wallets or accounts. All full nodes on the network see this transaction broadcast, verify it for authenticity, and can update the public ledger records on the various nodes that form the part of the blockchain cryptocurrency network. ### Risks of Public Ledger-Based Cryptocurrencies Despite the advantages of public ledgers, there has been rising concern over their use for cryptocurrencies. For instance, the blockchain's working mechanism mandates the recording of every single transaction that has ever occurred on the network. Balancing the maintenance of this long-running detailed history while scaling capacity to process the growing number of transactions is a challenge. Similarly, there are concerns that maintaining a public ledger that records every transaction in perpetuity would also allow hackers, governments, and security agencies to track public records as well as network participants. This would put the anonymity and privacy of the blockchain participants at risk, the most important aspects of cryptocurrency use. In fact, American security agency [NSA](https://www.investopedia.com/news/nsa-worked-track-down-bitcoin-users-snowden-papers-reveal/) is already accused of attempting to track down bitcoin users. Additionally, any public ledger-based cryptocurrency is always vulnerable to hacking attempts, stealing of cryptocoins, and network clogging by hackers. ## The Bottom Line As a data storage container, the public ledger forms the backbone of a cryptocurrency by storing information after verification. While its use is being widely adopted, configuring the public ledger with the right parameters is important to maintain decentralized and anonymous features for hassle-free transactions in cryptocurrencies.	What Is a Cryptocurrency Public Ledger? A public ledger derives its name from the age-old record-keeping system used to record information, such as agricultural commodity prices, news, and analysis. The public ledger was available for general public viewing as well as for verification. As cryptocurrency-based blockchain systems emerged, which rely on a similar record-keeping and public verification mechanism, the use of the public ledger gained popularity in the world of cryptocurrency. This article explores cryptocurrency public ledgers, how they work, and the challenges they face. Key Takeaways: A cryptocurrency public ledger is a record-keeping systemThe ledger maintains participants’ identities anonymously, their respective cryptocurrency balances, and a record of all the genuine transactions executed between network participants.Scaling and security concerns are one challenge for cryptocurrency public ledgers and transactions. How Cryptocurrency Public Ledgers Work A cryptocurrency is an encrypted, decentralized digital currency that facilitates the exchange of value by transfer of cryptotokens between network participants. The public ledger is used as a record-keeping system that maintains participants’ identities in secure and (pseudo-)anonymous form, their respective cryptocurrency balances, and a record book of all the genuine transactions executed between network participants. To draw a parallel, think about writing a check to a friend, or making an online transfer to their bank account for $200. In both cases, the details of the transaction will be updated in the bank's records—the sender’s account is debited by $200 while the receiver’s account is credited by the same amount. The bank’s accounting systems maintain the record of balances and ensure that the sender’s account has sufficient funds; otherwise, the check bounces or the online transfer will not be allowed. If the sender has only $200 in their account, and they issue two $100 checks, the order in which the checks are presented determines who will receive the money and whose check will bounce. Verifying Transaction Details The transaction's details in the bank's records can be queried and verified by the two parties between whom the transaction took place. Additionally, the bank record is accessible only by the designated bank officials and the concerned (central) authorities like the tax department or the government on a need basis. No one else can have access to those details. Public ledgers work the same way as bank records, although with a few differences. Similar to the bank records, the transaction details on a cryptocurrency public ledger can be verified and queried by the two transacting participants. However, no central authority or network participants can know the identity of the participants. Transactions are allowed and recorded only after suitable verification of the sender’s liquidity; otherwise, they are discarded. Since no central authority controls or maintains the ledger records, how is fairness regulated on cryptocurrency ledgers? Cryptocurrency Transactions on the Public Ledger Physically, a public ledger can be viewed as a data management or storage system similar to a database system of bank records. A blockchain is a form of public ledger, which is a series (or chain) of blocks on which transaction details are recorded after suitable authentication and verification by the designated network participants. The recording and storage of all confirmed transactions on such public ledgers begin at the creation and start of a cryptocurrency. As a block is filled to capacity with transaction details, new ones are mined and added to the blockchain by the network participants called miners. Select network participants, often called full nodes, maintain a copy of the whole ledger on their devices that are connected to the cryptocurrency network. Depending on the participants’ interest and their spread across the globe, the public ledger is distributed as participants connect and contribute to the blockchain network activities keeping it agile and functional. Since hundreds and thousands of participants maintain a copy of the ledger, they are aware of the true state of the network in terms of who holds cryptotokens, how many tokens are held, whether transactions are authentic and recorded to prevent any misuse like double spending. A combination of the various intrinsic features of the public ledger, such as consensus algorithms, encryption, and reward mechanisms, ensure that the participants’ identities are protected, and only genuine transactions are conducted on the network. Another Example To complete a transaction, for example, if Alice wants to send one bitcoin to Bob, she only needs to broadcast the encrypted account numbers (wallet addresses) for herself and Bob and the transaction amount of one bitcoin. Even the amount can be obfuscated, depending upon the network configuration. An internal digital signature mechanism ensures that only the person with the necessary cryptocoins is conduct transactions from their wallets or accounts. All full nodes on the network see this transaction broadcast, verify it for authenticity, and can update the public ledger records on the various nodes that form the part of the blockchain cryptocurrency network. Risks of Public Ledger-Based Cryptocurrencies Despite the advantages of public ledgers, there has been rising concern over their use for cryptocurrencies. For instance, the blockchain's working mechanism mandates the recording of every single transaction that has ever occurred on the network. Balancing the maintenance of this long-running detailed history while scaling capacity to process the growing number of transactions is a challenge. Similarly, there are concerns that maintaining a public ledger that records every transaction in perpetuity would also allow hackers, governments, and security agencies to track public records as well as network participants. This would put the anonymity and privacy of the blockchain participants at risk, the most important aspects of cryptocurrency use. In fact, American security agency NSA is already accused of attempting to track down bitcoin users. Additionally, any public ledger-based cryptocurrency is always vulnerable to hacking attempts, stealing of cryptocoins, and network clogging by hackers. The Bottom Line As a data storage container, the public ledger forms the backbone of a cryptocurrency by storing information after verification. While its use is being widely adopted, configuring the public ledger with the right parameters is important to maintain decentralized and anonymous features for hassle-free transactions in cryptocurrencies.	[ [ "commodity", "https://www.investopedia.com/terms/c/commodity.asp" ], [ "cryptocurrency", "https://www.investopedia.com/terms/c/cryptocurrency.asp" ], [ "digital currency", "https://www.investopedia.com/terms/d/digital-currency.asp" ], [ "cryptotokens", "https://www.investopedia.com/terms/c/crypto-token.asp" ], [ "blockchain", "https://www.investopedia.com/terms/b/blockchain.asp" ], [ "blocks", "https://www.investopedia.com/terms/b/block-bitcoin-block.asp" ], [ "full nodes", "https://www.investopedia.com/news/running-full-bitcoin-node-investors/" ], [ "double spending", "https://www.investopedia.com/terms/d/doublespending.asp" ], [ "consensus algorithms", "https://www.investopedia.com/terms/c/consensus-mechanism-cryptocurrency.asp" ], [ "NSA", "https://www.investopedia.com/news/nsa-worked-track-down-bitcoin-users-snowden-papers-reveal/" ] ]
https://www.investopedia.com/terms/s/spotmarket.asp	Spot Market: Definition, How They Work, and Example	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-spot-market"></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 Spot Market? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The spot market is where financial instruments, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodity.asp">commodities</a>, currencies, and securities, are traded for immediate delivery. Delivery is the exchange of cash for the financial instrument. A <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futurescontract.asp">futures contract</a>, on the other hand, is based on the delivery of the underlying asset at a future date. </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"> Exchanges and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/otc.asp">over-the-counter</a> (OTC) markets may provide spot trading and/or futures trading. </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>Financial instruments trade for immediate delivery in the spot market.</li><li>Many assets quote a “spot price” and a “futures or forward price.”</li><li>Most spot market transactions have a T+2 settlement date.</li><li>Spot market transactions can take place on an exchange or over-the-counter (OTC).</li><li>Spot markets can be contrasted with derivatives markets that instead trade in forwards, futures, or options contracts.</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:67.5%;"> <img alt="Spot Market" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/9MfKrlXIMlkJFYjyIBJybE6C6lY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/spot-market.asp-Final-8b4aed7f0eb74fbd8f1991293c5b66f8.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/9MfKrlXIMlkJFYjyIBJybE6C6lY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/spot-market.asp-Final-8b4aed7f0eb74fbd8f1991293c5b66f8.jpg" data-srcset="https://www.investopedia.com/thmb/U3DUt_HKOVK_DdNe38Jz4mPtcOI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/spot-market.asp-Final-8b4aed7f0eb74fbd8f1991293c5b66f8.jpg 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Spot Market" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/9MfKrlXIMlkJFYjyIBJybE6C6lY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/spot-market.asp-Final-8b4aed7f0eb74fbd8f1991293c5b66f8.jpg" srcset="https://www.investopedia.com/thmb/U3DUt_HKOVK_DdNe38Jz4mPtcOI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/spot-market.asp-Final-8b4aed7f0eb74fbd8f1991293c5b66f8.jpg 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Yurle Villegas</p></span> </figcaption></figure> <span class="heading-toc" id="toc-how-spot-markets-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> How Spot Markets Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Spot markets are also referred to as “physical markets” or “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashmarket.asp">cash markets</a>” because trades are swapped for the asset effectively immediately. While the official transfer of funds between the buyer and seller may take time, such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tplus1.asp">T+2</a> in the stock market and in most currency transactions, both parties agree to the trade “right now.” A non-spot, or futures transaction, is agreeing to a price now, but delivery and transfer of funds will take place at a later date. </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"> Futures trades in contracts that are about to expire are also sometimes called spot trades since the expiring contract means that the buyer and seller will be exchanging cash for the underlying asset immediately. </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-spot-price"></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"> Spot Price </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The current price of a financial instrument is called the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spotprice.asp">spot price</a>. It is the price at which an instrument can be sold or bought immediately. Buyers and sellers create the spot price by posting their buy and sell orders. In <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquid</a> markets, the spot price may change by the second or even within milliseconds, as orders get <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fill.asp">filled</a> and new ones enter the marketplace. </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-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_18-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The word "spot" comes from the phrase "on the spot", where in these markets you can purchase an asset on the spot.</p></div></div></div> <span class="heading-toc" id="toc-spot-market-and-exchanges"></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"> Spot Market and Exchanges </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Exchanges bring together <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dealer.asp">dealers</a> and traders who buy and sell commodities, securities, futures, options, and other financial instruments. Based on all the orders provided by participants, the exchange provides the current price and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volume.asp">volume</a> available to traders with access to the exchange. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <li>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nyse.asp">New York Stock Exchange</a> (NYSE) is an example of an exchange where traders buy and sell stocks for immediate delivery. This is a spot market.</li> <li>The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cme.asp">Chicago Mercantile Exchange</a> (CME) is an example of an exchange where traders primarily buy and sell futures contracts. This is a futures market and not a spot market. Although, CME does have some cash markets as well.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-spot-market-and-over-the-counter"></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"> Spot Market and Over-the-Counter </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Trades that occur directly between a buyer and seller are called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/otc.asp">over-the-counter</a> (OTC). A centralized exchange does not facilitate these trades. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/f/foreign-exchange-markets.asp">foreign exchange market</a> (or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/11/why-trade-forex.asp">forex</a> market) is the world's largest OTC market with an average daily turnover of $7.5 trillion as of April 2022.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> In an OTC transaction, the price can be either based on a spot or a future price/date. In an OTC transaction the terms are not necessarily standardized, and therefore, may be subject to the discretion of the buyer and/or seller. As with exchanges, OTC stock transactions are typically spot trades, while futures or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forwardcontract.asp">forward</a> transactions are often not at the spot price unless they are nearing expiration. </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-example-of-a-spot-market"></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"> Example of a Spot Market </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Let’s say an online furniture store in Germany offers a 30% discount to all international customers who pay within five business days after placing an order. </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"> Danielle, who operates an online furniture business in the United States, sees the offer and decides to purchase $10,000 worth of tables from the online store. Since she needs to buy euros for (almost) immediate delivery and is happy with the current EUR/USD <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchangerate.asp">exchange rate</a> of 1.1233, Danielle executes a foreign exchange transaction at the spot price to buy the equivalent of $10,000 in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/euro.asp">euros</a>, which works out to be €8,902.34 ($10,000/1.1233). The spot transaction has a settlement date of T+2, so Danielle receives her euros in two days and settles her account to receive the 30% discount. </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-advantages-and-disadvantages-of-spot-markets"></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"> Advantages and Disadvantages of Spot Markets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The spot price is the current quote for immediate purchase, payment, and delivery of a particular commodity. This means that it is incredibly important since prices in derivatives markets such as for futures and options will be inevitably based on these values. Spot markets also tend to be incredibly liquid and active for this reason. Commodity producers and consumers will engage in the spot market and then hedge in the derivatives market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> A disadvantage of the spot market, however, is taking delivery of the physical commodity. If you buy spot pork bellies, you now own some live hogs. While a meat processing plant may desire this, a speculator probably does not. Another downside is that spot markets cannot be used effectively to hedge against the production or consumption of goods in the future, which is where derivatives markets are better-suited. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_39-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_40-0"> <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>Real-time prices of actual market prices</p></li> <li><p>Active and liquid markets</p></li> <li><p>Can take immediate delivery if desired</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>Must take physical delivery in many cases</p></li> <li><p>Not suited for hedging</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <span class="heading-toc" id="toc-spot-market-faqs"></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"> Spot Market FAQs </span> </h2> <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"> What Does Spot Market Mean? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Spot markets trade commodities or other assets for immediate (or very near-term) delivery. The word "spot" refers to the trade and receipt of the good being made "on the spot". </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"> What Are Examples of Spot Markets? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Many commodities have active spot markets, where physical <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spotcommodity.asp">spot commodities</a> are bought and sold in real-time for cash. Foreign exchange (FX) also has spot currencies markets where the underlying currencies are physically exchanged following the settlement date. Delivery usually occurs within 2 days after execution as it generally takes 2 days to transfer funds between bank accounts. Stock markets can also be thought of as spot markets, with shares of companies changing hands in real-time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-subheading__text"> What Is a Spot and Forward Market? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> A spot market is where spot commodities or other assets like currencies are traded for immediate delivery for cash. Forward and futures markets instead involve the trading of contracts where the purchase is to be completed at a later date (read on to the following question for more on this). </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"> What Is the Difference Between Spot Markets and Futures Markets? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Forwards and futures are derivatives contracts that use the spot market as the underlying asset. These are contracts that give the owner control of the underlying at some point in the future, for a price agreed upon today. Only <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/understanding-futures-contract-expiration-7972595">when the contracts expire</a> would physical delivery of the commodity or other asset take place, and often traders will <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/073015/how-do-futures-contracts-roll-over.asp">roll over</a> or close out their contracts in order to avoid making or taking delivery altogether. Forwards and futures are generically the same, except that forwards are customizable and trade over-the-counter (OTC), whereas futures are standardized and traded on exchanges. </p></div>	## What Is a Spot Market? The spot market is where financial instruments, such as [commodities](https://www.investopedia.com/terms/c/commodity.asp), currencies, and securities, are traded for immediate delivery. Delivery is the exchange of cash for the financial instrument. A [futures contract](https://www.investopedia.com/terms/f/futurescontract.asp), on the other hand, is based on the delivery of the underlying asset at a future date. Exchanges and [over-the-counter](https://www.investopedia.com/terms/o/otc.asp) (OTC) markets may provide spot trading and/or futures trading. ### Key Takeaways * Financial instruments trade for immediate delivery in the spot market. * Many assets quote a “spot price” and a “futures or forward price.” * Most spot market transactions have a T+2 settlement date. * Spot market transactions can take place on an exchange or over-the-counter (OTC). * Spot markets can be contrasted with derivatives markets that instead trade in forwards, futures, or options contracts. ![Spot Market]() ![Spot Market](https://www.investopedia.com/thmb/9MfKrlXIMlkJFYjyIBJybE6C6lY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/spot-market.asp-Final-8b4aed7f0eb74fbd8f1991293c5b66f8.jpg) Investopedia / Yurle Villegas ## How Spot Markets Work Spot markets are also referred to as “physical markets” or “[cash markets](https://www.investopedia.com/terms/c/cashmarket.asp)” because trades are swapped for the asset effectively immediately. While the official transfer of funds between the buyer and seller may take time, such as [T+2](https://www.investopedia.com/terms/t/tplus1.asp) in the stock market and in most currency transactions, both parties agree to the trade “right now.” A non-spot, or futures transaction, is agreeing to a price now, but delivery and transfer of funds will take place at a later date. Futures trades in contracts that are about to expire are also sometimes called spot trades since the expiring contract means that the buyer and seller will be exchanging cash for the underlying asset immediately. ## Spot Price The current price of a financial instrument is called the [spot price](https://www.investopedia.com/terms/s/spotprice.asp). It is the price at which an instrument can be sold or bought immediately. Buyers and sellers create the spot price by posting their buy and sell orders. In [liquid](https://www.investopedia.com/terms/l/liquidity.asp) markets, the spot price may change by the second or even within milliseconds, as orders get [filled](https://www.investopedia.com/terms/f/fill.asp) and new ones enter the marketplace. ### The word "spot" comes from the phrase "on the spot", where in these markets you can purchase an asset on the spot. ## Spot Market and Exchanges Exchanges bring together [dealers](https://www.investopedia.com/terms/d/dealer.asp) and traders who buy and sell commodities, securities, futures, options, and other financial instruments. Based on all the orders provided by participants, the exchange provides the current price and [volume](https://www.investopedia.com/terms/v/volume.asp) available to traders with access to the exchange. * The [New York Stock Exchange](https://www.investopedia.com/terms/n/nyse.asp) (NYSE) is an example of an exchange where traders buy and sell stocks for immediate delivery. This is a spot market. * The [Chicago Mercantile Exchange](https://www.investopedia.com/terms/c/cme.asp) (CME) is an example of an exchange where traders primarily buy and sell futures contracts. This is a futures market and not a spot market. Although, CME does have some cash markets as well. ## Spot Market and Over-the-Counter Trades that occur directly between a buyer and seller are called [over-the-counter](https://www.investopedia.com/terms/o/otc.asp) (OTC). A centralized exchange does not facilitate these trades. The [foreign exchange market](https://www.investopedia.com/terms/forex/f/foreign-exchange-markets.asp) (or [forex](https://www.investopedia.com/articles/forex/11/why-trade-forex.asp) market) is the world's largest OTC market with an average daily turnover of $7.5 trillion as of April 2022. In an OTC transaction, the price can be either based on a spot or a future price/date. In an OTC transaction the terms are not necessarily standardized, and therefore, may be subject to the discretion of the buyer and/or seller. As with exchanges, OTC stock transactions are typically spot trades, while futures or [forward](https://www.investopedia.com/terms/f/forwardcontract.asp) transactions are often not at the spot price unless they are nearing expiration. ## Example of a Spot Market Let’s say an online furniture store in Germany offers a 30% discount to all international customers who pay within five business days after placing an order. Danielle, who operates an online furniture business in the United States, sees the offer and decides to purchase $10,000 worth of tables from the online store. Since she needs to buy euros for (almost) immediate delivery and is happy with the current EUR/USD [exchange rate](https://www.investopedia.com/terms/e/exchangerate.asp) of 1.1233, Danielle executes a foreign exchange transaction at the spot price to buy the equivalent of $10,000 in [euros](https://www.investopedia.com/terms/e/euro.asp), which works out to be €8,902.34 ($10,000/1.1233). The spot transaction has a settlement date of T+2, so Danielle receives her euros in two days and settles her account to receive the 30% discount. ## Advantages and Disadvantages of Spot Markets The spot price is the current quote for immediate purchase, payment, and delivery of a particular commodity. This means that it is incredibly important since prices in derivatives markets such as for futures and options will be inevitably based on these values. Spot markets also tend to be incredibly liquid and active for this reason. Commodity producers and consumers will engage in the spot market and then hedge in the derivatives market. A disadvantage of the spot market, however, is taking delivery of the physical commodity. If you buy spot pork bellies, you now own some live hogs. While a meat processing plant may desire this, a speculator probably does not. Another downside is that spot markets cannot be used effectively to hedge against the production or consumption of goods in the future, which is where derivatives markets are better-suited. Pros * Real-time prices of actual market prices * Active and liquid markets * Can take immediate delivery if desired Cons * Must take physical delivery in many cases * Not suited for hedging ## Spot Market FAQs ### What Does Spot Market Mean? Spot markets trade commodities or other assets for immediate (or very near-term) delivery. The word "spot" refers to the trade and receipt of the good being made "on the spot". ### What Are Examples of Spot Markets? Many commodities have active spot markets, where physical [spot commodities](https://www.investopedia.com/terms/s/spotcommodity.asp) are bought and sold in real-time for cash. Foreign exchange (FX) also has spot currencies markets where the underlying currencies are physically exchanged following the settlement date. Delivery usually occurs within 2 days after execution as it generally takes 2 days to transfer funds between bank accounts. Stock markets can also be thought of as spot markets, with shares of companies changing hands in real-time. ### What Is a Spot and Forward Market? A spot market is where spot commodities or other assets like currencies are traded for immediate delivery for cash. Forward and futures markets instead involve the trading of contracts where the purchase is to be completed at a later date (read on to the following question for more on this). ### What Is the Difference Between Spot Markets and Futures Markets? Forwards and futures are derivatives contracts that use the spot market as the underlying asset. These are contracts that give the owner control of the underlying at some point in the future, for a price agreed upon today. Only [when the contracts expire](https://www.investopedia.com/understanding-futures-contract-expiration-7972595) would physical delivery of the commodity or other asset take place, and often traders will [roll over](https://www.investopedia.com/ask/answers/073015/how-do-futures-contracts-roll-over.asp) or close out their contracts in order to avoid making or taking delivery altogether. Forwards and futures are generically the same, except that forwards are customizable and trade over-the-counter (OTC), whereas futures are standardized and traded on exchanges.	What Is a Spot Market? The spot market is where financial instruments, such as commodities, currencies, and securities, are traded for immediate delivery. Delivery is the exchange of cash for the financial instrument. A futures contract, on the other hand, is based on the delivery of the underlying asset at a future date. Exchanges and over-the-counter (OTC) markets may provide spot trading and/or futures trading. Key Takeaways Financial instruments trade for immediate delivery in the spot market.Many assets quote a “spot price” and a “futures or forward price.”Most spot market transactions have a T+2 settlement date.Spot market transactions can take place on an exchange or over-the-counter (OTC).Spot markets can be contrasted with derivatives markets that instead trade in forwards, futures, or options contracts. Investopedia / Yurle Villegas How Spot Markets Work Spot markets are also referred to as “physical markets” or “cash markets” because trades are swapped for the asset effectively immediately. While the official transfer of funds between the buyer and seller may take time, such as T+2 in the stock market and in most currency transactions, both parties agree to the trade “right now.” A non-spot, or futures transaction, is agreeing to a price now, but delivery and transfer of funds will take place at a later date. Futures trades in contracts that are about to expire are also sometimes called spot trades since the expiring contract means that the buyer and seller will be exchanging cash for the underlying asset immediately. Spot Price The current price of a financial instrument is called the spot price. It is the price at which an instrument can be sold or bought immediately. Buyers and sellers create the spot price by posting their buy and sell orders. In liquid markets, the spot price may change by the second or even within milliseconds, as orders get filled and new ones enter the marketplace. The word "spot" comes from the phrase "on the spot", where in these markets you can purchase an asset on the spot. Spot Market and Exchanges Exchanges bring together dealers and traders who buy and sell commodities, securities, futures, options, and other financial instruments. Based on all the orders provided by participants, the exchange provides the current price and volume available to traders with access to the exchange. The New York Stock Exchange (NYSE) is an example of an exchange where traders buy and sell stocks for immediate delivery. This is a spot market. The Chicago Mercantile Exchange (CME) is an example of an exchange where traders primarily buy and sell futures contracts. This is a futures market and not a spot market. Although, CME does have some cash markets as well. Spot Market and Over-the-Counter Trades that occur directly between a buyer and seller are called over-the-counter (OTC). A centralized exchange does not facilitate these trades. The foreign exchange market (or forex market) is the world's largest OTC market with an average daily turnover of $7.5 trillion as of April 2022. In an OTC transaction, the price can be either based on a spot or a future price/date. In an OTC transaction the terms are not necessarily standardized, and therefore, may be subject to the discretion of the buyer and/or seller. As with exchanges, OTC stock transactions are typically spot trades, while futures or forward transactions are often not at the spot price unless they are nearing expiration. Example of a Spot Market Let’s say an online furniture store in Germany offers a 30% discount to all international customers who pay within five business days after placing an order. Danielle, who operates an online furniture business in the United States, sees the offer and decides to purchase $10,000 worth of tables from the online store. Since she needs to buy euros for (almost) immediate delivery and is happy with the current EUR/USD exchange rate of 1.1233, Danielle executes a foreign exchange transaction at the spot price to buy the equivalent of $10,000 in euros, which works out to be €8,902.34 ($10,000/1.1233). The spot transaction has a settlement date of T+2, so Danielle receives her euros in two days and settles her account to receive the 30% discount. Advantages and Disadvantages of Spot Markets The spot price is the current quote for immediate purchase, payment, and delivery of a particular commodity. This means that it is incredibly important since prices in derivatives markets such as for futures and options will be inevitably based on these values. Spot markets also tend to be incredibly liquid and active for this reason. Commodity producers and consumers will engage in the spot market and then hedge in the derivatives market. A disadvantage of the spot market, however, is taking delivery of the physical commodity. If you buy spot pork bellies, you now own some live hogs. While a meat processing plant may desire this, a speculator probably does not. Another downside is that spot markets cannot be used effectively to hedge against the production or consumption of goods in the future, which is where derivatives markets are better-suited. Pros Real-time prices of actual market prices Active and liquid markets Can take immediate delivery if desired Cons Must take physical delivery in many cases Not suited for hedging Spot Market FAQs What Does Spot Market Mean? Spot markets trade commodities or other assets for immediate (or very near-term) delivery. The word "spot" refers to the trade and receipt of the good being made "on the spot". What Are Examples of Spot Markets? Many commodities have active spot markets, where physical spot commodities are bought and sold in real-time for cash. Foreign exchange (FX) also has spot currencies markets where the underlying currencies are physically exchanged following the settlement date. Delivery usually occurs within 2 days after execution as it generally takes 2 days to transfer funds between bank accounts. Stock markets can also be thought of as spot markets, with shares of companies changing hands in real-time. What Is a Spot and Forward Market? A spot market is where spot commodities or other assets like currencies are traded for immediate delivery for cash. Forward and futures markets instead involve the trading of contracts where the purchase is to be completed at a later date (read on to the following question for more on this). What Is the Difference Between Spot Markets and Futures Markets? Forwards and futures are derivatives contracts that use the spot market as the underlying asset. These are contracts that give the owner control of the underlying at some point in the future, for a price agreed upon today. Only when the contracts expire would physical delivery of the commodity or other asset take place, and often traders will roll over or close out their contracts in order to avoid making or taking delivery altogether. Forwards and futures are generically the same, except that forwards are customizable and trade over-the-counter (OTC), whereas futures are standardized and traded on exchanges.	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https://www.investopedia.com/barclays-savings-account-interest-rates-7566400	Barclays Savings Account Interest Rates: May 2024	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-barclays-savings-account-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> Barclays Savings Account Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Barclays Bank is an online-only bank known for offering customers competitive interest rates on a limited selection of savings accounts and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/barclays-bank-cd-rates-7481049">certificates of deposit (CDs)</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The bank’s savings account interest rates are significantly higher than the national average (though <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">higher APYs are often available elsewhere</a> if you shop around). Barclays customers can also enjoy the convenience of no monthly maintenance fees, no minimum deposit requirements, and free online transfers to and from other financial institutions.<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> <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> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><b>Account Name</b></th> <th><b>Balance for Highest APY</b></th> <th><b>APY Range</b></th> <th><b>Monthly Fee</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>Barclays Online Savings Account</b></td> <td>$0.01</td> <td>4.35%</td> <td>None<span data-cite="1"></span></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> <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-tip" 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"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>See the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings account rates</a> today before choosing the savings account that is best for you.</p></div></div></div> <span class="heading-toc" id="toc-barclays-savings-accounts-key-features"></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"> Barclays Savings Accounts: Key Features </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_11-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Barclays Savings Account Key Features</th> </tr> </thead> <tbody data-check="-1"> <tr> <th><b>APY Range</b></th> <td>4.35%</td> </tr> <tr> <th><b>Minimum Balance to Earn Highest APY</b></th> <td>$0.01</td> </tr> <tr> <th><b>Minimum Deposit</b></th> <td>$0</td> </tr> <tr> <th><b>Withdrawal Limit</b></th> <td>$250,000 per transaction<span data-cite="2"></span></td> </tr> <tr> <th><b>Monthly Service Fee</b></th> <td>$0<span data-cite="1"></span></td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> If you’re a fan of uncomplicated banking, Barclays could suit you. You don’t have to worry about account minimums. There’s no minimum deposit requirement you must meet, and no limit to the number of withdrawals you can make per month. Likewise, you don’t need to maintain a minimum balance to keep your savings account open, nor do you have to satisfy any minimum balance requirements to qualify for a higher APY tier or to be eligible for fee waivers. (Note: If you have a balance of less than $1 for 180 days or more, Barclays does reserve the right to close your account.)<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> As far as other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank-fees.asp">bank fees</a> are concerned, Barclays’ fees are notably lower than what other financial institutions might charge. For example, according to the Consumer Financial Protection Bureau (CFPB), the average Non-Sufficient Funds (NSF) fee was $34 in 2022.<span class="ql-inline-citation" data-cite="3"></span> Barclays, by comparison, charges just $5 for NSF fees. </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"> Here are some of the fees you might incur using your Barclays Savings account. </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>Stop Payment Fee:</strong> $0</li><li><strong>Cashier’s Check Fee:</strong> $5</li><li><strong>Returned Deposit Fee:</strong> $5 (per item)</li><li><strong>Non-Sufficient Funds (NSF) Fee:</strong> $5 (per item)</li><li><strong>Paper Statements:</strong> $0.50 per statement<span class="ql-inline-citation" data-cite="2"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Barclays Online Savings accounts and CDs also come with insurance from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">Federal Deposit Insurance Corporation (FDIC)</a>.<span class="ql-inline-citation" data-cite="4"></span> So, you can rest easy knowing that your deposits are safe in the unlikely event of a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank-failure.asp">bank failure</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_24-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The FDIC insures deposits for up to $250,000 (per depositor, per ownership category, per FDIC-insured bank).<span class="ql-inline-citation" data-cite="5"></span> </p></div></div></div> <span class="heading-toc" id="toc-pros-and-cons-of-barclays-savings-accounts"></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"> Pros and Cons of Barclays Savings Accounts </span> </h2> <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>Low fees:</strong> Barclays doesn’t charge monthly maintenance fees, and its other fees are relatively low compared to many competitors. </li><li><strong>No minimum balance requirement:</strong> Some banks require that you maintain a certain minimum balance to earn interest, but Barclays does not. </li><li><strong>No withdrawal limits:</strong> Certain savings accounts have monthly withdrawal limits, but there are no monthly withdrawal limits with the Barclays Online Savings Account.</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>No U.S. branches: </strong>Barclays has ample physical branches in the United Kingdom, but it doesn’t have any brick-and-mortar locations in the United States.</li><li><strong>No checking accounts available:</strong> While the Barclays Online Savings Account has some perks, this bank doesn’t offer a checking account you can use for everyday spending. </li><li><strong>Limited withdrawal options:</strong> You’ll need to complete a transfer to an external bank account or request a paper check if you want to withdraw money from your Barclays savings account. There’s no ATM access with this account.</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-about-barclays-other-savings-options"></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"> About Barclays: Other Savings Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Barclays is a British international bank with headquarters based in London, England—where it traces its roots back over 300 years. The U.S. subsidiary of Barclays PLC, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/barclays-bank-review-5069903">Barclays Bank</a>, is located in Wilmington, Delaware. </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"> Barclays is perhaps best known for its variety of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/co-branded-card.asp">co-branded credit cards</a>. Well-qualified applicants can open Barclays credit cards that feature rewards, cash back, and sometimes <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-cards/balance-transfer-credit-card/">balance transfer</a> opportunities. </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"> The online bank has limited options where savings options are concerned. Aside from the Barclays Online Savings Account, the only other type of savings-related deposit accounts the bank offers are certificates of deposit, but they sometimes have very competitive APYs; see <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/barclays-bank-cd-rates-7481049">Barclays CD rates</a> to learn more. </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-alternatives-to-barclays-savings-accounts"></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"> Alternatives to Barclays Savings Accounts </span> </h2> <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"> Other High-Yield Savings Accounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The Barclays Online Savings Account offers a competitive rate, but you may find that another <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings account</a> suits your needs better. Fortunately, many banking institutions offer high-yield savings accounts, often with rates above 4%. </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"> Money Market Account </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">Money market accounts (MMAs)</a> may come with rates similar to high-yield savings accounts, but they also have features you’d get with a checking account. Many MMAs come with checks and ATM cards, making it easy to withdraw your money when needed. </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"> Read the fine print before opening a money market account. While these accounts have some features similar to checking accounts, they often come with monthly withdrawal limits. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-subheading__text"> Certificates of Deposit </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Certificates of deposit (CDs) come with relatively high rates and set terms that may range from a month to 10 years. If you can afford to keep your money invested for a set period, a CD could be a smart option. </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"> While the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best certificates of deposit (CDs)</a> come with generous rates, you’ll typically pay a penalty if you withdraw your money before your CD matures. This penalty is often equal to a few months’ worth of interest. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></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"> Series I Savings Bonds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seriesibond.asp">Series I saving bond</a> rates are partially tied to inflation rates, so when inflation is high, so too are I bond rates. These bonds are backed by the U.S. Treasury and can continue to earn interest for 30 years. You can also cash them in sooner if you’d prefer, but if you do so earlier than five years, you’ll pay a penalty.<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_55-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-subheading__text"> Brokerage Account </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Purchasing stocks and other assets through a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-brokers-4587872">brokerage account</a> could result in higher earnings than you’d get with the Barclays Online Savings Account. That said, you can also lose money when you invest, so keep that in mind before opening a brokerage account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <span class="heading-toc" id="toc-compare-savings-account-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_59-0"> <span class="mntl-sc-block-heading__text"> Compare Savings Account Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> It’s important to shop around and compare what other banks and credit unions have to offer in terms of savings account rates and features. Although Barclays Bank savings rates outperform the national average, savvy shoppers may be able to find better APYs 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">high-yield savings accounts</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">CDs</a> elsewhere.<span class="ql-inline-citation" data-cite="8"></span> And some financial institutions may also offer <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-savings-account-bonuses-7152450">savings account bonuses</a> for new customers that could be worth considering as well. </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 mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_62-0"><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_63-0"></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_64-0"> <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_65-0"><span class="heading-toc" id="toc-is-barclays-good-for-savings"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Barclays Good for Savings?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Barclays Bank could be a solid choice for savers who are comfortable with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/onlinebanking.asp">online banking</a> and don’t need direct ATM access to their funds. The bank’s online savings account offers a simple, uncomplicated way to earn above-average interest rates without having to worry about minimum balances, APY tiers, or monthly maintenance fees. However, if your primary goal is to earn the highest interest rate possible on your savings, you might want to consider other savings account options as well; check out the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings accounts</a> to see what you could get.</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-often-does-barclays-pay-interest"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Often Does Barclays Pay Interest?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You earn interest on your Barclays Savings account in the same basic way that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp#:~:text=In%20a%20way%2C%20a%20bank,was%20paid%20to%20their%20depositors.">interest works on savings accounts</a> from other financial institutions. Interest begins to accrue on the same business day you deposit cash into your Barclays Savings account. From there, the interest will compound daily. The bank credits any interest you earn to your account once a month.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-is-barclays-savings-account-fdic-insured"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Barclays’ Savings Account FDIC-Insured?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Barclays Bank is a member of 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>. Therefore, any cash you deposit in a Barclays savings account, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/barclays-bank-cd-rates-7481049">certificate of deposit</a>, or other type of deposit account will receive the backing of FDIC insurance.<span class="ql-inline-citation" data-cite="4"></span> </p><p>Not all bank accounts are <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/08/fdic-insured-bank-account.asp">insured by the FDIC</a>. When you choose a financial institution, it’s important to choose a bank that’s a member of the FDIC or a credit union that’s a member of the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua.asp">National Credit Union Administration (NCUA)</a> to protect your savings. </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-barclays-bank-based-in-the-us"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Barclays Bank Based in the U.S.?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Barclays’ online banking business along with its credit card and payment group is based in Wilmington, Delaware. The Barclays Wealth unit is headquartered in New York, New York. However, the parent company of Barclays Bank, now called Barclays UK, traces its roots back to 1690 in London, England.<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_72-0"></div> <span class="heading-toc" id="toc-your-guide-to-savings-accounts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_73-0"> <span class="mntl-sc-block-heading__text"> Your Guide to Savings Accounts </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savingsaccount.asp">What Is a Savings Account and How Does It Work?</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp">What Is a High-Yield Savings Account?</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-open-a-high-yield-savings-account-4770631">How to Open a High-Yield Savings Account</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-close-a-savings-account-7500880">How to Close a Savings Account</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/safest-place-for-money.asp">Besides a Savings Account, Where Is the Safest Place to Keep My Money?</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-many-savings-accounts-should-i-have-7775519">How Many Savings Accounts Should I Have?</a></li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/043015/what-economic-factors-affect-savings-account-rates.asp">How Savings Account Interest Rates Are Determined</a></li> <li><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp">How Interest Works on Savings Accounts</a></li> <li><a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/052515/how-savings-account-taxed.asp">How Is a Savings Account Taxed?</a></li> <li><a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mutualfund/07/money_market_savings.asp">Money Market Fund vs. MMA vs. Savings Account: What’s the Difference?</a></li> <li><a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cds-vs-savings-accounts-5270287">Certificates of Deposit (CDs) vs. Savings Accounts: Which Is Better for You?</a></li> <li><a data-component="link" data-ordinal="12" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/090314/4-savings-accounts-investors.asp">4 Savings Accounts for Investors</a></li> <li><a data-component="link" data-ordinal="13" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">Best High-Yield Savings Accounts</a></li> <li><a data-component="link" data-ordinal="14" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-free-savings-accounts-5191103">Best Free Savings Accounts</a></li> <li><a data-component="link" data-ordinal="15" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-savings-accounts-for-kids-5179494">Best Savings Accounts for Kids and Teens</a></li> </ul></div>	## Barclays Savings Account Rates Barclays Bank is an online-only bank known for offering customers competitive interest rates on a limited selection of savings accounts and [certificates of deposit (CDs)](https://www.investopedia.com/barclays-bank-cd-rates-7481049). The bank’s savings account interest rates are significantly higher than the national average (though [higher APYs are often available elsewhere](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) if you shop around). Barclays customers can also enjoy the convenience of no monthly maintenance fees, no minimum deposit requirements, and free online transfers to and from other financial institutions. \| Account Name \| Balance for Highest APY \| APY Range \| Monthly Fee \| \| --- \| --- \| --- \| --- \| \| Barclays Online Savings Account \| $0.01 \| 4.35% \| None \| ### See the [best high-yield savings account rates](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) today before choosing the savings account that is best for you. ## Barclays Savings Accounts: Key Features \| Barclays Savings Account Key Features \| \| \| --- \| --- \| \| APY Range \| 4.35% \| \| Minimum Balance to Earn Highest APY \| $0.01 \| \| Minimum Deposit \| $0 \| \| Withdrawal Limit \| $250,000 per transaction \| \| Monthly Service Fee \| $0 \| If you’re a fan of uncomplicated banking, Barclays could suit you. You don’t have to worry about account minimums. There’s no minimum deposit requirement you must meet, and no limit to the number of withdrawals you can make per month. Likewise, you don’t need to maintain a minimum balance to keep your savings account open, nor do you have to satisfy any minimum balance requirements to qualify for a higher APY tier or to be eligible for fee waivers. (Note: If you have a balance of less than $1 for 180 days or more, Barclays does reserve the right to close your account.) As far as other [bank fees](https://www.investopedia.com/terms/b/bank-fees.asp) are concerned, Barclays’ fees are notably lower than what other financial institutions might charge. For example, according to the Consumer Financial Protection Bureau (CFPB), the average Non-Sufficient Funds (NSF) fee was $34 in 2022. Barclays, by comparison, charges just $5 for NSF fees. Here are some of the fees you might incur using your Barclays Savings account. * Stop Payment Fee: $0 * Cashier’s Check Fee: $5 * Returned Deposit Fee: $5 (per item) * Non-Sufficient Funds (NSF) Fee: $5 (per item) * Paper Statements: $0.50 per statement Barclays Online Savings accounts and CDs also come with insurance from the [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic-insured-account.asp). So, you can rest easy knowing that your deposits are safe in the unlikely event of a [bank failure](https://www.investopedia.com/terms/b/bank-failure.asp). ### The FDIC insures deposits for up to $250,000 (per depositor, per ownership category, per FDIC-insured bank). ## Pros and Cons of Barclays Savings Accounts ### Pros * Low fees: Barclays doesn’t charge monthly maintenance fees, and its other fees are relatively low compared to many competitors. * No minimum balance requirement: Some banks require that you maintain a certain minimum balance to earn interest, but Barclays does not. * No withdrawal limits: Certain savings accounts have monthly withdrawal limits, but there are no monthly withdrawal limits with the Barclays Online Savings Account. ### Cons * No U.S. branches: Barclays has ample physical branches in the United Kingdom, but it doesn’t have any brick-and-mortar locations in the United States. * No checking accounts available: While the Barclays Online Savings Account has some perks, this bank doesn’t offer a checking account you can use for everyday spending. * Limited withdrawal options: You’ll need to complete a transfer to an external bank account or request a paper check if you want to withdraw money from your Barclays savings account. There’s no ATM access with this account. ## About Barclays: Other Savings Options Barclays is a British international bank with headquarters based in London, England—where it traces its roots back over 300 years. The U.S. subsidiary of Barclays PLC, [Barclays Bank](https://www.investopedia.com/barclays-bank-review-5069903), is located in Wilmington, Delaware. Barclays is perhaps best known for its variety of [co-branded credit cards](https://www.investopedia.com/terms/co-branded-card.asp). Well-qualified applicants can open Barclays credit cards that feature rewards, cash back, and sometimes [balance transfer](https://www.investopedia.com/credit-cards/balance-transfer-credit-card/) opportunities. The online bank has limited options where savings options are concerned. Aside from the Barclays Online Savings Account, the only other type of savings-related deposit accounts the bank offers are certificates of deposit, but they sometimes have very competitive APYs; see [Barclays CD rates](https://www.investopedia.com/barclays-bank-cd-rates-7481049) to learn more. ## Alternatives to Barclays Savings Accounts ### Other High-Yield Savings Accounts The Barclays Online Savings Account offers a competitive rate, but you may find that another [high-yield savings account](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) suits your needs better. Fortunately, many banking institutions offer high-yield savings accounts, often with rates above 4%. ### Money Market Account [Money market accounts (MMAs)](https://www.investopedia.com/best-money-market-accounts-5096917) may come with rates similar to high-yield savings accounts, but they also have features you’d get with a checking account. Many MMAs come with checks and ATM cards, making it easy to withdraw your money when needed. Read the fine print before opening a money market account. While these accounts have some features similar to checking accounts, they often come with monthly withdrawal limits. ### Certificates of Deposit Certificates of deposit (CDs) come with relatively high rates and set terms that may range from a month to 10 years. If you can afford to keep your money invested for a set period, a CD could be a smart option. While the [best certificates of deposit (CDs)](https://www.investopedia.com/best-cd-rates-4770214) come with generous rates, you’ll typically pay a penalty if you withdraw your money before your CD matures. This penalty is often equal to a few months’ worth of interest. ### Series I Savings Bonds [Series I saving bond](https://www.investopedia.com/terms/s/seriesibond.asp) rates are partially tied to inflation rates, so when inflation is high, so too are I bond rates. These bonds are backed by the U.S. Treasury and can continue to earn interest for 30 years. You can also cash them in sooner if you’d prefer, but if you do so earlier than five years, you’ll pay a penalty. ### Brokerage Account Purchasing stocks and other assets through a [brokerage account](https://www.investopedia.com/best-online-brokers-4587872) could result in higher earnings than you’d get with the Barclays Online Savings Account. That said, you can also lose money when you invest, so keep that in mind before opening a brokerage account. ## Compare Savings Account Rates It’s important to shop around and compare what other banks and credit unions have to offer in terms of savings account rates and features. Although Barclays Bank savings rates outperform the national average, savvy shoppers may be able to find better APYs on [high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) and [CDs](https://www.investopedia.com/best-cd-rates-4770214) elsewhere. And some financial institutions may also offer [savings account bonuses](https://www.investopedia.com/best-savings-account-bonuses-7152450) for new customers that could be worth considering as well. ## Frequently Asked Questions (FAQs) ## Is Barclays Good for Savings? Barclays Bank could be a solid choice for savers who are comfortable with [online banking](https://www.investopedia.com/terms/o/onlinebanking.asp) and don’t need direct ATM access to their funds. The bank’s online savings account offers a simple, uncomplicated way to earn above-average interest rates without having to worry about minimum balances, APY tiers, or monthly maintenance fees. However, if your primary goal is to earn the highest interest rate possible on your savings, you might want to consider other savings account options as well; check out the [best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) to see what you could get. ## How Often Does Barclays Pay Interest? You earn interest on your Barclays Savings account in the same basic way that [interest works on savings accounts](https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp#:~:text=In%20a%20way%2C%20a%20bank,was%20paid%20to%20their%20depositors.) from other financial institutions. Interest begins to accrue on the same business day you deposit cash into your Barclays Savings account. From there, the interest will compound daily. The bank credits any interest you earn to your account once a month. ## Is Barclays’ Savings Account FDIC-Insured? Barclays Bank is a member of the [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic.asp). Therefore, any cash you deposit in a Barclays savings account, [certificate of deposit](https://www.investopedia.com/barclays-bank-cd-rates-7481049), or other type of deposit account will receive the backing of FDIC insurance. Not all bank accounts are [insured by the FDIC](https://www.investopedia.com/ask/answers/08/fdic-insured-bank-account.asp). When you choose a financial institution, it’s important to choose a bank that’s a member of the FDIC or a credit union that’s a member of the [National Credit Union Administration (NCUA)](https://www.investopedia.com/terms/n/ncua.asp) to protect your savings. ## Is Barclays Bank Based in the U.S.? Barclays’ online banking business along with its credit card and payment group is based in Wilmington, Delaware. The Barclays Wealth unit is headquartered in New York, New York. However, the parent company of Barclays Bank, now called Barclays UK, traces its roots back to 1690 in London, England. ## Your Guide to Savings Accounts * [What Is a Savings Account and How Does It Work?](https://www.investopedia.com/terms/s/savingsaccount.asp) * [What Is a High-Yield Savings Account?](https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp) * [How to Open a High-Yield Savings Account](https://www.investopedia.com/how-to-open-a-high-yield-savings-account-4770631) * [How to Close a Savings Account](https://www.investopedia.com/how-to-close-a-savings-account-7500880) * [Besides a Savings Account, Where Is the Safest Place to Keep My Money?](https://www.investopedia.com/ask/answers/12/safest-place-for-money.asp) * [How Many Savings Accounts Should I Have?](https://www.investopedia.com/how-many-savings-accounts-should-i-have-7775519) * [How Savings Account Interest Rates Are Determined](https://www.investopedia.com/ask/answers/043015/what-economic-factors-affect-savings-account-rates.asp) * [How Interest Works on Savings Accounts](https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp) * [How Is a Savings Account Taxed?](https://www.investopedia.com/ask/answers/052515/how-savings-account-taxed.asp) * [Money Market Fund vs. MMA vs. Savings Account: What’s the Difference?](https://www.investopedia.com/articles/mutualfund/07/money_market_savings.asp) * [Certificates of Deposit (CDs) vs. Savings Accounts: Which Is Better for You?](https://www.investopedia.com/cds-vs-savings-accounts-5270287) * [4 Savings Accounts for Investors](https://www.investopedia.com/articles/personal-finance/090314/4-savings-accounts-investors.asp) * [Best High-Yield Savings Accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) * [Best Free Savings Accounts](https://www.investopedia.com/best-free-savings-accounts-5191103) * [Best Savings Accounts for Kids and Teens](https://www.investopedia.com/best-savings-accounts-for-kids-5179494)	Barclays Savings Account Rates Barclays Bank is an online-only bank known for offering customers competitive interest rates on a limited selection of savings accounts and certificates of deposit (CDs). The bank’s savings account interest rates are significantly higher than the national average (though higher APYs are often available elsewhere if you shop around). Barclays customers can also enjoy the convenience of no monthly maintenance fees, no minimum deposit requirements, and free online transfers to and from other financial institutions. Account Name Balance for Highest APY APY Range Monthly Fee Barclays Online Savings Account $0.01 4.35% None See the best high-yield savings account rates today before choosing the savings account that is best for you. Barclays Savings Accounts: Key Features Barclays Savings Account Key Features APY Range 4.35% Minimum Balance to Earn Highest APY $0.01 Minimum Deposit $0 Withdrawal Limit $250,000 per transaction Monthly Service Fee $0 If you’re a fan of uncomplicated banking, Barclays could suit you. You don’t have to worry about account minimums. There’s no minimum deposit requirement you must meet, and no limit to the number of withdrawals you can make per month. Likewise, you don’t need to maintain a minimum balance to keep your savings account open, nor do you have to satisfy any minimum balance requirements to qualify for a higher APY tier or to be eligible for fee waivers. (Note: If you have a balance of less than $1 for 180 days or more, Barclays does reserve the right to close your account.) As far as other bank fees are concerned, Barclays’ fees are notably lower than what other financial institutions might charge. For example, according to the Consumer Financial Protection Bureau (CFPB), the average Non-Sufficient Funds (NSF) fee was $34 in 2022. Barclays, by comparison, charges just $5 for NSF fees. Here are some of the fees you might incur using your Barclays Savings account. Stop Payment Fee: $0Cashier’s Check Fee: $5Returned Deposit Fee: $5 (per item)Non-Sufficient Funds (NSF) Fee: $5 (per item)Paper Statements: $0.50 per statement Barclays Online Savings accounts and CDs also come with insurance from the Federal Deposit Insurance Corporation (FDIC). So, you can rest easy knowing that your deposits are safe in the unlikely event of a bank failure. The FDIC insures deposits for up to $250,000 (per depositor, per ownership category, per FDIC-insured bank). Pros and Cons of Barclays Savings Accounts Pros Low fees: Barclays doesn’t charge monthly maintenance fees, and its other fees are relatively low compared to many competitors. No minimum balance requirement: Some banks require that you maintain a certain minimum balance to earn interest, but Barclays does not. No withdrawal limits: Certain savings accounts have monthly withdrawal limits, but there are no monthly withdrawal limits with the Barclays Online Savings Account. Cons No U.S. branches: Barclays has ample physical branches in the United Kingdom, but it doesn’t have any brick-and-mortar locations in the United States.No checking accounts available: While the Barclays Online Savings Account has some perks, this bank doesn’t offer a checking account you can use for everyday spending. Limited withdrawal options: You’ll need to complete a transfer to an external bank account or request a paper check if you want to withdraw money from your Barclays savings account. There’s no ATM access with this account. About Barclays: Other Savings Options Barclays is a British international bank with headquarters based in London, England—where it traces its roots back over 300 years. The U.S. subsidiary of Barclays PLC, Barclays Bank, is located in Wilmington, Delaware. Barclays is perhaps best known for its variety of co-branded credit cards. Well-qualified applicants can open Barclays credit cards that feature rewards, cash back, and sometimes balance transfer opportunities. The online bank has limited options where savings options are concerned. Aside from the Barclays Online Savings Account, the only other type of savings-related deposit accounts the bank offers are certificates of deposit, but they sometimes have very competitive APYs; see Barclays CD rates to learn more. Alternatives to Barclays Savings Accounts Other High-Yield Savings Accounts The Barclays Online Savings Account offers a competitive rate, but you may find that another high-yield savings account suits your needs better. Fortunately, many banking institutions offer high-yield savings accounts, often with rates above 4%. Money Market Account Money market accounts (MMAs) may come with rates similar to high-yield savings accounts, but they also have features you’d get with a checking account. Many MMAs come with checks and ATM cards, making it easy to withdraw your money when needed. Read the fine print before opening a money market account. While these accounts have some features similar to checking accounts, they often come with monthly withdrawal limits. Certificates of Deposit Certificates of deposit (CDs) come with relatively high rates and set terms that may range from a month to 10 years. If you can afford to keep your money invested for a set period, a CD could be a smart option. While the best certificates of deposit (CDs) come with generous rates, you’ll typically pay a penalty if you withdraw your money before your CD matures. This penalty is often equal to a few months’ worth of interest. Series I Savings Bonds Series I saving bond rates are partially tied to inflation rates, so when inflation is high, so too are I bond rates. These bonds are backed by the U.S. Treasury and can continue to earn interest for 30 years. You can also cash them in sooner if you’d prefer, but if you do so earlier than five years, you’ll pay a penalty. Brokerage Account Purchasing stocks and other assets through a brokerage account could result in higher earnings than you’d get with the Barclays Online Savings Account. That said, you can also lose money when you invest, so keep that in mind before opening a brokerage account. Compare Savings Account Rates It’s important to shop around and compare what other banks and credit unions have to offer in terms of savings account rates and features. Although Barclays Bank savings rates outperform the national average, savvy shoppers may be able to find better APYs on high-yield savings accounts and CDs elsewhere. And some financial institutions may also offer savings account bonuses for new customers that could be worth considering as well. Frequently Asked Questions (FAQs) Is Barclays Good for Savings? Barclays Bank could be a solid choice for savers who are comfortable with online banking and don’t need direct ATM access to their funds. The bank’s online savings account offers a simple, uncomplicated way to earn above-average interest rates without having to worry about minimum balances, APY tiers, or monthly maintenance fees. However, if your primary goal is to earn the highest interest rate possible on your savings, you might want to consider other savings account options as well; check out the best high-yield savings accounts to see what you could get. How Often Does Barclays Pay Interest? You earn interest on your Barclays Savings account in the same basic way that interest works on savings accounts from other financial institutions. Interest begins to accrue on the same business day you deposit cash into your Barclays Savings account. From there, the interest will compound daily. The bank credits any interest you earn to your account once a month. Is Barclays’ Savings Account FDIC-Insured? Barclays Bank is a member of the Federal Deposit Insurance Corporation (FDIC). Therefore, any cash you deposit in a Barclays savings account, certificate of deposit, or other type of deposit account will receive the backing of FDIC insurance. Not all bank accounts are insured by the FDIC. When you choose a financial institution, it’s important to choose a bank that’s a member of the FDIC or a credit union that’s a member of the National Credit Union Administration (NCUA) to protect your savings. Is Barclays Bank Based in the U.S.? Barclays’ online banking business along with its credit card and payment group is based in Wilmington, Delaware. The Barclays Wealth unit is headquartered in New York, New York. However, the parent company of Barclays Bank, now called Barclays UK, traces its roots back to 1690 in London, England. Your Guide to Savings Accounts What Is a Savings Account and How Does It Work? What Is a High-Yield Savings Account? How to Open a High-Yield Savings Account How to Close a Savings Account Besides a Savings Account, Where Is the Safest Place to Keep My Money? How Many Savings Accounts Should I Have? How Savings Account Interest Rates Are Determined How Interest Works on Savings Accounts How Is a Savings Account Taxed? Money Market Fund vs. MMA vs. Savings Account: What’s the Difference? Certificates of Deposit (CDs) vs. Savings Accounts: Which Is Better for You? 4 Savings Accounts for Investors Best High-Yield Savings Accounts Best Free Savings Accounts Best Savings Accounts for Kids and Teens	[ [ "certificates of deposit (CDs)", "https://www.investopedia.com/barclays-bank-cd-rates-7481049" ], [ "higher APYs are often available elsewhere", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "best high-yield savings account rates", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "bank fees", "https://www.investopedia.com/terms/b/bank-fees.asp" ], [ "Federal Deposit Insurance Corporation (FDIC)", "https://www.investopedia.com/terms/f/fdic-insured-account.asp" ], [ "bank failure", "https://www.investopedia.com/terms/b/bank-failure.asp" ], [ "Barclays Bank", "https://www.investopedia.com/barclays-bank-review-5069903" ], [ "co-branded credit cards", "https://www.investopedia.com/terms/co-branded-card.asp" ], [ "balance transfer", "https://www.investopedia.com/credit-cards/balance-transfer-credit-card/" ], [ "Barclays CD rates", "https://www.investopedia.com/barclays-bank-cd-rates-7481049" ], [ "high-yield savings account", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "Money market accounts (MMAs)", "https://www.investopedia.com/best-money-market-accounts-5096917" ], [ "best certificates of deposit (CDs)", "https://www.investopedia.com/best-cd-rates-4770214" ], [ "Series I saving bond", "https://www.investopedia.com/terms/s/seriesibond.asp" ], [ "brokerage account", "https://www.investopedia.com/best-online-brokers-4587872" ], [ "high-yield savings accounts", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "CDs", "https://www.investopedia.com/best-cd-rates-4770214" ], [ "savings account bonuses", "https://www.investopedia.com/best-savings-account-bonuses-7152450" ], [ "online banking", "https://www.investopedia.com/terms/o/onlinebanking.asp" ], [ "best high-yield savings accounts", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "interest works on savings accounts", "https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp#:~:text=In%20a%20way%2C%20a%20bank,was%20paid%20to%20their%20depositors." ], [ "Federal Deposit Insurance Corporation (FDIC)", "https://www.investopedia.com/terms/f/fdic.asp" ], [ "certificate of deposit", "https://www.investopedia.com/barclays-bank-cd-rates-7481049" ], [ "insured by the FDIC", "https://www.investopedia.com/ask/answers/08/fdic-insured-bank-account.asp" ], [ "National Credit Union Administration (NCUA)", "https://www.investopedia.com/terms/n/ncua.asp" ], [ "What Is a Savings Account and How Does It Work?", "https://www.investopedia.com/terms/s/savingsaccount.asp" ], [ "What Is a High-Yield Savings Account?", "https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp" ], [ "How to Open a High-Yield Savings Account", "https://www.investopedia.com/how-to-open-a-high-yield-savings-account-4770631" ], [ "How to Close a Savings Account", "https://www.investopedia.com/how-to-close-a-savings-account-7500880" ], [ "Besides a Savings Account, Where Is the Safest Place to Keep My Money?", "https://www.investopedia.com/ask/answers/12/safest-place-for-money.asp" ], [ "How Many Savings Accounts Should I Have?", "https://www.investopedia.com/how-many-savings-accounts-should-i-have-7775519" ], [ "How Savings Account Interest Rates Are Determined", "https://www.investopedia.com/ask/answers/043015/what-economic-factors-affect-savings-account-rates.asp" ], [ "How Interest Works on Savings Accounts", "https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp" ], [ "How Is a Savings Account Taxed?", "https://www.investopedia.com/ask/answers/052515/how-savings-account-taxed.asp" ], [ "Money Market Fund vs. MMA vs. Savings Account: What’s the Difference?", "https://www.investopedia.com/articles/mutualfund/07/money_market_savings.asp" ], [ "Certificates of Deposit (CDs) vs. Savings Accounts: Which Is Better for You?", "https://www.investopedia.com/cds-vs-savings-accounts-5270287" ], [ "4 Savings Accounts for Investors", "https://www.investopedia.com/articles/personal-finance/090314/4-savings-accounts-investors.asp" ], [ "Best High-Yield Savings Accounts", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "Best Free Savings Accounts", "https://www.investopedia.com/best-free-savings-accounts-5191103" ], [ "Best Savings Accounts for Kids and Teens", "https://www.investopedia.com/best-savings-accounts-for-kids-5179494" ] ]
https://www.investopedia.com/cfpb-seeks-to-prevent-banks-from-charging-abusive-fee-on-instantly-declined-transactions-8548759	CFPB Seeks To Prevent Banks From Charging 'Abusive' Fee on Instantly Declined Transactions	<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 Consumer Financial Protection Bureau proposed a ban on a kind of fee that banks almost never charge.<br/></li><li>The bureau says banks shouldn't be allowed to charge a non-sufficient funds fee when an instant payment is declined because there's not enough money in the customer's account.<br/></li><li>The CFPB has also proposed limiting overdraft fees and credit card late fees, among other efforts to curb what it calls 'junk fees.'<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"> Have you ever been charged a fee when your debit card was instantly declined for not having a sufficient balance? Probably not, and government banking regulators want to keep it that way.<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"> In its latest move in its campaign against what the Biden administration calls ‘junk fees,’ the Consumer Financial Protection Bureau proposed a rule Wednesday banning banks from charging non-sufficient fund fees on transactions with debit cards, peer-to-peer payments, and other transactions that are instantly processed. For example, charging a fee when a customer attempts to pay $100 for groceries, but the transaction doesn't go through because they only have $90 in their account. </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"> While banks “almost never” charge such fees according to the CFPB, instead usually charging NSF fees on checks and automatic payments, which can take longer to process, the bureau said it wanted to prevent banks from doing so in the future. </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 CFPB will continue to rid the market of junk fees today and prevent new junk fees from emerging in the future,” bureau director Rohit Chopra said in a prepared statement.<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 bureau said such fees, should they be charged, "would constitute an abusive practice under the Consumer Financial Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices."<span class="ql-inline-citation" data-cite="1"></span><br/><br/>The proposal comes on the heels of the bureau’s proposal this month to put a limit as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-financial-watchdog-wants-to-cut-overdraft-fees-to-as-little-as-usd3-8430578">low as $3 on overdraft fees</a>. (Overdraft fees are similar to NSF fees, except in an overdraft, the bank allows the transaction to go through instead of blocking it, leaving the customer with a negative balance.) Last year, the bureau proposed an $8 limit on credit card late fees, a rule that is expected to kick in early in 2024.<br/><br/>Instant payments have become more common as consumers have ditched cash and paper checks for mobile apps and fintech services such as Venmo and PayPal. That trend is likely to continue: Earlier this year, the Federal Reserve <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/long-awaited-fednow-service-officially-live-7563478">launched FedNow</a>, a network that enables banks and credit unions to process instant payments.<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:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	### Key Takeaways * The Consumer Financial Protection Bureau proposed a ban on a kind of fee that banks almost never charge. * The bureau says banks shouldn't be allowed to charge a non-sufficient funds fee when an instant payment is declined because there's not enough money in the customer's account. * The CFPB has also proposed limiting overdraft fees and credit card late fees, among other efforts to curb what it calls 'junk fees.' Have you ever been charged a fee when your debit card was instantly declined for not having a sufficient balance? Probably not, and government banking regulators want to keep it that way. In its latest move in its campaign against what the Biden administration calls ‘junk fees,’ the Consumer Financial Protection Bureau proposed a rule Wednesday banning banks from charging non-sufficient fund fees on transactions with debit cards, peer-to-peer payments, and other transactions that are instantly processed. For example, charging a fee when a customer attempts to pay $100 for groceries, but the transaction doesn't go through because they only have $90 in their account. While banks “almost never” charge such fees according to the CFPB, instead usually charging NSF fees on checks and automatic payments, which can take longer to process, the bureau said it wanted to prevent banks from doing so in the future. “The CFPB will continue to rid the market of junk fees today and prevent new junk fees from emerging in the future,” bureau director Rohit Chopra said in a prepared statement. The bureau said such fees, should they be charged, "would constitute an abusive practice under the Consumer Financial Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices." The proposal comes on the heels of the bureau’s proposal this month to put a limit as [low as $3 on overdraft fees](https://www.investopedia.com/federal-financial-watchdog-wants-to-cut-overdraft-fees-to-as-little-as-usd3-8430578). (Overdraft fees are similar to NSF fees, except in an overdraft, the bank allows the transaction to go through instead of blocking it, leaving the customer with a negative balance.) Last year, the bureau proposed an $8 limit on credit card late fees, a rule that is expected to kick in early in 2024. Instant payments have become more common as consumers have ditched cash and paper checks for mobile apps and fintech services such as Venmo and PayPal. That trend is likely to continue: Earlier this year, the Federal Reserve [launched FedNow](https://www.investopedia.com/long-awaited-fednow-service-officially-live-7563478), a network that enables banks and credit unions to process instant payments. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	Key Takeaways The Consumer Financial Protection Bureau proposed a ban on a kind of fee that banks almost never charge.The bureau says banks shouldn't be allowed to charge a non-sufficient funds fee when an instant payment is declined because there's not enough money in the customer's account.The CFPB has also proposed limiting overdraft fees and credit card late fees, among other efforts to curb what it calls 'junk fees.' Have you ever been charged a fee when your debit card was instantly declined for not having a sufficient balance? Probably not, and government banking regulators want to keep it that way. In its latest move in its campaign against what the Biden administration calls ‘junk fees,’ the Consumer Financial Protection Bureau proposed a rule Wednesday banning banks from charging non-sufficient fund fees on transactions with debit cards, peer-to-peer payments, and other transactions that are instantly processed. For example, charging a fee when a customer attempts to pay $100 for groceries, but the transaction doesn't go through because they only have $90 in their account. While banks “almost never” charge such fees according to the CFPB, instead usually charging NSF fees on checks and automatic payments, which can take longer to process, the bureau said it wanted to prevent banks from doing so in the future. “The CFPB will continue to rid the market of junk fees today and prevent new junk fees from emerging in the future,” bureau director Rohit Chopra said in a prepared statement. The bureau said such fees, should they be charged, "would constitute an abusive practice under the Consumer Financial Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices."The proposal comes on the heels of the bureau’s proposal this month to put a limit as low as $3 on overdraft fees. (Overdraft fees are similar to NSF fees, except in an overdraft, the bank allows the transaction to go through instead of blocking it, leaving the customer with a negative balance.) Last year, the bureau proposed an $8 limit on credit card late fees, a rule that is expected to kick in early in 2024.Instant payments have become more common as consumers have ditched cash and paper checks for mobile apps and fintech services such as Venmo and PayPal. That trend is likely to continue: Earlier this year, the Federal Reserve launched FedNow, a network that enables banks and credit unions to process instant payments. Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "low as $3 on overdraft fees", "https://www.investopedia.com/federal-financial-watchdog-wants-to-cut-overdraft-fees-to-as-little-as-usd3-8430578" ], [ "launched FedNow", "https://www.investopedia.com/long-awaited-fednow-service-officially-live-7563478" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/terms/v/variable_rate_demand_note.asp	Variable Rate Demand Note: Explaining VRDNs	<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-variable-rate-demand-note"></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 Variable Rate Demand Note? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A variable-rate demand note (VRDN) is a debt instrument that represents borrowed funds that are payable on demand and accrue interest based on a prevailing money market rate, such as the prime rate. The interest rate applicable to the borrowed funds is specified from the outset of the debt and is typically equal to the specified money market rate plus an extra margin. </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 VRDN is also referred to as a variable rate demand obligation (VRDO). </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-understanding-variable-rate-demand-note-vrdn"></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 Variable Rate Demand Note (VRDN) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A variable-rate demand note (VRDN) is a long-term <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/municipalbond.asp">municipal bond</a> which is offered to investors through <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 funds</a>. The notes allow a municipal government to borrow money for long periods of time while paying short-term interest rates to investors. As VRDNs are issued in a minimum of $100,000 denominations, smaller investors can only invest in VRDOs indirectly through money market 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"> Because money market interest rates, such as the bank <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/primerate.asp">prime rate</a>, are variable over time, the interest rate applicable to a variable rate demand note is variable as well. Every time the prevailing money market rate changes, a variable rate demand note's interest rate is adjusted accordingly. Typically, the interest rate on VRDN is adjusted daily, weekly, or monthly to reflect the current interest rate environment. </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 the name implies, variable rate demand notes are payable on demand as they have an embedded <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>. This means that the investor or lender of the funds can request a repayment of the entire debt amount at his or her discretion, and the funds must be repaid once the demand has been made. Depending on the demand feature affixed to these debt instruments, the investor may be required to provide a one-day or seven-day notification to tender the securities to a financial intermediary, such as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trustee.asp">trustee</a> or remarketing agent. Because of the demand feature, the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturitydate.asp">maturity date</a> of a VRDN is considered to be the next put date rather than its final maturity date. </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"> Another feature of the VRDN that makes it an attractive investment option for money market investors is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditenhancement.asp">credit enhancement</a> that supports the demand note. A credit enhancement is a feature added to a security to improve its credit profile and mitigate <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/defaultrisk.asp">default risk</a> of the underlying assets. VRDN issuers employ credit enhancements through <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/letterofcredit.asp">letters of credit</a> (LOCs) from a highly rated financial institution, which serves as the liquidity provider of last resort, committed to supporting the timely payment of interest and repayment of principal on tendered securities. As long as the financial institution providing the letter of credit is solvent, the investor will receive payment. For this reason, the interest rate on VRDNs tends to reflect the short-term credit rating of the bank providing the letter of credit rather than the municipality issuing the VRDN. Another form of credit enhancement that may be used to reduce default risk is a standby <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond-purchase-agreement.asp">bond purchase agreement</a> which is typically provided by a reputable bank. </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"> Variable-rate demand notes produce returns that have low <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/correlation.asp">correlations</a> with stocks and bonds, thus, making them good investments for portfolio <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</a>. In addition, VRDNs issued by municipalities are generally exempt from federal taxes. Many issues are also exempt from state taxes in the state of issue. </p></div>	## What Is a Variable Rate Demand Note? A variable-rate demand note (VRDN) is a debt instrument that represents borrowed funds that are payable on demand and accrue interest based on a prevailing money market rate, such as the prime rate. The interest rate applicable to the borrowed funds is specified from the outset of the debt and is typically equal to the specified money market rate plus an extra margin. A VRDN is also referred to as a variable rate demand obligation (VRDO). ## Understanding Variable Rate Demand Note (VRDN) A variable-rate demand note (VRDN) is a long-term [municipal bond](https://www.investopedia.com/terms/m/municipalbond.asp) which is offered to investors through [money market funds](https://www.investopedia.com/terms/m/money-marketfund.asp). The notes allow a municipal government to borrow money for long periods of time while paying short-term interest rates to investors. As VRDNs are issued in a minimum of $100,000 denominations, smaller investors can only invest in VRDOs indirectly through money market funds. Because money market interest rates, such as the bank [prime rate](https://www.investopedia.com/terms/p/primerate.asp), are variable over time, the interest rate applicable to a variable rate demand note is variable as well. Every time the prevailing money market rate changes, a variable rate demand note's interest rate is adjusted accordingly. Typically, the interest rate on VRDN is adjusted daily, weekly, or monthly to reflect the current interest rate environment. As the name implies, variable rate demand notes are payable on demand as they have an embedded [put option](https://www.investopedia.com/terms/p/putoption.asp). This means that the investor or lender of the funds can request a repayment of the entire debt amount at his or her discretion, and the funds must be repaid once the demand has been made. Depending on the demand feature affixed to these debt instruments, the investor may be required to provide a one-day or seven-day notification to tender the securities to a financial intermediary, such as a [trustee](https://www.investopedia.com/terms/t/trustee.asp) or remarketing agent. Because of the demand feature, the [maturity date](https://www.investopedia.com/terms/m/maturitydate.asp) of a VRDN is considered to be the next put date rather than its final maturity date. Another feature of the VRDN that makes it an attractive investment option for money market investors is the [credit enhancement](https://www.investopedia.com/terms/c/creditenhancement.asp) that supports the demand note. A credit enhancement is a feature added to a security to improve its credit profile and mitigate [default risk](https://www.investopedia.com/terms/d/defaultrisk.asp) of the underlying assets. VRDN issuers employ credit enhancements through [letters of credit](https://www.investopedia.com/terms/l/letterofcredit.asp) (LOCs) from a highly rated financial institution, which serves as the liquidity provider of last resort, committed to supporting the timely payment of interest and repayment of principal on tendered securities. As long as the financial institution providing the letter of credit is solvent, the investor will receive payment. For this reason, the interest rate on VRDNs tends to reflect the short-term credit rating of the bank providing the letter of credit rather than the municipality issuing the VRDN. Another form of credit enhancement that may be used to reduce default risk is a standby [bond purchase agreement](https://www.investopedia.com/terms/b/bond-purchase-agreement.asp) which is typically provided by a reputable bank. Variable-rate demand notes produce returns that have low [correlations](https://www.investopedia.com/terms/c/correlation.asp) with stocks and bonds, thus, making them good investments for portfolio [diversification](https://www.investopedia.com/terms/d/diversification.asp). In addition, VRDNs issued by municipalities are generally exempt from federal taxes. Many issues are also exempt from state taxes in the state of issue.	What Is a Variable Rate Demand Note? A variable-rate demand note (VRDN) is a debt instrument that represents borrowed funds that are payable on demand and accrue interest based on a prevailing money market rate, such as the prime rate. The interest rate applicable to the borrowed funds is specified from the outset of the debt and is typically equal to the specified money market rate plus an extra margin. A VRDN is also referred to as a variable rate demand obligation (VRDO). Understanding Variable Rate Demand Note (VRDN) A variable-rate demand note (VRDN) is a long-term municipal bond which is offered to investors through money market funds. The notes allow a municipal government to borrow money for long periods of time while paying short-term interest rates to investors. As VRDNs are issued in a minimum of $100,000 denominations, smaller investors can only invest in VRDOs indirectly through money market funds. Because money market interest rates, such as the bank prime rate, are variable over time, the interest rate applicable to a variable rate demand note is variable as well. Every time the prevailing money market rate changes, a variable rate demand note's interest rate is adjusted accordingly. Typically, the interest rate on VRDN is adjusted daily, weekly, or monthly to reflect the current interest rate environment. As the name implies, variable rate demand notes are payable on demand as they have an embedded put option. This means that the investor or lender of the funds can request a repayment of the entire debt amount at his or her discretion, and the funds must be repaid once the demand has been made. Depending on the demand feature affixed to these debt instruments, the investor may be required to provide a one-day or seven-day notification to tender the securities to a financial intermediary, such as a trustee or remarketing agent. Because of the demand feature, the maturity date of a VRDN is considered to be the next put date rather than its final maturity date. Another feature of the VRDN that makes it an attractive investment option for money market investors is the credit enhancement that supports the demand note. A credit enhancement is a feature added to a security to improve its credit profile and mitigate default risk of the underlying assets. VRDN issuers employ credit enhancements through letters of credit (LOCs) from a highly rated financial institution, which serves as the liquidity provider of last resort, committed to supporting the timely payment of interest and repayment of principal on tendered securities. As long as the financial institution providing the letter of credit is solvent, the investor will receive payment. For this reason, the interest rate on VRDNs tends to reflect the short-term credit rating of the bank providing the letter of credit rather than the municipality issuing the VRDN. Another form of credit enhancement that may be used to reduce default risk is a standby bond purchase agreement which is typically provided by a reputable bank. Variable-rate demand notes produce returns that have low correlations with stocks and bonds, thus, making them good investments for portfolio diversification. In addition, VRDNs issued by municipalities are generally exempt from federal taxes. Many issues are also exempt from state taxes in the state of issue.	[ [ "municipal bond", "https://www.investopedia.com/terms/m/municipalbond.asp" ], [ "money market funds", "https://www.investopedia.com/terms/m/money-marketfund.asp" ], [ "prime rate", "https://www.investopedia.com/terms/p/primerate.asp" ], [ "put option", "https://www.investopedia.com/terms/p/putoption.asp" ], [ "trustee", "https://www.investopedia.com/terms/t/trustee.asp" ], [ "maturity date", "https://www.investopedia.com/terms/m/maturitydate.asp" ], [ "credit enhancement", "https://www.investopedia.com/terms/c/creditenhancement.asp" ], [ "default risk", "https://www.investopedia.com/terms/d/defaultrisk.asp" ], [ "letters of credit", "https://www.investopedia.com/terms/l/letterofcredit.asp" ], [ "bond purchase agreement", "https://www.investopedia.com/terms/b/bond-purchase-agreement.asp" ], [ "correlations", "https://www.investopedia.com/terms/c/correlation.asp" ], [ "diversification", "https://www.investopedia.com/terms/d/diversification.asp" ] ]
https://www.investopedia.com/articles/trading/09/incorporate-active-trading.asp	Benefits for Active Traders Who Incorporate	<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 trading becomes more accessible due to the proliferation of online and discount brokerage firms, more people are participating in the stock market. However, as an individual or sole proprietor, traders cannot take advantage of some of the tax advantages and asset protection strategies that are available to companies. </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"> Working as an independent trader can be a way for individuals to make extra income, or even possibly a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/09/how-to-trade-for-a-living.asp">full-time living</a>. But like any business venture, the income generated from trading is taxable. If you are successful as an independent day trader, it can create significant tax liabilities for you. Individuals who want to actively participate in the stock market have several options: they can trade as individuals or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/soleproprietorship.asp">sole proprietors</a>, qualify for trader status, or trade through a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-llc-filing-companies-5113499">business entity such as an LLC</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"> For the active trader, creating a legal trading business will often provide the best tax treatment and asset protection. </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>Individuals who want to actively participate in the stock market have several options. They can trade as individuals or sole proprietors, qualify for trader status, or trade through a business entity.</li><li>For the active trader, forming a legal trading business will often provide the best tax treatment and asset protection.</li><li>Unless an individual can qualify for qualified trader status, as determined by the IRS, all income they generate from trading activities is considered unearned or passive income when they file their individual income taxes.</li><li>If you cannot qualify for qualified trader status, another way to ensure you are receiving similar tax treatment, compared to a qualified trader, is to create a separate corporate entity through which you will conduct your trading activities.</li></ul></div></div></div> <span class="heading-toc" id="toc-tax-treatment-for-traders"></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"> Tax Treatment for Traders </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> According to the Internal Revenue Service (IRS), trading is not a business activity. In fact, all income from trading is considered unearned or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/passiveincome.asp">passive income</a>.<span class="ql-inline-citation" data-cite="1"></span> This presumes—from the perspective of the IRS—that investors are individuals, and any trading activities are done for long-term <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalaccumulation.asp">capital accumulation</a>, rather than paying for current liabilities.<span class="ql-inline-citation" data-cite="5"></span> For this reason, unless an individual can qualify for trader status, they will be treated like any other tax-filing individual.<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"> Income from trading can also not be reduced by contributing to an individual retirement account (IRA) or a pension fund.<span class="ql-inline-citation" data-cite="6"></span> The only advantage of being considered a passive trader is that the income derived from trading is not subject to additional <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/selfemploymenttax.asp">self-employment taxes</a>.<span class="ql-inline-citation" data-cite="4"></span> After that, deductions are the same as what is normally afforded to W-2 wage earners (generally limited to mortgage interest, property taxes, and charitable deductions).<span class="ql-inline-citation" data-cite="7"></span> The amounts of most deductions are restricted to a percentage of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/agi.asp">adjusted gross income</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"> Because trading is not considered a business activity by the IRS, all the expenses necessary to trade are not eligible for tax deductions. For most active traders, the costs of necessities—such as education, a trading platform, software, internet access, and computers—can be considerable. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> For most traders, the biggest tax issue they face is that deductions for trading losses are limited to gains. After that, only $3,000 can be deducted against <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/ordinaryincome.asp">ordinary income</a>. In a year where net capital losses exceed $3,000, individuals can only carry forward $3,000 of that loss per year against future income.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-potential-tax-remedies-for-traders"></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"> Potential Tax Remedies for Traders </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> To avoid this type of tax treatment, some active traders try to qualify for trader status.<span class="ql-inline-citation" data-cite="4"></span> The requirements for achieving trader status are laid out in IRS Publication 550. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> A qualified trader is allowed to file a Schedule C form and deduct business expenses, which could include education, entertainment, margin interest, and other trading-related expenses.<span class="ql-inline-citation" data-cite="9"></span> Qualified traders can also take a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/section-179.asp">Section 179</a> deduction for equipment used in trading activities.<span class="ql-inline-citation" data-cite="10"></span> Finally, a qualified trader can elect a Section 475(f) election, also called the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marktomarket.asp">mark-to-market (MTM)</a> election. </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"> MTM accounting allows qualified traders to change their capital gains and losses to ordinary income and losses.<span class="ql-inline-citation" data-cite="11"></span> On the last day of the year, all positions are assumed to be sold at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketvalue.asp">market value</a>, and a hypothetical gain or loss is calculated. For the following year, the basis for each of these positions is calculated by assuming they were also purchased at market value. The hypothetical gains and losses at year-end are added to actual gains and losses for tax purposes. </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"> Because gains and losses are regarded as ordinary income under MTM, all losses are deducted in the year they occur. Under MTM, traders are not bound by the $3,000 net <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalloss.asp">capital loss</a> limitation; they can deduct all losses in the year they occur, providing the maximum tax relief in the current year. Some traders will also elect MTM to avoid the 30-day <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/washsale.asp">wash sale rule</a>, which disqualifies loss deductions on "substantially identical" securities bought within 30 days before or after a sale.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <span class="heading-toc" id="toc-how-the-irs-defines-a-qualified-trader"></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 the IRS Defines a Qualified Trader </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> In <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs-pub-550.asp">IRS Publication 550</a> and Revenue Procedure 99-17 and 99-49, the IRS sets out general guidelines that explain the activities that qualify trading as a business. To be engaged in business as a trader in securities, a person <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/entity-trading-account.asp">must trade from their account</a> on a full-time basis and derive most of their income through <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/05/011705.asp">day trading</a>. According to the IRS, a trader is someone who trades significantly and continuously to profit from short-term fluctuations in security prices.<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_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Traders are individuals who make multiple trades daily to profit from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intraday.asp">intraday</a> market swings and do so continuously throughout the year. They spend a considerable amount of time documenting and researching trades and strategies and incur significant expenses to conduct their business. Although not specifically required, most qualified traders will open and close multiple trades daily and hold their positions for fewer than 30 days. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> For active traders, the benefits of qualifying are obvious, but these guidelines are open to interpretation by the IRS and the courts. In reality, only a small percentage of individuals qualify for this IRS status. </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-form-a-separate-corporate-entity"></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"> Form a Separate Corporate Entity </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> If you cannot qualify for qualified trader status, another way to ensure you are receiving similar tax treatment is to create a separate corporate entity through which you will conduct your trading activities. By creating a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/llc.asp">limited liability company (LLC)</a> or limited partnership, you can receive the same tax treatment as a qualified trader without having to qualify.<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_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> This type of legal entity usually receives less scrutiny from the IRS. It's unlikely that anyone would go through the trouble and expense of forming the entity unless they were committed to trading as a business venture. </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"> It is very difficult for individuals to change an election, such as MTM, once it has been chosen. With the company, if there is an advantage to changing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accountingmethod.asp">accounting methods</a> or the legal structure, the entity can simply be dissolved and re-formed accordingly. </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-more-success-equals-more-entities"></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"> More Success Equals More Entities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> For highly successful traders, some financial advisors may suggest forming a business structure that includes multiple entities, as a way of maximizing the tax and protection benefits afforded to the business. Even though the actual structure is determined by an individual's financial goals, this type of legal business structure usually includes a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporation.asp">C corporation</a>, which exists to be the general partner or managing member of several limited liability companies.<span class="ql-inline-citation" data-cite="15"></span> In this way, extra income, usually up to 30% of revenue, can be transferred to the corporate entity through a contracted <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/managementfee.asp">management fee</a> in order to take advantage of additional tax strategies.<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_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> For example, to fund college expenses or to give children money tax-free, family members can become employees. The corporation can then take advantage of deductible salaries and educational expenses, while also building Social Security and Medicare accounts. Medical <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reimbursement-plan.asp">reimbursement plans</a> can be created to fund all types of elective health care procedures and medical insurance premiums. Retirement accounts, such as individual retirement accounts (IRAs) and 401(k) plans, can be transferred into a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401a-plan.asp">401a</a>, a type of pension fund that allows annual contributions and can never be accessed by creditors or through a legal claim.<span class="ql-inline-citation" data-cite="16"></span> Because the corporation pays taxes on net income, the goal is to pay as many expenses as possible with pretax dollars and to minimize taxable income. </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 type of business structure also provides excellent asset protection because it separates the business from the individual. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/longtermassets.asp">Long-term assets</a> can be held by other limited liability companies that can use accounting methods better suited for investments. All assets are protected from creditors and the legal liabilities of the individual because they are held by separate legal entities. </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"> However, the amount of legal protection is determined by state law. Many advisors suggest forming the entity in the state of Nevada because of its lack of corporate income tax, the flexibility to change orders as a sole remedy by creditors, the anonymity of not having to identify shareholders, and the ability to nominate corporate officers.<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_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-how-much-money-do-day-traders-with-10000-accounts-make-per-day-on-average"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Money Do Day Traders With $10,000 Accounts Make per Day on Average?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>That depends on the amount invested and where. It also depends, of course, on how each day goes. Results won’t always be the same.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-what-are-the-main-benefits-of-being-a-professional-trader"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Main Benefits of Being a Professional Trader?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Potentially making lots of money and, hopefully, having fun while doing so. Making money is often the core aim. But there are also people who just love analyzing data, making predictions, and the thrill of putting money on the line.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-how-do-you-avoid-tax-on-day-trading"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Avoid Tax on Day Trading?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you are a day trader and making a profit, you are expected to pay taxes on your gains. However, there are ways to secure more favorable tax treatment. That includes getting qualified trading status or forming a separate corporate entity through which to trade.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Although trading through a complex legal structure has obvious benefits, it also can add a significant amount of complexity to one's personal affairs. For traders who have been consistently profitable—but cannot or do not want to qualify for trader status—trading through a simple business is essential. </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"> If you wish to set up a pension fund to defer taxes, pay salaries to loved ones, or recoup significant medical expenses tax-free, then the added complexity is a decent trade-off to gain the benefits of a compound structure. Either way, to receive the best tax treatment and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/07/buildawall.asp">legal protection</a>, it is in your best interest to speak with financial professionals who understand the formation and operation of these entities for traders. </p></div>	As trading becomes more accessible due to the proliferation of online and discount brokerage firms, more people are participating in the stock market. However, as an individual or sole proprietor, traders cannot take advantage of some of the tax advantages and asset protection strategies that are available to companies. Working as an independent trader can be a way for individuals to make extra income, or even possibly a [full-time living](https://www.investopedia.com/articles/trading/09/how-to-trade-for-a-living.asp). But like any business venture, the income generated from trading is taxable. If you are successful as an independent day trader, it can create significant tax liabilities for you. Individuals who want to actively participate in the stock market have several options: they can trade as individuals or [sole proprietors](https://www.investopedia.com/terms/s/soleproprietorship.asp), qualify for trader status, or trade through a [business entity such as an LLC](https://www.investopedia.com/best-llc-filing-companies-5113499). For the active trader, creating a legal trading business will often provide the best tax treatment and asset protection. ### Key Takeaways * Individuals who want to actively participate in the stock market have several options. They can trade as individuals or sole proprietors, qualify for trader status, or trade through a business entity. * For the active trader, forming a legal trading business will often provide the best tax treatment and asset protection. * Unless an individual can qualify for qualified trader status, as determined by the IRS, all income they generate from trading activities is considered unearned or passive income when they file their individual income taxes. * If you cannot qualify for qualified trader status, another way to ensure you are receiving similar tax treatment, compared to a qualified trader, is to create a separate corporate entity through which you will conduct your trading activities. ## Tax Treatment for Traders According to the Internal Revenue Service (IRS), trading is not a business activity. In fact, all income from trading is considered unearned or [passive income](https://www.investopedia.com/terms/p/passiveincome.asp). This presumes—from the perspective of the IRS—that investors are individuals, and any trading activities are done for long-term [capital accumulation](https://www.investopedia.com/terms/c/capitalaccumulation.asp), rather than paying for current liabilities. For this reason, unless an individual can qualify for trader status, they will be treated like any other tax-filing individual. Income from trading can also not be reduced by contributing to an individual retirement account (IRA) or a pension fund. The only advantage of being considered a passive trader is that the income derived from trading is not subject to additional [self-employment taxes](https://www.investopedia.com/terms/s/selfemploymenttax.asp). After that, deductions are the same as what is normally afforded to W-2 wage earners (generally limited to mortgage interest, property taxes, and charitable deductions). The amounts of most deductions are restricted to a percentage of [adjusted gross income](https://www.investopedia.com/terms/a/agi.asp). Because trading is not considered a business activity by the IRS, all the expenses necessary to trade are not eligible for tax deductions. For most active traders, the costs of necessities—such as education, a trading platform, software, internet access, and computers—can be considerable. For most traders, the biggest tax issue they face is that deductions for trading losses are limited to gains. After that, only $3,000 can be deducted against [ordinary income](https://www.investopedia.com/terms/o/ordinaryincome.asp). In a year where net capital losses exceed $3,000, individuals can only carry forward $3,000 of that loss per year against future income. ## Potential Tax Remedies for Traders To avoid this type of tax treatment, some active traders try to qualify for trader status. The requirements for achieving trader status are laid out in IRS Publication 550. A qualified trader is allowed to file a Schedule C form and deduct business expenses, which could include education, entertainment, margin interest, and other trading-related expenses. Qualified traders can also take a [Section 179](https://www.investopedia.com/terms/s/section-179.asp) deduction for equipment used in trading activities. Finally, a qualified trader can elect a Section 475(f) election, also called the [mark-to-market (MTM)](https://www.investopedia.com/terms/m/marktomarket.asp) election. MTM accounting allows qualified traders to change their capital gains and losses to ordinary income and losses. On the last day of the year, all positions are assumed to be sold at [market value](https://www.investopedia.com/terms/m/marketvalue.asp), and a hypothetical gain or loss is calculated. For the following year, the basis for each of these positions is calculated by assuming they were also purchased at market value. The hypothetical gains and losses at year-end are added to actual gains and losses for tax purposes. Because gains and losses are regarded as ordinary income under MTM, all losses are deducted in the year they occur. Under MTM, traders are not bound by the $3,000 net [capital loss](https://www.investopedia.com/terms/c/capitalloss.asp) limitation; they can deduct all losses in the year they occur, providing the maximum tax relief in the current year. Some traders will also elect MTM to avoid the 30-day [wash sale rule](https://www.investopedia.com/terms/w/washsale.asp), which disqualifies loss deductions on "substantially identical" securities bought within 30 days before or after a sale. ## How the IRS Defines a Qualified Trader In [IRS Publication 550](https://www.investopedia.com/terms/i/irs-pub-550.asp) and Revenue Procedure 99-17 and 99-49, the IRS sets out general guidelines that explain the activities that qualify trading as a business. To be engaged in business as a trader in securities, a person [must trade from their account](https://www.investopedia.com/terms/e/entity-trading-account.asp) on a full-time basis and derive most of their income through [day trading](https://www.investopedia.com/articles/trading/05/011705.asp). According to the IRS, a trader is someone who trades significantly and continuously to profit from short-term fluctuations in security prices. Traders are individuals who make multiple trades daily to profit from [intraday](https://www.investopedia.com/terms/i/intraday.asp) market swings and do so continuously throughout the year. They spend a considerable amount of time documenting and researching trades and strategies and incur significant expenses to conduct their business. Although not specifically required, most qualified traders will open and close multiple trades daily and hold their positions for fewer than 30 days. For active traders, the benefits of qualifying are obvious, but these guidelines are open to interpretation by the IRS and the courts. In reality, only a small percentage of individuals qualify for this IRS status. ## Form a Separate Corporate Entity If you cannot qualify for qualified trader status, another way to ensure you are receiving similar tax treatment is to create a separate corporate entity through which you will conduct your trading activities. By creating a [limited liability company (LLC)](https://www.investopedia.com/terms/l/llc.asp) or limited partnership, you can receive the same tax treatment as a qualified trader without having to qualify. This type of legal entity usually receives less scrutiny from the IRS. It's unlikely that anyone would go through the trouble and expense of forming the entity unless they were committed to trading as a business venture. It is very difficult for individuals to change an election, such as MTM, once it has been chosen. With the company, if there is an advantage to changing [accounting methods](https://www.investopedia.com/terms/a/accountingmethod.asp) or the legal structure, the entity can simply be dissolved and re-formed accordingly. ## More Success Equals More Entities For highly successful traders, some financial advisors may suggest forming a business structure that includes multiple entities, as a way of maximizing the tax and protection benefits afforded to the business. Even though the actual structure is determined by an individual's financial goals, this type of legal business structure usually includes a [C corporation](https://www.investopedia.com/terms/c/corporation.asp), which exists to be the general partner or managing member of several limited liability companies. In this way, extra income, usually up to 30% of revenue, can be transferred to the corporate entity through a contracted [management fee](https://www.investopedia.com/terms/m/managementfee.asp) in order to take advantage of additional tax strategies. For example, to fund college expenses or to give children money tax-free, family members can become employees. The corporation can then take advantage of deductible salaries and educational expenses, while also building Social Security and Medicare accounts. Medical [reimbursement plans](https://www.investopedia.com/terms/r/reimbursement-plan.asp) can be created to fund all types of elective health care procedures and medical insurance premiums. Retirement accounts, such as individual retirement accounts (IRAs) and 401(k) plans, can be transferred into a [401a](https://www.investopedia.com/terms/1/401a-plan.asp), a type of pension fund that allows annual contributions and can never be accessed by creditors or through a legal claim. Because the corporation pays taxes on net income, the goal is to pay as many expenses as possible with pretax dollars and to minimize taxable income. This type of business structure also provides excellent asset protection because it separates the business from the individual. [Long-term assets](https://www.investopedia.com/terms/l/longtermassets.asp) can be held by other limited liability companies that can use accounting methods better suited for investments. All assets are protected from creditors and the legal liabilities of the individual because they are held by separate legal entities. However, the amount of legal protection is determined by state law. Many advisors suggest forming the entity in the state of Nevada because of its lack of corporate income tax, the flexibility to change orders as a sole remedy by creditors, the anonymity of not having to identify shareholders, and the ability to nominate corporate officers. ## How Much Money Do Day Traders With $10,000 Accounts Make per Day on Average? That depends on the amount invested and where. It also depends, of course, on how each day goes. Results won’t always be the same. ## What Are the Main Benefits of Being a Professional Trader? Potentially making lots of money and, hopefully, having fun while doing so. Making money is often the core aim. But there are also people who just love analyzing data, making predictions, and the thrill of putting money on the line. ## How Do You Avoid Tax on Day Trading? If you are a day trader and making a profit, you are expected to pay taxes on your gains. However, there are ways to secure more favorable tax treatment. That includes getting qualified trading status or forming a separate corporate entity through which to trade. ## The Bottom Line Although trading through a complex legal structure has obvious benefits, it also can add a significant amount of complexity to one's personal affairs. For traders who have been consistently profitable—but cannot or do not want to qualify for trader status—trading through a simple business is essential. If you wish to set up a pension fund to defer taxes, pay salaries to loved ones, or recoup significant medical expenses tax-free, then the added complexity is a decent trade-off to gain the benefits of a compound structure. Either way, to receive the best tax treatment and [legal protection](https://www.investopedia.com/articles/retirement/07/buildawall.asp), it is in your best interest to speak with financial professionals who understand the formation and operation of these entities for traders.	As trading becomes more accessible due to the proliferation of online and discount brokerage firms, more people are participating in the stock market. However, as an individual or sole proprietor, traders cannot take advantage of some of the tax advantages and asset protection strategies that are available to companies. Working as an independent trader can be a way for individuals to make extra income, or even possibly a full-time living. But like any business venture, the income generated from trading is taxable. If you are successful as an independent day trader, it can create significant tax liabilities for you. Individuals who want to actively participate in the stock market have several options: they can trade as individuals or sole proprietors, qualify for trader status, or trade through a business entity such as an LLC. For the active trader, creating a legal trading business will often provide the best tax treatment and asset protection. Key Takeaways Individuals who want to actively participate in the stock market have several options. They can trade as individuals or sole proprietors, qualify for trader status, or trade through a business entity.For the active trader, forming a legal trading business will often provide the best tax treatment and asset protection.Unless an individual can qualify for qualified trader status, as determined by the IRS, all income they generate from trading activities is considered unearned or passive income when they file their individual income taxes.If you cannot qualify for qualified trader status, another way to ensure you are receiving similar tax treatment, compared to a qualified trader, is to create a separate corporate entity through which you will conduct your trading activities. Tax Treatment for Traders According to the Internal Revenue Service (IRS), trading is not a business activity. In fact, all income from trading is considered unearned or passive income. This presumes—from the perspective of the IRS—that investors are individuals, and any trading activities are done for long-term capital accumulation, rather than paying for current liabilities. For this reason, unless an individual can qualify for trader status, they will be treated like any other tax-filing individual. Income from trading can also not be reduced by contributing to an individual retirement account (IRA) or a pension fund. The only advantage of being considered a passive trader is that the income derived from trading is not subject to additional self-employment taxes. After that, deductions are the same as what is normally afforded to W-2 wage earners (generally limited to mortgage interest, property taxes, and charitable deductions). The amounts of most deductions are restricted to a percentage of adjusted gross income. Because trading is not considered a business activity by the IRS, all the expenses necessary to trade are not eligible for tax deductions. For most active traders, the costs of necessities—such as education, a trading platform, software, internet access, and computers—can be considerable. For most traders, the biggest tax issue they face is that deductions for trading losses are limited to gains. After that, only $3,000 can be deducted against ordinary income. In a year where net capital losses exceed $3,000, individuals can only carry forward $3,000 of that loss per year against future income. Potential Tax Remedies for Traders To avoid this type of tax treatment, some active traders try to qualify for trader status. The requirements for achieving trader status are laid out in IRS Publication 550. A qualified trader is allowed to file a Schedule C form and deduct business expenses, which could include education, entertainment, margin interest, and other trading-related expenses. Qualified traders can also take a Section 179 deduction for equipment used in trading activities. Finally, a qualified trader can elect a Section 475(f) election, also called the mark-to-market (MTM) election. MTM accounting allows qualified traders to change their capital gains and losses to ordinary income and losses. On the last day of the year, all positions are assumed to be sold at market value, and a hypothetical gain or loss is calculated. For the following year, the basis for each of these positions is calculated by assuming they were also purchased at market value. The hypothetical gains and losses at year-end are added to actual gains and losses for tax purposes. Because gains and losses are regarded as ordinary income under MTM, all losses are deducted in the year they occur. Under MTM, traders are not bound by the $3,000 net capital loss limitation; they can deduct all losses in the year they occur, providing the maximum tax relief in the current year. Some traders will also elect MTM to avoid the 30-day wash sale rule, which disqualifies loss deductions on "substantially identical" securities bought within 30 days before or after a sale. How the IRS Defines a Qualified Trader In IRS Publication 550 and Revenue Procedure 99-17 and 99-49, the IRS sets out general guidelines that explain the activities that qualify trading as a business. To be engaged in business as a trader in securities, a person must trade from their account on a full-time basis and derive most of their income through day trading. According to the IRS, a trader is someone who trades significantly and continuously to profit from short-term fluctuations in security prices. Traders are individuals who make multiple trades daily to profit from intraday market swings and do so continuously throughout the year. They spend a considerable amount of time documenting and researching trades and strategies and incur significant expenses to conduct their business. Although not specifically required, most qualified traders will open and close multiple trades daily and hold their positions for fewer than 30 days. For active traders, the benefits of qualifying are obvious, but these guidelines are open to interpretation by the IRS and the courts. In reality, only a small percentage of individuals qualify for this IRS status. Form a Separate Corporate Entity If you cannot qualify for qualified trader status, another way to ensure you are receiving similar tax treatment is to create a separate corporate entity through which you will conduct your trading activities. By creating a limited liability company (LLC) or limited partnership, you can receive the same tax treatment as a qualified trader without having to qualify. This type of legal entity usually receives less scrutiny from the IRS. It's unlikely that anyone would go through the trouble and expense of forming the entity unless they were committed to trading as a business venture. It is very difficult for individuals to change an election, such as MTM, once it has been chosen. With the company, if there is an advantage to changing accounting methods or the legal structure, the entity can simply be dissolved and re-formed accordingly. More Success Equals More Entities For highly successful traders, some financial advisors may suggest forming a business structure that includes multiple entities, as a way of maximizing the tax and protection benefits afforded to the business. Even though the actual structure is determined by an individual's financial goals, this type of legal business structure usually includes a C corporation, which exists to be the general partner or managing member of several limited liability companies. In this way, extra income, usually up to 30% of revenue, can be transferred to the corporate entity through a contracted management fee in order to take advantage of additional tax strategies. For example, to fund college expenses or to give children money tax-free, family members can become employees. The corporation can then take advantage of deductible salaries and educational expenses, while also building Social Security and Medicare accounts. Medical reimbursement plans can be created to fund all types of elective health care procedures and medical insurance premiums. Retirement accounts, such as individual retirement accounts (IRAs) and 401(k) plans, can be transferred into a 401a, a type of pension fund that allows annual contributions and can never be accessed by creditors or through a legal claim. Because the corporation pays taxes on net income, the goal is to pay as many expenses as possible with pretax dollars and to minimize taxable income. This type of business structure also provides excellent asset protection because it separates the business from the individual. Long-term assets can be held by other limited liability companies that can use accounting methods better suited for investments. All assets are protected from creditors and the legal liabilities of the individual because they are held by separate legal entities. However, the amount of legal protection is determined by state law. Many advisors suggest forming the entity in the state of Nevada because of its lack of corporate income tax, the flexibility to change orders as a sole remedy by creditors, the anonymity of not having to identify shareholders, and the ability to nominate corporate officers. How Much Money Do Day Traders With $10,000 Accounts Make per Day on Average? That depends on the amount invested and where. It also depends, of course, on how each day goes. Results won’t always be the same. What Are the Main Benefits of Being a Professional Trader? Potentially making lots of money and, hopefully, having fun while doing so. Making money is often the core aim. But there are also people who just love analyzing data, making predictions, and the thrill of putting money on the line. How Do You Avoid Tax on Day Trading? If you are a day trader and making a profit, you are expected to pay taxes on your gains. However, there are ways to secure more favorable tax treatment. That includes getting qualified trading status or forming a separate corporate entity through which to trade. The Bottom Line Although trading through a complex legal structure has obvious benefits, it also can add a significant amount of complexity to one's personal affairs. For traders who have been consistently profitable—but cannot or do not want to qualify for trader status—trading through a simple business is essential. If you wish to set up a pension fund to defer taxes, pay salaries to loved ones, or recoup significant medical expenses tax-free, then the added complexity is a decent trade-off to gain the benefits of a compound structure. Either way, to receive the best tax treatment and legal protection, it is in your best interest to speak with financial professionals who understand the formation and operation of these entities for traders.	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https://www.investopedia.com/cardano-definition-4683961	Cardano (ADA): What It Is, How It Differs From Bitcoin	<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-cardano-ada"></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 Cardano (ADA)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Cardano (ADA) is a decentralized <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/proof-stake-pos.asp">Proof-of-Stake (PoS)</a> <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp">blockchain</a> designed to be more efficient than blockchains that rely on <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/proof-work.asp">Proof-of-Work (PoW)</a>. Similar to Ethereum, Cardano's PoS consensus mechanism uses and rewards cryptocurrency for work done to review and expand the historical blockchain record. </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"> Cardano is intended to evolve into a system for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/decentralized-applications-dapps.asp">decentralized applications (dApps)</a> with multiple use cases governed by stakers. The blockchain's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crypto-token.asp">cryptocurrency token</a> is named ADA after Augusta Ada King, Countess of Lovelace, an English aristocrat commonly regarded as the first computer programmer.<span class="ql-inline-citation" data-cite="7"></span> ADA can also be purchased on most major <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin-wallet.asp">cryptocurrency wallets</a> and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/190-cryptocurrency-exchanges-so-how-choose/">cryptocurrency exchanges</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways </h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Cardano is a blockchain platform that was founded in 2015 by Charles Hoskinson. It was launched in 2017.</li><li>Cardano aims to be a decentralized application (dApp) development platform with a multi-asset ledger and verifiable smart contracts.</li><li>Cardano runs on the proof-of-stake Ouroboros consensus protocol using its native token, Ada.</li></ul></div></div></div> <span class="heading-toc" id="toc-history-of-cardano-ada"></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"> History of Cardano (ADA) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Charles Hoskinson, an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ethereum.asp">Ethereum</a> co-founder who left the project due to disagreements with the direction of Ethereum, began developing Cardano in 2015 and launched the blockchain network with the first mined block in 2017.<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"> Cardano considers itself an updated version of and has positioned itself as an alternative to Ethereum, anointing itself a “third-generation” platform compared with Ethereum’s “second-generation” credentials. Cardano has a self-proclaimed goal of providing banking services to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unbanked.asp">world’s unbanked</a>.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> An eponymous non-profit foundation, the Cardano Foundation, was established in 2017 to oversee the development of the Cardano blockchain and to promote its adoption. Prior to that, IOHK, an engineering company, was the primary developer of the Cardano blockchain. Throughout its history, the Cardano blockchain has undergone four notable <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hard-fork.asp">hard forks</a> in its history: the Shelley, Alonzo, Vasil, and Valentine hard forks.<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_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The Shelley hard fork transitioned Cardano from a federated Byzantine Fault Tolerance (fBFT) consensus mechanism to a more decentralized PoS consensus mechanism called Ouroboros. The Alonzo hard fork enabled smart contracts on the Cardano blockchain for the first time, opening up the possibility for a wide range of dApps to be built on Cardano. The Vasil hard fork brought scalability upgrades to further improve dApp functionality, such as increased block size, improved transaction processing, and new scripting capabilities. </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"> In February 2023, the Valentine upgrade occurred, causing another (planned) hard fork. The purpose of this update was to allow more efficient cross-chain applications to be built and add support for other protocols.<br/> </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-cardano-vs-ethereum"></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"> Cardano vs. Ethereum </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Both the Cardano and Ethereum blockchain platforms are used for responsive applications and aim to build a connected system similar to the Apple and Android store, but decentralized. The most prominent features offered by Cardano and Ethereum to support dApps are their use of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/smart-contracts.asp">smart contracts</a> and a PoS blockchain algorithm. Cardano had a staking mechanism long before Ethereum did, but it only recently supported smart contracts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> Smart Contracts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Cardano implemented smart contract support in 2021 with its Alonzo update.<span class="ql-inline-citation" data-cite="18"></span> This update took place on Cardano's test network, a beta version of the blockchain, and was the first iteration of bringing promised scalability and interoperability to users. </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"> Smart contracts allowed Cardano developers to create dApps such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/non-fungible-tokens-nft-5115211">non-fungible tokens (NFTs)</a> and manage multiple cryptocurrency assets associated with these dApps. Future releases and forks of Cardano are expected to formally bring smart contract capabilities to the main network, the official version of the blockchain. </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"> Cryptocurrency Staking </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Cardano uses a PoS consensus mechanism, in which users "stake" the blockchain's cryptocurrency for the opportunity to become a validator. A stake is a pledge of a certain amount of ADA cryptocurrency to represent and secure validator rights in the Cardano network. ADA cannot be used or spent while it is staked because it must be held as collateral to incentivize honest validation behavior. </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"> Validators open and finalize blocks of transactions and are rewarded with ADA from other validators based on the number of tokens they have staked. Users can participate in the validation process by creating or joining a pool, which can be public or private. </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"> Staking pools consist of one or more trusted server nodes that conduct the work of validating transactions, updating the ledger, opening new blocks, and earning rewards. Public pools distribute rewards to members based on how much Ada they have staked. Private pools, as the name suggests, give rewards to their sole owners. </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 Cardano staking pool must be run by an operator with the technical knowledge and skills to maintain the stake pool by renting servers, monitoring the node, holding the pool key, and conducting other pool administration tasks.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-cardano-vs-bitcoin"></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"> Cardano vs. Bitcoin </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Bitcoin was developed as a peer-to-peer payment system, while Cardano is focused on fostering a general blockchain ecosystem that allows developers to create other tokens, dApps, or any uses a scalable blockchain network can host. </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 Cardano platform's PoS consensus mechanism relies on staking to validate transactions and reward cryptocurrency to validators, whereas Bitcoin's PoW relies on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/how-does-bitcoin-mining-work/">cryptocurrency mining</a>. Cardano's PoS expends drastically less energy than Bitcoin's PoW by removing the need to have computers gobbling up large amounts of electricity to power complex mining calculations. </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"> Cardano's PoS consensus mechanism also makes its validation process more accessible to the average user than Bitcoin's PoW. Cardano staking can be done simply by installing compatible <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-crypto-software-wallets-5220762">wallet software</a> on computers or devices—Bitcoin mining can also be done this way, but it is not very efficient, even if it is done through a pool, which is the least commitment-intensive option for mining.<br/> </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-future-of-cardano"></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"> Future of Cardano </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Cardano is designed to be developed in “eras” named after notable figures in poetry and computer science history: Byron, Shelley, Goguen, Basho, and Voltaire. Basho, Cardano's current era, is focused on bringing scaling and optimization capabilities to Cardano. As of April 2024, Cardano is anticipating the transition from Basho to Voltaire. </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"> Voltaire, Cardano's final era of development, is intended to bring voting and treasury management to the blockchain network through particular smart contract functionalities and system improvements.<span class="ql-inline-citation" data-cite="14"></span><span class="ql-inline-citation" data-cite="15"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-does-cardano-have-a-future"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Cardano Have a Future?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As with all blockchains and cryptocurrency projects, it is difficult to say how long they will last. Cardano is still being developed and maintained, so it appears that it still has potential, at least in the short term.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-is-cardano-a-hold-or-a-sell"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Cardano a Hold or a Sell?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It depends on your outlook, risk tolerance, and investing strategy.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-what-is-the-all-time-high-price-for-cardano"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the All-time High Price for Cardano?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Cardano's all time high was about $3.16 on Sep. 2, 2021.<span class="ql-inline-citation" data-cite="23"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Cardano is a decentralized PoS blockchain founded in 2015 and launched in 2017. It has positioned itself as an alternative to PoW blockchains like Bitcoin because it is more energy-efficient and scalable. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> The plans behind Cardano’s development are ambitious. Its developers see Cardano as eventually becoming fully decentralized when voting and treasury management of blockchain are added to its capabilities in the future. </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"> <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. As of the date this article was written, the author does not own cryptocurrency.</em> </p></div>	## What Is Cardano (ADA)? Cardano (ADA) is a decentralized [Proof-of-Stake (PoS)](https://www.investopedia.com/terms/p/proof-stake-pos.asp) [blockchain](https://www.investopedia.com/terms/b/blockchain.asp) designed to be more efficient than blockchains that rely on [Proof-of-Work (PoW)](https://www.investopedia.com/terms/p/proof-work.asp). Similar to Ethereum, Cardano's PoS consensus mechanism uses and rewards cryptocurrency for work done to review and expand the historical blockchain record. Cardano is intended to evolve into a system for [decentralized applications (dApps)](https://www.investopedia.com/terms/d/decentralized-applications-dapps.asp) with multiple use cases governed by stakers. The blockchain's [cryptocurrency token](https://www.investopedia.com/terms/c/crypto-token.asp) is named ADA after Augusta Ada King, Countess of Lovelace, an English aristocrat commonly regarded as the first computer programmer. ADA can also be purchased on most major [cryptocurrency wallets](https://www.investopedia.com/terms/b/bitcoin-wallet.asp) and [cryptocurrency exchanges](https://www.investopedia.com/tech/190-cryptocurrency-exchanges-so-how-choose/). ### Key Takeaways * Cardano is a blockchain platform that was founded in 2015 by Charles Hoskinson. It was launched in 2017. * Cardano aims to be a decentralized application (dApp) development platform with a multi-asset ledger and verifiable smart contracts. * Cardano runs on the proof-of-stake Ouroboros consensus protocol using its native token, Ada. ## History of Cardano (ADA) Charles Hoskinson, an [Ethereum](https://www.investopedia.com/terms/e/ethereum.asp) co-founder who left the project due to disagreements with the direction of Ethereum, began developing Cardano in 2015 and launched the blockchain network with the first mined block in 2017. Cardano considers itself an updated version of and has positioned itself as an alternative to Ethereum, anointing itself a “third-generation” platform compared with Ethereum’s “second-generation” credentials. Cardano has a self-proclaimed goal of providing banking services to the [world’s unbanked](https://www.investopedia.com/terms/u/unbanked.asp). An eponymous non-profit foundation, the Cardano Foundation, was established in 2017 to oversee the development of the Cardano blockchain and to promote its adoption. Prior to that, IOHK, an engineering company, was the primary developer of the Cardano blockchain. Throughout its history, the Cardano blockchain has undergone four notable [hard forks](https://www.investopedia.com/terms/h/hard-fork.asp) in its history: the Shelley, Alonzo, Vasil, and Valentine hard forks. The Shelley hard fork transitioned Cardano from a federated Byzantine Fault Tolerance (fBFT) consensus mechanism to a more decentralized PoS consensus mechanism called Ouroboros. The Alonzo hard fork enabled smart contracts on the Cardano blockchain for the first time, opening up the possibility for a wide range of dApps to be built on Cardano. The Vasil hard fork brought scalability upgrades to further improve dApp functionality, such as increased block size, improved transaction processing, and new scripting capabilities. In February 2023, the Valentine upgrade occurred, causing another (planned) hard fork. The purpose of this update was to allow more efficient cross-chain applications to be built and add support for other protocols. ## Cardano vs. Ethereum Both the Cardano and Ethereum blockchain platforms are used for responsive applications and aim to build a connected system similar to the Apple and Android store, but decentralized. The most prominent features offered by Cardano and Ethereum to support dApps are their use of [smart contracts](https://www.investopedia.com/terms/s/smart-contracts.asp) and a PoS blockchain algorithm. Cardano had a staking mechanism long before Ethereum did, but it only recently supported smart contracts. ### Smart Contracts Cardano implemented smart contract support in 2021 with its Alonzo update. This update took place on Cardano's test network, a beta version of the blockchain, and was the first iteration of bringing promised scalability and interoperability to users. Smart contracts allowed Cardano developers to create dApps such as [non-fungible tokens (NFTs)](https://www.investopedia.com/non-fungible-tokens-nft-5115211) and manage multiple cryptocurrency assets associated with these dApps. Future releases and forks of Cardano are expected to formally bring smart contract capabilities to the main network, the official version of the blockchain. ### Cryptocurrency Staking Cardano uses a PoS consensus mechanism, in which users "stake" the blockchain's cryptocurrency for the opportunity to become a validator. A stake is a pledge of a certain amount of ADA cryptocurrency to represent and secure validator rights in the Cardano network. ADA cannot be used or spent while it is staked because it must be held as collateral to incentivize honest validation behavior. Validators open and finalize blocks of transactions and are rewarded with ADA from other validators based on the number of tokens they have staked. Users can participate in the validation process by creating or joining a pool, which can be public or private. Staking pools consist of one or more trusted server nodes that conduct the work of validating transactions, updating the ledger, opening new blocks, and earning rewards. Public pools distribute rewards to members based on how much Ada they have staked. Private pools, as the name suggests, give rewards to their sole owners. A Cardano staking pool must be run by an operator with the technical knowledge and skills to maintain the stake pool by renting servers, monitoring the node, holding the pool key, and conducting other pool administration tasks. ## Cardano vs. Bitcoin Bitcoin was developed as a peer-to-peer payment system, while Cardano is focused on fostering a general blockchain ecosystem that allows developers to create other tokens, dApps, or any uses a scalable blockchain network can host. The Cardano platform's PoS consensus mechanism relies on staking to validate transactions and reward cryptocurrency to validators, whereas Bitcoin's PoW relies on [cryptocurrency mining](https://www.investopedia.com/tech/how-does-bitcoin-mining-work/). Cardano's PoS expends drastically less energy than Bitcoin's PoW by removing the need to have computers gobbling up large amounts of electricity to power complex mining calculations. Cardano's PoS consensus mechanism also makes its validation process more accessible to the average user than Bitcoin's PoW. Cardano staking can be done simply by installing compatible [wallet software](https://www.investopedia.com/best-crypto-software-wallets-5220762) on computers or devices—Bitcoin mining can also be done this way, but it is not very efficient, even if it is done through a pool, which is the least commitment-intensive option for mining. ## Future of Cardano Cardano is designed to be developed in “eras” named after notable figures in poetry and computer science history: Byron, Shelley, Goguen, Basho, and Voltaire. Basho, Cardano's current era, is focused on bringing scaling and optimization capabilities to Cardano. As of April 2024, Cardano is anticipating the transition from Basho to Voltaire. Voltaire, Cardano's final era of development, is intended to bring voting and treasury management to the blockchain network through particular smart contract functionalities and system improvements. ## Does Cardano Have a Future? As with all blockchains and cryptocurrency projects, it is difficult to say how long they will last. Cardano is still being developed and maintained, so it appears that it still has potential, at least in the short term. ## Is Cardano a Hold or a Sell? It depends on your outlook, risk tolerance, and investing strategy. ## What Is the All-time High Price for Cardano? Cardano's all time high was about $3.16 on Sep. 2, 2021. ## The Bottom Line Cardano is a decentralized PoS blockchain founded in 2015 and launched in 2017. It has positioned itself as an alternative to PoW blockchains like Bitcoin because it is more energy-efficient and scalable. The plans behind Cardano’s development are ambitious. Its developers see Cardano as eventually becoming fully decentralized when voting and treasury management of blockchain are added to its capabilities in the future. 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. As of the date this article was written, the author does not own cryptocurrency.	What Is Cardano (ADA)? Cardano (ADA) is a decentralized Proof-of-Stake (PoS) blockchain designed to be more efficient than blockchains that rely on Proof-of-Work (PoW). Similar to Ethereum, Cardano's PoS consensus mechanism uses and rewards cryptocurrency for work done to review and expand the historical blockchain record. Cardano is intended to evolve into a system for decentralized applications (dApps) with multiple use cases governed by stakers. The blockchain's cryptocurrency token is named ADA after Augusta Ada King, Countess of Lovelace, an English aristocrat commonly regarded as the first computer programmer. ADA can also be purchased on most major cryptocurrency wallets and cryptocurrency exchanges. Key Takeaways Cardano is a blockchain platform that was founded in 2015 by Charles Hoskinson. It was launched in 2017.Cardano aims to be a decentralized application (dApp) development platform with a multi-asset ledger and verifiable smart contracts.Cardano runs on the proof-of-stake Ouroboros consensus protocol using its native token, Ada. History of Cardano (ADA) Charles Hoskinson, an Ethereum co-founder who left the project due to disagreements with the direction of Ethereum, began developing Cardano in 2015 and launched the blockchain network with the first mined block in 2017. Cardano considers itself an updated version of and has positioned itself as an alternative to Ethereum, anointing itself a “third-generation” platform compared with Ethereum’s “second-generation” credentials. Cardano has a self-proclaimed goal of providing banking services to the world’s unbanked. An eponymous non-profit foundation, the Cardano Foundation, was established in 2017 to oversee the development of the Cardano blockchain and to promote its adoption. Prior to that, IOHK, an engineering company, was the primary developer of the Cardano blockchain. Throughout its history, the Cardano blockchain has undergone four notable hard forks in its history: the Shelley, Alonzo, Vasil, and Valentine hard forks. The Shelley hard fork transitioned Cardano from a federated Byzantine Fault Tolerance (fBFT) consensus mechanism to a more decentralized PoS consensus mechanism called Ouroboros. The Alonzo hard fork enabled smart contracts on the Cardano blockchain for the first time, opening up the possibility for a wide range of dApps to be built on Cardano. The Vasil hard fork brought scalability upgrades to further improve dApp functionality, such as increased block size, improved transaction processing, and new scripting capabilities. In February 2023, the Valentine upgrade occurred, causing another (planned) hard fork. The purpose of this update was to allow more efficient cross-chain applications to be built and add support for other protocols. Cardano vs. Ethereum Both the Cardano and Ethereum blockchain platforms are used for responsive applications and aim to build a connected system similar to the Apple and Android store, but decentralized. The most prominent features offered by Cardano and Ethereum to support dApps are their use of smart contracts and a PoS blockchain algorithm. Cardano had a staking mechanism long before Ethereum did, but it only recently supported smart contracts. Smart Contracts Cardano implemented smart contract support in 2021 with its Alonzo update. This update took place on Cardano's test network, a beta version of the blockchain, and was the first iteration of bringing promised scalability and interoperability to users. Smart contracts allowed Cardano developers to create dApps such as non-fungible tokens (NFTs) and manage multiple cryptocurrency assets associated with these dApps. Future releases and forks of Cardano are expected to formally bring smart contract capabilities to the main network, the official version of the blockchain. Cryptocurrency Staking Cardano uses a PoS consensus mechanism, in which users "stake" the blockchain's cryptocurrency for the opportunity to become a validator. A stake is a pledge of a certain amount of ADA cryptocurrency to represent and secure validator rights in the Cardano network. ADA cannot be used or spent while it is staked because it must be held as collateral to incentivize honest validation behavior. Validators open and finalize blocks of transactions and are rewarded with ADA from other validators based on the number of tokens they have staked. Users can participate in the validation process by creating or joining a pool, which can be public or private. Staking pools consist of one or more trusted server nodes that conduct the work of validating transactions, updating the ledger, opening new blocks, and earning rewards. Public pools distribute rewards to members based on how much Ada they have staked. Private pools, as the name suggests, give rewards to their sole owners. A Cardano staking pool must be run by an operator with the technical knowledge and skills to maintain the stake pool by renting servers, monitoring the node, holding the pool key, and conducting other pool administration tasks. Cardano vs. Bitcoin Bitcoin was developed as a peer-to-peer payment system, while Cardano is focused on fostering a general blockchain ecosystem that allows developers to create other tokens, dApps, or any uses a scalable blockchain network can host. The Cardano platform's PoS consensus mechanism relies on staking to validate transactions and reward cryptocurrency to validators, whereas Bitcoin's PoW relies on cryptocurrency mining. Cardano's PoS expends drastically less energy than Bitcoin's PoW by removing the need to have computers gobbling up large amounts of electricity to power complex mining calculations. Cardano's PoS consensus mechanism also makes its validation process more accessible to the average user than Bitcoin's PoW. Cardano staking can be done simply by installing compatible wallet software on computers or devices—Bitcoin mining can also be done this way, but it is not very efficient, even if it is done through a pool, which is the least commitment-intensive option for mining. Future of Cardano Cardano is designed to be developed in “eras” named after notable figures in poetry and computer science history: Byron, Shelley, Goguen, Basho, and Voltaire. Basho, Cardano's current era, is focused on bringing scaling and optimization capabilities to Cardano. As of April 2024, Cardano is anticipating the transition from Basho to Voltaire. Voltaire, Cardano's final era of development, is intended to bring voting and treasury management to the blockchain network through particular smart contract functionalities and system improvements. Does Cardano Have a Future? As with all blockchains and cryptocurrency projects, it is difficult to say how long they will last. Cardano is still being developed and maintained, so it appears that it still has potential, at least in the short term. Is Cardano a Hold or a Sell? It depends on your outlook, risk tolerance, and investing strategy. What Is the All-time High Price for Cardano? Cardano's all time high was about $3.16 on Sep. 2, 2021. The Bottom Line Cardano is a decentralized PoS blockchain founded in 2015 and launched in 2017. It has positioned itself as an alternative to PoW blockchains like Bitcoin because it is more energy-efficient and scalable. The plans behind Cardano’s development are ambitious. Its developers see Cardano as eventually becoming fully decentralized when voting and treasury management of blockchain are added to its capabilities in the future. The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own cryptocurrency.	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https://www.investopedia.com/terms/h/hnwi.asp	High-Net-Worth Individual (HNWI): Criteria and Example	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-high-net-worth-individual-hnwi"></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-Net-Worth Individual (HNWI)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A high-net-worth individual (HWNI) is an individual who generally has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/032715/what-items-are-considered-liquid-assets.asp">liquid assets</a> of at least $1 million after accounting for their liabilities.<span class="ql-inline-citation" data-cite="15"></span> The term HNWI is commonly used within the financial industry to identify individuals who need tailored financial and money management services. Liquid assets held by HNWIs include cash and investments that can be easily liquidated or converted to cash, including stocks.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A high-net-worth individual is a person with at least $1 million in liquid financial assets.</li><li>North America had a record number of high-net-worth individuals at 7.4 million people as of 2022.<span class="ql-inline-citation" data-cite="20"></span></li><li>An ultra-high-net-worth individual has a net worth of more than $30 million. </li><li>In 2022, the wealth of ultra-high-net-worth individuals worldwide decreased by about -3.7%.<span class="ql-inline-citation" data-cite="18"></span></li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_6-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="High Net Worth Individual (HNWI)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/R2IDOn2LEjMiBNGTPyfsYG9IFQc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_High-net-worth-individual-d5dee7851eb14976b0d77edbe79b1c89.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/R2IDOn2LEjMiBNGTPyfsYG9IFQc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_High-net-worth-individual-d5dee7851eb14976b0d77edbe79b1c89.jpg" data-srcset="https://www.investopedia.com/thmb/Rflg_fJjxb132d469Hoa1e-IKVg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_High-net-worth-individual-d5dee7851eb14976b0d77edbe79b1c89.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="High Net Worth Individual (HNWI)" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/R2IDOn2LEjMiBNGTPyfsYG9IFQc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_High-net-worth-individual-d5dee7851eb14976b0d77edbe79b1c89.jpg" srcset="https://www.investopedia.com/thmb/Rflg_fJjxb132d469Hoa1e-IKVg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_High-net-worth-individual-d5dee7851eb14976b0d77edbe79b1c89.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 / Mira Norian</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-high-net-worth-individuals-hnwis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Understanding High-Net-Worth Individuals (HNWIs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The financial industry measures people by their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/networth.asp">net worth</a>. Although there is no precise definition of how wealthy someone must be to fit into this category, high net worth is generally considered to include liquid assets of $1 million. A liquid asset is cash or money in investments that can be converted to cash relatively easily at any 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"> There are several ways that individuals can reach a high net worth. Working, saving money, and making smart investments can often lead to an increase in your net worth. Other ways include inheriting a large sum, winning the lottery, selling a valuable asset and/or business, or getting a settlement or a life insurance policy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> HNWIs usually get more benefits than those whose net worth falls under $1 million. Most banks require that a customer have a certain amount of liquid assets, a certain amount in depository accounts with the bank, or both, to qualify for special HNWI treatment. If they qualify, they may get services with reduced fees, special rates, and access to investor events that are closed to most.<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_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The more money a person has, the more work it takes to maintain and preserve those assets. These individuals generally demand and can justify personalized investment management, estate planning, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tax-planning.asp">tax planning</a> services. They generally qualify for separately managed investment accounts rather than <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">mutual funds</a>.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_17-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Their wealth allows high-net-worth individuals to participate in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offerings (IPOs)</a> and invest in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/startup.asp">startups</a> that demonstrate financial potential.</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_18-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> North America had about 7.4 million HNWIs in 2022, according to the Capgemini World Wealth Report. This is the highest concentration of HNWis in the world, followed by the Asia-Pacific region, with 7.1 million individuals. HNWIs in Europe totaled 5.6 million in 2022. Collectively, the total number of HNWIs around the world decreased by 3.3% from 2021 to 2022, with North America experiencing the largest decline of 6.9%.<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_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The HNWI population reached 21.7 million in 2022, with a total of $83 trillion in wealth. North America led the world's HNWI wealth with 7.4 million individuals, followed by the Asia-Pacific region with 7.1 million, Europe with 5.6 million, and Latin America with 600,000. The Middle East had 900,000 HNWIs while Africa had 200,000.<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_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The management consulting firm Capgemini separates the HNWI population into three wealth bands: </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>Millionaires next door, who have $1 million to $5 million in investable wealth</li><li>Mid-tier millionaires with $5 million to $30 million to invest</li><li>Ultra-HNWIs, those with more than $30 million<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_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Globally, the ultra-HNWI population numbered 210,000 in 2022. That's a decrease of 4.6%. Mid-tier millionaires numbered 1.98 million, while the millionaires next door category made up the largest group at 19.52 million.<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_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>The exact amount that defines an HNWI can often differ by financial institution and region. It generally excludes the person's primary residence as well as possessions like fine art and antiques that are relatively difficult to sell and volatile in value.<span class="ql-inline-citation" data-cite="16"></span></p></div></div></div> <span class="heading-toc" id="toc-benefits-afforded-to-high-net-worth-individuals-hnwis"></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"> Benefits Afforded to High-Net-Worth Individuals (HNWIs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> As a high-net-worth individual, you may qualify for banking, investment, and other financial services with reduced fees, discounts, and special rates, along with access to special events and perks. </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"> HNWIs can invest in hedge funds, which are generally open only to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accreditedinvestor.asp">accredited investors</a> who meet certain criteria, including a minimum net worth. HNWIs may also invest in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-careers/09/private-equity.asp">private equity (PE)</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/venturecapital.asp">venture capital (VC)</a> funds, which are not available to the general public. They can invest in real estate and other alternative assets that are not often accessible to the general public. </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"> These benefits and opportunities vary depending on the financial institution and region.<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_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> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">Wealth Growth by Region, 2022</th> </tr> <tr> <th><b>Country</b></th> <th><b>HNWI wealth </b></th> <th><b>YoY growth</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>North America</td> <td>$25,632,000</td> <td>-7.4%</td> </tr> <tr> <td>Asia-Pacific</td> <td>$24,653,000</td> <td>-2.7%</td> </tr> <tr> <td>Europe</td> <td>$18,171,000</td> <td>-3.2%</td> </tr> <tr> <td>Latin America</td> <td>$9,189,000</td> <td>2.1%</td> </tr> <tr> <td>Middle East</td> <td>$3,415,000</td> <td>1.5%</td> </tr> <tr> <td>Africa</td> <td>$1,858,000</td> <td>1.6%</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-types-of-high-net-worth-individuals-hnwis"></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"> Types of High-Net-Worth Individuals (HNWIs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> An investor with less than $1 million but more than $100,000 is considered to be a sub-HNWI. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/decamillionaire.asp">The upper end of HNWI</a> is around $5 million, at which point the client is referred to as a very-HNWI. More than $30 million in wealth classifies a person as an ultra-HNWI. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> The very-high-net-worth individual (VHNWI) classification can refer to someone with a net worth of at least $5 million. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/ultra-high-net-worth-individuals-uhnwi.asp">Ultra-high-net-worth individuals (UHNWIs)</a> are defined as people with investable assets of at least $30 million. </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"> This, of course, excludes personal assets and property, collectibles, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/durables.asp">consumer durables</a>.<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_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-are-hnwis-categorized"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Are HNWIs Categorized?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The most commonly quoted figure for qualification as a high-net-worth individual is at least $1 million in liquid financial assets, excluding personal assets such as a primary residence. Investors with less than $1 million but more than $100,000 liquid assets are considered sub-HNWIs. Very-high-net-worth individuals have investable assets of at least $5 million, while ultra-high-net-worth individuals have at least $30 million.<span class="ql-inline-citation" data-cite="15"></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-benefits-do-hnwis-get"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Benefits Do HNWIs Get?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>HNWIs are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-advisors/070215/top-strategies-attract-highnetworth-clients.asp">highly sought-after clients</a> for wealth managers. They generally qualify for personalized managed investment accounts instead of regular mutual funds. They also qualify for estate planning and tax planning as well as portfolio management services.</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-where-are-most-of-the-high-net-worth-individuals"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Are Most of the High-Net-Worth Individuals?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In sheer numbers of high-net-worth individuals, North America leads the pack with 7.4 million, followed by the Asia-Pacific region with 7.1 million, and Europe with 5.6 million.<span class="ql-inline-citation" data-cite="20"></span><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> A high-net-worth individual (HNWI) is someone with liquid assets of at least $1 million. These individuals often seek the assistance of financial professionals to manage their money, and their high net worth qualifies them for additional benefits and investing opportunities that are closed to most. </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"> HNWIs are in high demand by private wealth managers because it takes more work to maintain and preserve their assets. The United States boasts the most HNWIs in the world. </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"> <em>Correction—April 30, 2023:</em> A previous version of this article stated that liquid assets might include a primary residence or works of art. Neither can quickly and easily be converted into cash and therefore are not liquid assets. </p></div>	## What Is a High-Net-Worth Individual (HNWI)? A high-net-worth individual (HWNI) is an individual who generally has [liquid assets](https://www.investopedia.com/ask/answers/032715/what-items-are-considered-liquid-assets.asp) of at least $1 million after accounting for their liabilities. The term HNWI is commonly used within the financial industry to identify individuals who need tailored financial and money management services. Liquid assets held by HNWIs include cash and investments that can be easily liquidated or converted to cash, including stocks. ### Key Takeaways * A high-net-worth individual is a person with at least $1 million in liquid financial assets. * North America had a record number of high-net-worth individuals at 7.4 million people as of 2022. * An ultra-high-net-worth individual has a net worth of more than $30 million. * In 2022, the wealth of ultra-high-net-worth individuals worldwide decreased by about -3.7%. ![High Net Worth Individual (HNWI)]() ![High Net Worth Individual (HNWI)](https://www.investopedia.com/thmb/R2IDOn2LEjMiBNGTPyfsYG9IFQc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_High-net-worth-individual-d5dee7851eb14976b0d77edbe79b1c89.jpg) Investopedia / Mira Norian ## Understanding High-Net-Worth Individuals (HNWIs) The financial industry measures people by their [net worth](https://www.investopedia.com/terms/n/networth.asp). Although there is no precise definition of how wealthy someone must be to fit into this category, high net worth is generally considered to include liquid assets of $1 million. A liquid asset is cash or money in investments that can be converted to cash relatively easily at any time. There are several ways that individuals can reach a high net worth. Working, saving money, and making smart investments can often lead to an increase in your net worth. Other ways include inheriting a large sum, winning the lottery, selling a valuable asset and/or business, or getting a settlement or a life insurance policy. HNWIs usually get more benefits than those whose net worth falls under $1 million. Most banks require that a customer have a certain amount of liquid assets, a certain amount in depository accounts with the bank, or both, to qualify for special HNWI treatment. If they qualify, they may get services with reduced fees, special rates, and access to investor events that are closed to most. The more money a person has, the more work it takes to maintain and preserve those assets. These individuals generally demand and can justify personalized investment management, estate planning, and [tax planning](https://www.investopedia.com/terms/t/tax-planning.asp) services. They generally qualify for separately managed investment accounts rather than [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp). ### Their wealth allows high-net-worth individuals to participate in [initial public offerings (IPOs)](https://www.investopedia.com/terms/i/ipo.asp) and invest in [startups](https://www.investopedia.com/terms/s/startup.asp) that demonstrate financial potential. ## Special Considerations North America had about 7.4 million HNWIs in 2022, according to the Capgemini World Wealth Report. This is the highest concentration of HNWis in the world, followed by the Asia-Pacific region, with 7.1 million individuals. HNWIs in Europe totaled 5.6 million in 2022. Collectively, the total number of HNWIs around the world decreased by 3.3% from 2021 to 2022, with North America experiencing the largest decline of 6.9%. The HNWI population reached 21.7 million in 2022, with a total of $83 trillion in wealth. North America led the world's HNWI wealth with 7.4 million individuals, followed by the Asia-Pacific region with 7.1 million, Europe with 5.6 million, and Latin America with 600,000. The Middle East had 900,000 HNWIs while Africa had 200,000. The management consulting firm Capgemini separates the HNWI population into three wealth bands: * Millionaires next door, who have $1 million to $5 million in investable wealth * Mid-tier millionaires with $5 million to $30 million to invest * Ultra-HNWIs, those with more than $30 million Globally, the ultra-HNWI population numbered 210,000 in 2022. That's a decrease of 4.6%. Mid-tier millionaires numbered 1.98 million, while the millionaires next door category made up the largest group at 19.52 million. ### The exact amount that defines an HNWI can often differ by financial institution and region. It generally excludes the person's primary residence as well as possessions like fine art and antiques that are relatively difficult to sell and volatile in value. ## Benefits Afforded to High-Net-Worth Individuals (HNWIs) As a high-net-worth individual, you may qualify for banking, investment, and other financial services with reduced fees, discounts, and special rates, along with access to special events and perks. HNWIs can invest in hedge funds, which are generally open only to [accredited investors](https://www.investopedia.com/terms/a/accreditedinvestor.asp) who meet certain criteria, including a minimum net worth. HNWIs may also invest in [private equity (PE)](https://www.investopedia.com/articles/financial-careers/09/private-equity.asp) and [venture capital (VC)](https://www.investopedia.com/terms/v/venturecapital.asp) funds, which are not available to the general public. They can invest in real estate and other alternative assets that are not often accessible to the general public. These benefits and opportunities vary depending on the financial institution and region. \| Wealth Growth by Region, 2022 \| \| \| \| --- \| --- \| --- \| \| Country \| HNWI wealth \| YoY growth \| \| North America \| $25,632,000 \| -7.4% \| \| Asia-Pacific \| $24,653,000 \| -2.7% \| \| Europe \| $18,171,000 \| -3.2% \| \| Latin America \| $9,189,000 \| 2.1% \| \| Middle East \| $3,415,000 \| 1.5% \| \| Africa \| $1,858,000 \| 1.6% \| ## Types of High-Net-Worth Individuals (HNWIs) An investor with less than $1 million but more than $100,000 is considered to be a sub-HNWI. [The upper end of HNWI](https://www.investopedia.com/terms/d/decamillionaire.asp) is around $5 million, at which point the client is referred to as a very-HNWI. More than $30 million in wealth classifies a person as an ultra-HNWI. The very-high-net-worth individual (VHNWI) classification can refer to someone with a net worth of at least $5 million. [Ultra-high-net-worth individuals (UHNWIs)](https://www.investopedia.com/terms/u/ultra-high-net-worth-individuals-uhnwi.asp) are defined as people with investable assets of at least $30 million. This, of course, excludes personal assets and property, collectibles, and [consumer durables](https://www.investopedia.com/terms/d/durables.asp). ## How Are HNWIs Categorized? The most commonly quoted figure for qualification as a high-net-worth individual is at least $1 million in liquid financial assets, excluding personal assets such as a primary residence. Investors with less than $1 million but more than $100,000 liquid assets are considered sub-HNWIs. Very-high-net-worth individuals have investable assets of at least $5 million, while ultra-high-net-worth individuals have at least $30 million. ## What Benefits Do HNWIs Get? HNWIs are [highly sought-after clients](https://www.investopedia.com/articles/financial-advisors/070215/top-strategies-attract-highnetworth-clients.asp) for wealth managers. They generally qualify for personalized managed investment accounts instead of regular mutual funds. They also qualify for estate planning and tax planning as well as portfolio management services. ## Where Are Most of the High-Net-Worth Individuals? In sheer numbers of high-net-worth individuals, North America leads the pack with 7.4 million, followed by the Asia-Pacific region with 7.1 million, and Europe with 5.6 million. ## The Bottom Line A high-net-worth individual (HNWI) is someone with liquid assets of at least $1 million. These individuals often seek the assistance of financial professionals to manage their money, and their high net worth qualifies them for additional benefits and investing opportunities that are closed to most. HNWIs are in high demand by private wealth managers because it takes more work to maintain and preserve their assets. The United States boasts the most HNWIs in the world. Correction—April 30, 2023: A previous version of this article stated that liquid assets might include a primary residence or works of art. Neither can quickly and easily be converted into cash and therefore are not liquid assets.	What Is a High-Net-Worth Individual (HNWI)? A high-net-worth individual (HWNI) is an individual who generally has liquid assets of at least $1 million after accounting for their liabilities. The term HNWI is commonly used within the financial industry to identify individuals who need tailored financial and money management services. Liquid assets held by HNWIs include cash and investments that can be easily liquidated or converted to cash, including stocks. Key Takeaways A high-net-worth individual is a person with at least $1 million in liquid financial assets.North America had a record number of high-net-worth individuals at 7.4 million people as of 2022.An ultra-high-net-worth individual has a net worth of more than $30 million. In 2022, the wealth of ultra-high-net-worth individuals worldwide decreased by about -3.7%. Investopedia / Mira Norian Understanding High-Net-Worth Individuals (HNWIs) The financial industry measures people by their net worth. Although there is no precise definition of how wealthy someone must be to fit into this category, high net worth is generally considered to include liquid assets of $1 million. A liquid asset is cash or money in investments that can be converted to cash relatively easily at any time. There are several ways that individuals can reach a high net worth. Working, saving money, and making smart investments can often lead to an increase in your net worth. Other ways include inheriting a large sum, winning the lottery, selling a valuable asset and/or business, or getting a settlement or a life insurance policy. HNWIs usually get more benefits than those whose net worth falls under $1 million. Most banks require that a customer have a certain amount of liquid assets, a certain amount in depository accounts with the bank, or both, to qualify for special HNWI treatment. If they qualify, they may get services with reduced fees, special rates, and access to investor events that are closed to most. The more money a person has, the more work it takes to maintain and preserve those assets. These individuals generally demand and can justify personalized investment management, estate planning, and tax planning services. They generally qualify for separately managed investment accounts rather than mutual funds. Their wealth allows high-net-worth individuals to participate in initial public offerings (IPOs) and invest in startups that demonstrate financial potential. Special Considerations North America had about 7.4 million HNWIs in 2022, according to the Capgemini World Wealth Report. This is the highest concentration of HNWis in the world, followed by the Asia-Pacific region, with 7.1 million individuals. HNWIs in Europe totaled 5.6 million in 2022. Collectively, the total number of HNWIs around the world decreased by 3.3% from 2021 to 2022, with North America experiencing the largest decline of 6.9%. The HNWI population reached 21.7 million in 2022, with a total of $83 trillion in wealth. North America led the world's HNWI wealth with 7.4 million individuals, followed by the Asia-Pacific region with 7.1 million, Europe with 5.6 million, and Latin America with 600,000. The Middle East had 900,000 HNWIs while Africa had 200,000. The management consulting firm Capgemini separates the HNWI population into three wealth bands: Millionaires next door, who have $1 million to $5 million in investable wealthMid-tier millionaires with $5 million to $30 million to investUltra-HNWIs, those with more than $30 million Globally, the ultra-HNWI population numbered 210,000 in 2022. That's a decrease of 4.6%. Mid-tier millionaires numbered 1.98 million, while the millionaires next door category made up the largest group at 19.52 million. The exact amount that defines an HNWI can often differ by financial institution and region. It generally excludes the person's primary residence as well as possessions like fine art and antiques that are relatively difficult to sell and volatile in value. Benefits Afforded to High-Net-Worth Individuals (HNWIs) As a high-net-worth individual, you may qualify for banking, investment, and other financial services with reduced fees, discounts, and special rates, along with access to special events and perks. HNWIs can invest in hedge funds, which are generally open only to accredited investors who meet certain criteria, including a minimum net worth. HNWIs may also invest in private equity (PE) and venture capital (VC) funds, which are not available to the general public. They can invest in real estate and other alternative assets that are not often accessible to the general public. These benefits and opportunities vary depending on the financial institution and region. Wealth Growth by Region, 2022 Country HNWI wealth YoY growth North America $25,632,000 -7.4% Asia-Pacific $24,653,000 -2.7% Europe $18,171,000 -3.2% Latin America $9,189,000 2.1% Middle East $3,415,000 1.5% Africa $1,858,000 1.6% Types of High-Net-Worth Individuals (HNWIs) An investor with less than $1 million but more than $100,000 is considered to be a sub-HNWI. The upper end of HNWI is around $5 million, at which point the client is referred to as a very-HNWI. More than $30 million in wealth classifies a person as an ultra-HNWI. The very-high-net-worth individual (VHNWI) classification can refer to someone with a net worth of at least $5 million. Ultra-high-net-worth individuals (UHNWIs) are defined as people with investable assets of at least $30 million. This, of course, excludes personal assets and property, collectibles, and consumer durables. How Are HNWIs Categorized? The most commonly quoted figure for qualification as a high-net-worth individual is at least $1 million in liquid financial assets, excluding personal assets such as a primary residence. Investors with less than $1 million but more than $100,000 liquid assets are considered sub-HNWIs. Very-high-net-worth individuals have investable assets of at least $5 million, while ultra-high-net-worth individuals have at least $30 million. What Benefits Do HNWIs Get? HNWIs are highly sought-after clients for wealth managers. They generally qualify for personalized managed investment accounts instead of regular mutual funds. They also qualify for estate planning and tax planning as well as portfolio management services. Where Are Most of the High-Net-Worth Individuals? In sheer numbers of high-net-worth individuals, North America leads the pack with 7.4 million, followed by the Asia-Pacific region with 7.1 million, and Europe with 5.6 million. The Bottom Line A high-net-worth individual (HNWI) is someone with liquid assets of at least $1 million. These individuals often seek the assistance of financial professionals to manage their money, and their high net worth qualifies them for additional benefits and investing opportunities that are closed to most. HNWIs are in high demand by private wealth managers because it takes more work to maintain and preserve their assets. The United States boasts the most HNWIs in the world. Correction—April 30, 2023: A previous version of this article stated that liquid assets might include a primary residence or works of art. Neither can quickly and easily be converted into cash and therefore are not liquid assets.	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https://www.investopedia.com/terms/a/american-code-for-information-interchange.asp	American Code For Information Interchange (ASCII) Overview	<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-american-code-for-information-interchange-ascii"></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 American Code for Information Interchange (ASCII)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The American Code for Information Interchange, commonly called ASCII, is a computer language for text that became the standard for transmitting information between computers in 1963.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The ASCII system translates alphanumeric characters and symbols into a computer-readable code. The original ASCII was English-only. There are now two types of ASCII codes; the standard code that uses a seven-bit encoding system, and an extended code that uses an eight-bit system. </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"> In internet communications, ASCII has gradually been superseded by the Unicode standard, which can be used with any language and is compatible with ASCII. However, ASCII is still used for entering text on personal computers and electronic devices. </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 is pronounced ASK-y. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The American Code for Information Interchange, or ASCII, is a character encoding format designed for use in transmitting text between computers.</li><li>ASCII originally contained only 128 English-language letters and symbols but was later expanded to include additional characters, including those used in other languages.</li><li>ASCII continues to exist but has been largely replaced by Unicode, which can be used to encode any language.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-american-code-for-information-interchange-ascii"></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 American Code for Information Interchange (ASCII) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The earliest iteration of ASCII can be found in a telegraphic code used by Bell data services to deliver messages to teleprinters.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> ASCII was the first major character encoding system for data processing and was adopted as the standard for computing in 1963 and in 1968 it was mandated that all U.S. government computers be ASCII compatible.<span class="ql-inline-citation" data-cite="13"></span><span class="ql-inline-citation" data-cite="12"></span> It was used for many years in the order-entry computer systems used by Wall Street traders and brokers. </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 has been gradually replaced as the standard for the internet by the Unicode Worldwide Character Standard (Unicode). However, since the first 128 characters of Unicode are the same as those in ASCII, the two systems can be said to co-exist.<span class="ql-inline-citation" data-cite="14"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>You can enter an ASCII symbol into a document using any Windows-compatible computer by holding down the ALT key while typing the character code number. For example, holding the ALT key while typing 156 will give you £, the British pound sign.</p></div></div></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"> What's In ASCII </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Before ASCII was adopted as a standard, every computer maker used its own code, and some companies used more than one for different products. Computers were unable to communicate with one another. </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"> Although ASCII was adopted as the standard by the American National Standards in 1963, it was not fully implemented even in the U.S. until 1968, when President Lyndon B. Johnson mandated its adoption by the federal government in order to ensure that government computers and telecommunications industry computers could communicate with each other.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> ASCII originally contained 128 alphabetical characters, numbers, and symbols and was based on the English language. Extended forms were added through the 1970s to accommodate other languages. </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"> Soon, various versions of ASCII were in use. It eventually included 256 characters. This version was released in 1981 and is known as Extended ASCII.<span class="ql-inline-citation" data-cite="15"></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_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Today, Windows computer users can enter ASCII or Unicode symbols such as a copyright symbol into documents by pressing the alt key and entering the character code on the numeric keypad with the NUM lock key on. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_32-0"><span class="heading-toc" id="toc-what-is-ascii"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is ASCII?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The American Standard Code for Information Interchange, or ASCII, is a character encoding format for the electronic transmission of text. Every character is represented by a unique number. The first version of ASCII contained only 128 characters, representing the letters of the alphabet, capitalized and lower-case, plus a number of commonly-used symbols such as the comma.</p><p>Later versions extended ASCII to 256 characters, including additional symbols such as the British pound symbol (£)and the upside-down question mark used in Spanish text (¿).<span class="ql-inline-citation" data-cite="10"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-what-are-the-ascii-characters"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the ASCII Characters?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In the Extended ASCII table, character codes 0 through 31 are control codes such as start of text and backspace.</p><p>Character codes 32 through 127 are mostly letters of the alphabet (capitalized and lower case) and symbols like the asterisk and the dollar sign.</p><p>Character codes 128 through 255 comes in several versions, each of them reflecting additions to the original English-only ASCII such as an inverted exclamation mark, the yen sign, and the Georgian comma.<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_35-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_36-0"><span class="heading-toc" id="toc-what-is-ascii-vs-unicode"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is ASCII vs. Unicode?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Unicode could be seen as a universal version of ASCII.</p><p>ASCII is, after all, the American Code for Information Interchange, and its first iteration included the English-language alphabet and symbols used in the language. Later versions included symbols used in many other languages.</p><p>Unicode, on the other hand, starts with the same 128 symbols used in ASCII but current versions contain 149,186 characters.<span class="ql-inline-citation" data-cite="9"></span></p></div> </div></div>	## What Is the American Code for Information Interchange (ASCII)? The American Code for Information Interchange, commonly called ASCII, is a computer language for text that became the standard for transmitting information between computers in 1963. The ASCII system translates alphanumeric characters and symbols into a computer-readable code. The original ASCII was English-only. There are now two types of ASCII codes; the standard code that uses a seven-bit encoding system, and an extended code that uses an eight-bit system. In internet communications, ASCII has gradually been superseded by the Unicode standard, which can be used with any language and is compatible with ASCII. However, ASCII is still used for entering text on personal computers and electronic devices. It is pronounced ASK-y. ### Key Takeaways * The American Code for Information Interchange, or ASCII, is a character encoding format designed for use in transmitting text between computers. * ASCII originally contained only 128 English-language letters and symbols but was later expanded to include additional characters, including those used in other languages. * ASCII continues to exist but has been largely replaced by Unicode, which can be used to encode any language. ## Understanding the American Code for Information Interchange (ASCII) The earliest iteration of ASCII can be found in a telegraphic code used by Bell data services to deliver messages to teleprinters. ASCII was the first major character encoding system for data processing and was adopted as the standard for computing in 1963 and in 1968 it was mandated that all U.S. government computers be ASCII compatible. It was used for many years in the order-entry computer systems used by Wall Street traders and brokers. It has been gradually replaced as the standard for the internet by the Unicode Worldwide Character Standard (Unicode). However, since the first 128 characters of Unicode are the same as those in ASCII, the two systems can be said to co-exist. ### You can enter an ASCII symbol into a document using any Windows-compatible computer by holding down the ALT key while typing the character code number. For example, holding the ALT key while typing 156 will give you £, the British pound sign. ### What's In ASCII Before ASCII was adopted as a standard, every computer maker used its own code, and some companies used more than one for different products. Computers were unable to communicate with one another. Although ASCII was adopted as the standard by the American National Standards in 1963, it was not fully implemented even in the U.S. until 1968, when President Lyndon B. Johnson mandated its adoption by the federal government in order to ensure that government computers and telecommunications industry computers could communicate with each other. ASCII originally contained 128 alphabetical characters, numbers, and symbols and was based on the English language. Extended forms were added through the 1970s to accommodate other languages. Soon, various versions of ASCII were in use. It eventually included 256 characters. This version was released in 1981 and is known as Extended ASCII. Today, Windows computer users can enter ASCII or Unicode symbols such as a copyright symbol into documents by pressing the alt key and entering the character code on the numeric keypad with the NUM lock key on. ## What Is ASCII? The American Standard Code for Information Interchange, or ASCII, is a character encoding format for the electronic transmission of text. Every character is represented by a unique number. The first version of ASCII contained only 128 characters, representing the letters of the alphabet, capitalized and lower-case, plus a number of commonly-used symbols such as the comma. Later versions extended ASCII to 256 characters, including additional symbols such as the British pound symbol (£)and the upside-down question mark used in Spanish text (¿). ## What Are the ASCII Characters? In the Extended ASCII table, character codes 0 through 31 are control codes such as start of text and backspace. Character codes 32 through 127 are mostly letters of the alphabet (capitalized and lower case) and symbols like the asterisk and the dollar sign. Character codes 128 through 255 comes in several versions, each of them reflecting additions to the original English-only ASCII such as an inverted exclamation mark, the yen sign, and the Georgian comma. ## What Is ASCII vs. Unicode? Unicode could be seen as a universal version of ASCII. ASCII is, after all, the American Code for Information Interchange, and its first iteration included the English-language alphabet and symbols used in the language. Later versions included symbols used in many other languages. Unicode, on the other hand, starts with the same 128 symbols used in ASCII but current versions contain 149,186 characters.	What Is the American Code for Information Interchange (ASCII)? The American Code for Information Interchange, commonly called ASCII, is a computer language for text that became the standard for transmitting information between computers in 1963. The ASCII system translates alphanumeric characters and symbols into a computer-readable code. The original ASCII was English-only. There are now two types of ASCII codes; the standard code that uses a seven-bit encoding system, and an extended code that uses an eight-bit system. In internet communications, ASCII has gradually been superseded by the Unicode standard, which can be used with any language and is compatible with ASCII. However, ASCII is still used for entering text on personal computers and electronic devices. It is pronounced ASK-y. Key Takeaways The American Code for Information Interchange, or ASCII, is a character encoding format designed for use in transmitting text between computers.ASCII originally contained only 128 English-language letters and symbols but was later expanded to include additional characters, including those used in other languages.ASCII continues to exist but has been largely replaced by Unicode, which can be used to encode any language. Understanding the American Code for Information Interchange (ASCII) The earliest iteration of ASCII can be found in a telegraphic code used by Bell data services to deliver messages to teleprinters. ASCII was the first major character encoding system for data processing and was adopted as the standard for computing in 1963 and in 1968 it was mandated that all U.S. government computers be ASCII compatible. It was used for many years in the order-entry computer systems used by Wall Street traders and brokers. It has been gradually replaced as the standard for the internet by the Unicode Worldwide Character Standard (Unicode). However, since the first 128 characters of Unicode are the same as those in ASCII, the two systems can be said to co-exist. You can enter an ASCII symbol into a document using any Windows-compatible computer by holding down the ALT key while typing the character code number. For example, holding the ALT key while typing 156 will give you £, the British pound sign. What's In ASCII Before ASCII was adopted as a standard, every computer maker used its own code, and some companies used more than one for different products. Computers were unable to communicate with one another. Although ASCII was adopted as the standard by the American National Standards in 1963, it was not fully implemented even in the U.S. until 1968, when President Lyndon B. Johnson mandated its adoption by the federal government in order to ensure that government computers and telecommunications industry computers could communicate with each other. ASCII originally contained 128 alphabetical characters, numbers, and symbols and was based on the English language. Extended forms were added through the 1970s to accommodate other languages. Soon, various versions of ASCII were in use. It eventually included 256 characters. This version was released in 1981 and is known as Extended ASCII. Today, Windows computer users can enter ASCII or Unicode symbols such as a copyright symbol into documents by pressing the alt key and entering the character code on the numeric keypad with the NUM lock key on. What Is ASCII? The American Standard Code for Information Interchange, or ASCII, is a character encoding format for the electronic transmission of text. Every character is represented by a unique number. The first version of ASCII contained only 128 characters, representing the letters of the alphabet, capitalized and lower-case, plus a number of commonly-used symbols such as the comma.Later versions extended ASCII to 256 characters, including additional symbols such as the British pound symbol (£)and the upside-down question mark used in Spanish text (¿). What Are the ASCII Characters? In the Extended ASCII table, character codes 0 through 31 are control codes such as start of text and backspace.Character codes 32 through 127 are mostly letters of the alphabet (capitalized and lower case) and symbols like the asterisk and the dollar sign.Character codes 128 through 255 comes in several versions, each of them reflecting additions to the original English-only ASCII such as an inverted exclamation mark, the yen sign, and the Georgian comma. What Is ASCII vs. Unicode? Unicode could be seen as a universal version of ASCII.ASCII is, after all, the American Code for Information Interchange, and its first iteration included the English-language alphabet and symbols used in the language. Later versions included symbols used in many other languages.Unicode, on the other hand, starts with the same 128 symbols used in ASCII but current versions contain 149,186 characters.	[]
https://www.investopedia.com/ask/answers/042315/what-are-primary-differences-between-closed-end-investment-and-open-end-investment.asp	Closed-End vs. Open-End Investments: 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-closed-end-vs-open-end-investments-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"> Closed-End vs. Open-End Investments: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Closed-end and open-end investments have basic characteristics in common. Both are professionally managed funds that achieve diversification by investing in a collection of equities or other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialasset.asp">financial assets</a>, rather than in a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/072915/single-stocks-your-portfolio-pros-and-cons.asp">single stock</a>. And both pool the resources of many investors to be able to invest in a larger and wider scale. They're also both known as closed-end and open-end funds. </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"> But there are also several differences between these two types of investments. The primary differences lie in how they are organized, and how <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investors</a> buy and sell them. There may also be some significant differences in the investments that make up the funds' portfolios. </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>There are significant differences in the structure, pricing, and sales of closed-end funds and open-end funds.</li><li>A closed-end fund has a fixed number of shares offered by an investment company through an initial public offering. </li><li>Open-end funds (which most of us think of when we think mutual funds) are offered through a fund company that sells shares directly to investors.</li></ul></div></div></div> <span class="heading-toc" id="toc-closed-end-investments"></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"> Closed-End Investments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A closed-end investment is overseen by an investment or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundmanager.asp">fund manager</a>, and is organized in the same fashion as a publicly-traded company. This type of fund offers a fixed number of shares through an investment company, raising capital by putting out an initial public offering (IPO). After the IPO, shares are listed on an exchange. Investors are able to purchase shares through a brokerage firm on the secondary market.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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/ask/answers/145.asp">Closed-end funds can be traded</a> at any time of the day when the market is open. They can’t take on new capital once they have begun operating, but they may own unlisted securities in the U.S. Investors should know that there are also <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/120516/what-interval-fund.asp">interval funds</a>—a type of closed-end fund—that do not trade in the secondary marketplace. </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 nature of each type of fund also affects how it is priced. Closed-end investment shares reflect market values rather than the net asset value (NAV) of the fund itself. That means they can be purchased or sold at whatever price the fund is trading at during the day. Demand is what drives share prices. Since market demand determines the price level for closed-end funds, shares typically sell either <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/at-a-premium.asp">at a premium</a> or a discount to 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_14-0"></div> <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/articles/mutualfund/05/introtoclosed.asp">Closed-end funds</a> are more likely than open-end funds to include alternative investments in their portfolios such a<em>s </em>futures, derivatives, or foreign currency. Examples of closed-end funds include municipal bond funds. These funds try to minimize risk, and invest in local and state government debt. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> There are several possible areas where distributions come from in closed-end funds. These can come from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a>, realized capital gains, or interest from fixed-income assets held in the funds. The fund company passes the tax burden on to shareholders, issuing them a form 1099-DIV with the breakdown of distributions every year.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-open-end-investments"></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"> Open-End Investments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> If you hear the term open-end fund and think of a mutual fund, you won't be entirely wrong. That's because a mutual fund is one type of open-end fund.<span class="ql-inline-citation" data-cite="11"></span> Other types of open-end investments include hedge funds and ETFs. These are offered through fund companies, which sell shares in each directly to investors. Outside the U.S., open-end funds can take the form of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sicav.asp">SICAVs in Europe</a>, and OEICs or unit funds in the UK. </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"> Open-end funds are traded at times dictated by fund managers during the day. There is no limit to how many shares an open-end fund can offer, meaning shares are unlimited. Shares will be issued as long as there's an appetite for the fund. So when investors buy new shares, the fund company creates new, replacement ones. </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"> Prices for open-end funds are fixed once a day at their NAV, and reflect the fund's performance. This value is the fund's assets minus its liabilities. This is the only price at which fund shares can be purchased that day. </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"> Some open-end funds may charge investors a fee either the purchase of shares or when they are sold. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/front-endload.asp">front-end load</a> is a fee or commission charged when an investor initially purchases shares in the fund.<span class="ql-inline-citation" data-cite="12"></span> This is a one-time charge and is not incurred as an operating expense. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/back-end-load.asp">back-end load</a> is a fee charged to investors when they sell shares in mutual funds. The amount of the fee depends on the value of the shares being sold, usually charged as a percentage.<span class="ql-inline-citation" data-cite="13"></span> Other open-end funds will not charge investors a fee at all. These are known as <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/no-loadfund.asp">no-load funds</a>.<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_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Open-end investments such as mutual funds do not pay taxes on their own, but also pass on the tax burden to their investors. This means investors pay taxes on any capital gains or income derived from these funds.<span class="ql-inline-citation" data-cite="15"></span> </p></div>	## Closed-End vs. Open-End Investments: An Overview Closed-end and open-end investments have basic characteristics in common. Both are professionally managed funds that achieve diversification by investing in a collection of equities or other [financial assets](https://www.investopedia.com/terms/f/financialasset.asp), rather than in a [single stock](https://www.investopedia.com/articles/investing/072915/single-stocks-your-portfolio-pros-and-cons.asp). And both pool the resources of many investors to be able to invest in a larger and wider scale. They're also both known as closed-end and open-end funds. But there are also several differences between these two types of investments. The primary differences lie in how they are organized, and how [investors](https://www.investopedia.com/terms/i/investor.asp) buy and sell them. There may also be some significant differences in the investments that make up the funds' portfolios. ### Key Takeaways * There are significant differences in the structure, pricing, and sales of closed-end funds and open-end funds. * A closed-end fund has a fixed number of shares offered by an investment company through an initial public offering. * Open-end funds (which most of us think of when we think mutual funds) are offered through a fund company that sells shares directly to investors. ## Closed-End Investments A closed-end investment is overseen by an investment or [fund manager](https://www.investopedia.com/terms/f/fundmanager.asp), and is organized in the same fashion as a publicly-traded company. This type of fund offers a fixed number of shares through an investment company, raising capital by putting out an initial public offering (IPO). After the IPO, shares are listed on an exchange. Investors are able to purchase shares through a brokerage firm on the secondary market. [Closed-end funds can be traded](https://www.investopedia.com/ask/answers/145.asp) at any time of the day when the market is open. They can’t take on new capital once they have begun operating, but they may own unlisted securities in the U.S. Investors should know that there are also [interval funds](https://www.investopedia.com/articles/investing/120516/what-interval-fund.asp)—a type of closed-end fund—that do not trade in the secondary marketplace. The nature of each type of fund also affects how it is priced. Closed-end investment shares reflect market values rather than the net asset value (NAV) of the fund itself. That means they can be purchased or sold at whatever price the fund is trading at during the day. Demand is what drives share prices. Since market demand determines the price level for closed-end funds, shares typically sell either [at a premium](https://www.investopedia.com/terms/a/at-a-premium.asp) or a discount to NAV. [Closed-end funds](https://www.investopedia.com/articles/mutualfund/05/introtoclosed.asp) are more likely than open-end funds to include alternative investments in their portfolios such as futures, derivatives, or foreign currency. Examples of closed-end funds include municipal bond funds. These funds try to minimize risk, and invest in local and state government debt. There are several possible areas where distributions come from in closed-end funds. These can come from [dividends](https://www.investopedia.com/terms/d/dividend.asp), realized capital gains, or interest from fixed-income assets held in the funds. The fund company passes the tax burden on to shareholders, issuing them a form 1099-DIV with the breakdown of distributions every year. ## Open-End Investments If you hear the term open-end fund and think of a mutual fund, you won't be entirely wrong. That's because a mutual fund is one type of open-end fund. Other types of open-end investments include hedge funds and ETFs. These are offered through fund companies, which sell shares in each directly to investors. Outside the U.S., open-end funds can take the form of [SICAVs in Europe](https://www.investopedia.com/terms/s/sicav.asp), and OEICs or unit funds in the UK. Open-end funds are traded at times dictated by fund managers during the day. There is no limit to how many shares an open-end fund can offer, meaning shares are unlimited. Shares will be issued as long as there's an appetite for the fund. So when investors buy new shares, the fund company creates new, replacement ones. Prices for open-end funds are fixed once a day at their NAV, and reflect the fund's performance. This value is the fund's assets minus its liabilities. This is the only price at which fund shares can be purchased that day. Some open-end funds may charge investors a fee either the purchase of shares or when they are sold. A [front-end load](https://www.investopedia.com/terms/f/front-endload.asp) is a fee or commission charged when an investor initially purchases shares in the fund. This is a one-time charge and is not incurred as an operating expense. The [back-end load](https://www.investopedia.com/terms/b/back-end-load.asp) is a fee charged to investors when they sell shares in mutual funds. The amount of the fee depends on the value of the shares being sold, usually charged as a percentage. Other open-end funds will not charge investors a fee at all. These are known as [no-load funds](https://www.investopedia.com/terms/n/no-loadfund.asp). Open-end investments such as mutual funds do not pay taxes on their own, but also pass on the tax burden to their investors. This means investors pay taxes on any capital gains or income derived from these funds.	Closed-End vs. Open-End Investments: An Overview Closed-end and open-end investments have basic characteristics in common. Both are professionally managed funds that achieve diversification by investing in a collection of equities or other financial assets, rather than in a single stock. And both pool the resources of many investors to be able to invest in a larger and wider scale. They're also both known as closed-end and open-end funds. But there are also several differences between these two types of investments. The primary differences lie in how they are organized, and how investors buy and sell them. There may also be some significant differences in the investments that make up the funds' portfolios. Key Takeaways There are significant differences in the structure, pricing, and sales of closed-end funds and open-end funds.A closed-end fund has a fixed number of shares offered by an investment company through an initial public offering. Open-end funds (which most of us think of when we think mutual funds) are offered through a fund company that sells shares directly to investors. Closed-End Investments A closed-end investment is overseen by an investment or fund manager, and is organized in the same fashion as a publicly-traded company. This type of fund offers a fixed number of shares through an investment company, raising capital by putting out an initial public offering (IPO). After the IPO, shares are listed on an exchange. Investors are able to purchase shares through a brokerage firm on the secondary market. Closed-end funds can be traded at any time of the day when the market is open. They can’t take on new capital once they have begun operating, but they may own unlisted securities in the U.S. Investors should know that there are also interval funds—a type of closed-end fund—that do not trade in the secondary marketplace. The nature of each type of fund also affects how it is priced. Closed-end investment shares reflect market values rather than the net asset value (NAV) of the fund itself. That means they can be purchased or sold at whatever price the fund is trading at during the day. Demand is what drives share prices. Since market demand determines the price level for closed-end funds, shares typically sell either at a premium or a discount to NAV. Closed-end funds are more likely than open-end funds to include alternative investments in their portfolios such as futures, derivatives, or foreign currency. Examples of closed-end funds include municipal bond funds. These funds try to minimize risk, and invest in local and state government debt. There are several possible areas where distributions come from in closed-end funds. These can come from dividends, realized capital gains, or interest from fixed-income assets held in the funds. The fund company passes the tax burden on to shareholders, issuing them a form 1099-DIV with the breakdown of distributions every year. Open-End Investments If you hear the term open-end fund and think of a mutual fund, you won't be entirely wrong. That's because a mutual fund is one type of open-end fund. Other types of open-end investments include hedge funds and ETFs. These are offered through fund companies, which sell shares in each directly to investors. Outside the U.S., open-end funds can take the form of SICAVs in Europe, and OEICs or unit funds in the UK. Open-end funds are traded at times dictated by fund managers during the day. There is no limit to how many shares an open-end fund can offer, meaning shares are unlimited. Shares will be issued as long as there's an appetite for the fund. So when investors buy new shares, the fund company creates new, replacement ones. Prices for open-end funds are fixed once a day at their NAV, and reflect the fund's performance. This value is the fund's assets minus its liabilities. This is the only price at which fund shares can be purchased that day. Some open-end funds may charge investors a fee either the purchase of shares or when they are sold. A front-end load is a fee or commission charged when an investor initially purchases shares in the fund. This is a one-time charge and is not incurred as an operating expense. The back-end load is a fee charged to investors when they sell shares in mutual funds. The amount of the fee depends on the value of the shares being sold, usually charged as a percentage. Other open-end funds will not charge investors a fee at all. These are known as no-load funds. Open-end investments such as mutual funds do not pay taxes on their own, but also pass on the tax burden to their investors. This means investors pay taxes on any capital gains or income derived from these funds.	[ [ "financial assets", "https://www.investopedia.com/terms/f/financialasset.asp" ], [ "single stock", "https://www.investopedia.com/articles/investing/072915/single-stocks-your-portfolio-pros-and-cons.asp" ], [ "investors", "https://www.investopedia.com/terms/i/investor.asp" ], [ "fund manager", "https://www.investopedia.com/terms/f/fundmanager.asp" ], [ "Closed-end funds can be traded", "https://www.investopedia.com/ask/answers/145.asp" ], [ "interval funds", "https://www.investopedia.com/articles/investing/120516/what-interval-fund.asp" ], [ "at a premium", "https://www.investopedia.com/terms/a/at-a-premium.asp" ], [ "Closed-end funds", "https://www.investopedia.com/articles/mutualfund/05/introtoclosed.asp" ], [ "dividends", "https://www.investopedia.com/terms/d/dividend.asp" ], [ "SICAVs in Europe", "https://www.investopedia.com/terms/s/sicav.asp" ], [ "front-end load", "https://www.investopedia.com/terms/f/front-endload.asp" ], [ "back-end load", "https://www.investopedia.com/terms/b/back-end-load.asp" ], [ "no-load funds", "https://www.investopedia.com/terms/n/no-loadfund.asp" ] ]
https://www.investopedia.com/reddit-q1-fy-2024-earnings-8644631	Reddit Stock Soars After Reporting Record User Traffic in First Earnings Report Since IPO	<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>Reddit shares soared in extended trading Tuesday after the company released its first quarterly earnings report since it began trading in March.</li><li>The social media company's first-quarter revenue was $243 million, a 48% increase from the year-ago period, while ad revenue increased 39% year-over-year to $222.7 million. Both exceeded Bank of America analysts' expectations.</li><li>Reddit's net loss of $575.1 million widened from a year ago, "driven by IPO charges."</li><li>Reddit also reported record user traffic, with daily active unique user numbers growing 37% year-over-year to 82.7 million, topping Raymond James analysts' estimates.</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"> 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 over 13% in extended trading Tuesday after the social media company reported record user traffic and rising revenue in its first quarterly earnings report since its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering (IPO)</a> in March.<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 company's revenue for the first quarter of 2024 was $243 million, a 48% increase from the year-ago period. Ad revenue increased 39% year-over-year to $222.7 million. Both figures were above Bank of America analysts' expectations of $212 million and $199 million, respectively.<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_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Reddit reported a net loss of $575.1 million or $8.19 per share, widening from a loss of $60.9 million or 1.05 per share in the first quarter of 2023, "driven by IPO charges." </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 also reported record user traffic, with daily active unique users (DAUq) jumping 37% year-over-year to 82.7 million, ahead of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/reddit-q1-2024-earnings-preview-8642033">Raymond James analysts' expectations</a>.<br/> </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"> "It was a strong start to the year and a milestone quarter for Reddit and our communities as we debuted as a public company,” Reddit CEO Steve Huffman said, adding that "we see this as the beginning of a new chapter as we work towards building the next generation of Reddit.” </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 social media company said it anticipates revenue for the second quarter to be between $240 million to $255 million, with adjusted <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ebitda.asp">earnings before interest, taxes, depreciation, and amortization (EBITDA)</a> in the range of $0 to $15 million, compared to the $10 million it reported 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"> Reddit's stock price was up more than 13% at $55.90 in extended trading as of 5 p.m. ET Tuesday, an increase of about 64% from its IPO price of $34. </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:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	### Key Takeaways * Reddit shares soared in extended trading Tuesday after the company released its first quarterly earnings report since it began trading in March. * The social media company's first-quarter revenue was $243 million, a 48% increase from the year-ago period, while ad revenue increased 39% year-over-year to $222.7 million. Both exceeded Bank of America analysts' expectations. * Reddit's net loss of $575.1 million widened from a year ago, "driven by IPO charges." * Reddit also reported record user traffic, with daily active unique user numbers growing 37% year-over-year to 82.7 million, topping Raymond James analysts' estimates. Reddit ([RDDT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=RDDT)) shares soared over 13% in extended trading Tuesday after the social media company reported record user traffic and rising revenue in its first quarterly earnings report since its [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp) in March. The company's revenue for the first quarter of 2024 was $243 million, a 48% increase from the year-ago period. Ad revenue increased 39% year-over-year to $222.7 million. Both figures were above Bank of America analysts' expectations of $212 million and $199 million, respectively. Reddit reported a net loss of $575.1 million or $8.19 per share, widening from a loss of $60.9 million or 1.05 per share in the first quarter of 2023, "driven by IPO charges." The company also reported record user traffic, with daily active unique users (DAUq) jumping 37% year-over-year to 82.7 million, ahead of [Raymond James analysts' expectations](https://www.investopedia.com/reddit-q1-2024-earnings-preview-8642033). "It was a strong start to the year and a milestone quarter for Reddit and our communities as we debuted as a public company,” Reddit CEO Steve Huffman said, adding that "we see this as the beginning of a new chapter as we work towards building the next generation of Reddit.” The social media company said it anticipates revenue for the second quarter to be between $240 million to $255 million, with adjusted [earnings before interest, taxes, depreciation, and amortization (EBITDA)](https://www.investopedia.com/terms/e/ebitda.asp) in the range of $0 to $15 million, compared to the $10 million it reported in the first quarter. Reddit's stock price was up more than 13% at $55.90 in extended trading as of 5 p.m. ET Tuesday, an increase of about 64% from its IPO price of $34. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	Key Takeaways Reddit shares soared in extended trading Tuesday after the company released its first quarterly earnings report since it began trading in March.The social media company's first-quarter revenue was $243 million, a 48% increase from the year-ago period, while ad revenue increased 39% year-over-year to $222.7 million. Both exceeded Bank of America analysts' expectations.Reddit's net loss of $575.1 million widened from a year ago, "driven by IPO charges."Reddit also reported record user traffic, with daily active unique user numbers growing 37% year-over-year to 82.7 million, topping Raymond James analysts' estimates. Reddit (RDDT) shares soared over 13% in extended trading Tuesday after the social media company reported record user traffic and rising revenue in its first quarterly earnings report since its initial public offering (IPO) in March. The company's revenue for the first quarter of 2024 was $243 million, a 48% increase from the year-ago period. Ad revenue increased 39% year-over-year to $222.7 million. Both figures were above Bank of America analysts' expectations of $212 million and $199 million, respectively. Reddit reported a net loss of $575.1 million or $8.19 per share, widening from a loss of $60.9 million or 1.05 per share in the first quarter of 2023, "driven by IPO charges." The company also reported record user traffic, with daily active unique users (DAUq) jumping 37% year-over-year to 82.7 million, ahead of Raymond James analysts' expectations. "It was a strong start to the year and a milestone quarter for Reddit and our communities as we debuted as a public company,” Reddit CEO Steve Huffman said, adding that "we see this as the beginning of a new chapter as we work towards building the next generation of Reddit.” The social media company said it anticipates revenue for the second quarter to be between $240 million to $255 million, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the range of $0 to $15 million, compared to the $10 million it reported in the first quarter. Reddit's stock price was up more than 13% at $55.90 in extended trading as of 5 p.m. ET Tuesday, an increase of about 64% from its IPO price of $34. Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "RDDT", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=RDDT" ], [ "initial public offering (IPO)", "https://www.investopedia.com/terms/i/ipo.asp" ], [ "Raymond James analysts' expectations", "https://www.investopedia.com/reddit-q1-2024-earnings-preview-8642033" ], [ "earnings before interest, taxes, depreciation, and amortization (EBITDA)", "https://www.investopedia.com/terms/e/ebitda.asp" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/articles/retirement/102116/how-make-living-frugally-retirement-comfortable.asp	Living Frugally and Happily in Retirement	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The key to living frugally yet comfortably in retirement is knowing the difference between frugal and cheap. Paying less for inferior quality is cheap. Paying less for similar or superior quality is frugal. It's all a matter of being methodical in your search for frugal comfort. </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"> Frugal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/budget.asp">budgeting</a> aims to achieve a cost-effective lifestyle in retirement that doesn't sacrifice comfort. This involves knowing not only where to cut costs but also how to do so. Frugal budgeting is not haphazard. It's thoughtful and documented. This involves <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/budgeting-calculator-5101411">creating a repeatable monthly budget</a> that projects out a full year to allow for quarterly, semiannual, and annual expenses like <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federal_income_tax.asp">income taxes</a>, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/propertytax.asp">real estate taxes</a>, and <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance-premium.asp">insurance premiums</a>. </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 frugal budget is a cost-conscious one that carefully considers spending and helps you save as efficiently as possible.</li><li>It is important to think about the lifestyle you want as well as what you're able to afford in retirement and see if frugality fits.</li><li>Being frugal can be liberating and it shouldn't be viewed as a punishment.</li><li>It can include some relatively painless steps such as downsizing in areas you don't cherish.</li></ul></div></div></div> <span class="heading-toc" id="toc-target-proportionally"></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"> Target Proportionally </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A frugal budget considers the proportion of spending for each category as a way to find value and savings as efficiently as possible. The Employee Benefit Research Institute conducted a survey in 2022 and broke down how people aged 62 to 75 spend their money. Housing expenses took up 30% of their budgets followed by food at 25%, transportation at 12%, and medical and health insurance at 8%.<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_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The Institute followed up with another survey in 2023 focusing on retirement confidence. This study found that 49% of retired respondents felt that their overall living expenses were higher than they anticipated. Of them, 18% said that these expenses were much higher.<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_11-0"></div> <span class="heading-toc" id="toc-choose-a-lifestyle"></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"> Choose a Lifestyle </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The most obvious thing to target first is where and how you'll live: your home. Do you want to downsize from your two-story house to an apartment or condo? Relocate to a warmer climate or a small town? Do you want to try living a nomadic life in an RV or on a sailboat? Or are you like many people who just want to stay put, at least for now? </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>It's important to think about the lifestyle you want in retirement so you can apply frugal strategies to it.</p></div></div></div> <span class="heading-toc" id="toc-downsize-for-savings"></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"> Downsize for Savings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Downsizing is part of the equation for many, including those who decide to stay put for now. Smaller homes are less expensive to buy and maintain. Downsizing also provides an opportunity to sell or donate household items that are no longer needed. You may be able to save money by using family and friends and renting a truck instead of hiring a moving company because you'll have fewer belongings than you did before retiring. </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-trim-transportation-costs"></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"> Trim Transportation Costs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> If you have two cars, sell one. Retirement may also be a good time to buy a newer, more fuel-efficient vehicle. Be sure to look at ways to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/car-insurance-costs.asp">reduce your auto insurance payments</a>, too. See if you can cut costs there. </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 smaller Class C might make sense if you're planning to buy a motor home. Class A motor homes are expensive to own and maintain as well as costly to drive. You may not need a vehicle at all if you plan to live on a boat. </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-a-frugal-approach-to-food"></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"> A Frugal Approach to Food </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The best way to be frugal with food is to eat at home. Create a menu, build a shopping list, and stick to it. Impulse buying should only enter the picture when you come across an unexpected bargain. Shop for groceries at supercenters, dollar stores, wholesale clubs, and farmers' markets. Many stores offer discount days with 10% or more taken off your entire bill.<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_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Save on tipping when you're dining out by looking for cafeteria-style or fast-casual restaurants with limited or no wait staff. Some of the nicer ones have excellent food offerings, table-side drink refills, and even staff to clear your table after you finish eating. Early bird specials offer additional savings when dining out, especially in resort areas. </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-help-yourself-to-better-health"></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"> Help Yourself to Better Health </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> It only makes sense to stay as healthy as possible. Stay up to date on vaccinations and flu shots. Get and stay fit by walking regularly. Walking is free and it's an excellent way to stay fit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicare-advantage.asp">Medicare Advantage</a> (Part C) plans are often less expensive than traditional <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicare.asp">Medicare</a>.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="3"></span> The downside might be a limited range of physician choices. Schedule elective medical procedures after you've met your annual <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deductible.asp">deductible</a> and avoid out-of-network doctors when possible. Take advantage of free preventative services that might be included in your plan, like breast or colon cancer screenings. See your family doctor periodically for a checkup. </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-entertainment-options"></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"> Entertainment Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Eliminate cable TV or at least reduce it down to the most basic package unless it's necessary for reception. Add Netflix or Hulu for movies and other streaming options. Museums, art galleries, and many live performances are free or discounted to retirees. Check for discounts through AARP or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.caasco.com/">AAA</a> if you belong to either of these organizations. Many schools allow retirees to audit college classes for free without credit.<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_37-0"></div> <span class="heading-toc" id="toc-clothing-and-all-the-rest"></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"> Clothing and All the Rest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Ask about retiree discounts everywhere you shop even if there isn't a sign advertising them. You might be surprised at how many places offer them. It never hurts to ask. </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"> And as you have more time than when you were working, use it to your advantage. Go to thrift stores. Attend garage sales, yard sales, and swap meets. Grow your own food or at least some of it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_43-0"><span class="heading-toc" id="toc-what-are-some-tax-breaks-available-to-retirees"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Some Tax Breaks Available to Retirees?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You're entitled to a higher federal standard deduction if you've reached age 65 by the last day of the tax year. You can claim an extra $1,850 on your 2023 tax return in addition to the regular standard deduction for your filing status. This is the return you'll file in 2024.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-is-there-a-cost-to-join-aarp"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is There a Cost to Join AARP?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The cost of becoming a member of AARP is negligible, as little as $12 a year for your first year as of 2024. You must agree to an automatic renewal of your membership and the price will increase at that time but the increase is only by $4 to $16 a year. You can get discounts for multi-year memberships.<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_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-much-does-medicare-cost"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Does Medicare Cost?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The lowest cost of Part B medical insurance coverage is $174.70 per month in 2024. This is based on your annual income from 2022. Premiums increase for high earners. Single taxpayers can't earn more than $103,000 per year or $206,000 if they're married and filing a joint return to qualify for this premium. Earners of $500,000 or more can pay as much as $594 a month for coverage.<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_48-0"></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_49-0"> <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_50-0"> Don't get up early. Waiting until daylight saves electricity. Give yourself plenty of time to get where you need to go and save on gasoline. One of the biggest enemies of frugality is rushing. It doesn't just waste energy. It also wastes resources. </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"> Don't try to be frugal about everything all at once. Frugality isn't meant to be a punishment. Enjoy your frugal lifestyle and stay comfortable for less. </p></div>	The key to living frugally yet comfortably in retirement is knowing the difference between frugal and cheap. Paying less for inferior quality is cheap. Paying less for similar or superior quality is frugal. It's all a matter of being methodical in your search for frugal comfort. Frugal [budgeting](https://www.investopedia.com/terms/b/budget.asp) aims to achieve a cost-effective lifestyle in retirement that doesn't sacrifice comfort. This involves knowing not only where to cut costs but also how to do so. Frugal budgeting is not haphazard. It's thoughtful and documented. This involves [creating a repeatable monthly budget](https://www.investopedia.com/budgeting-calculator-5101411) that projects out a full year to allow for quarterly, semiannual, and annual expenses like [income taxes](https://www.investopedia.com/terms/f/federal_income_tax.asp), [real estate taxes](https://www.investopedia.com/terms/p/propertytax.asp), and [insurance premiums](https://www.investopedia.com/terms/i/insurance-premium.asp). ### Key Takeaways * A frugal budget is a cost-conscious one that carefully considers spending and helps you save as efficiently as possible. * It is important to think about the lifestyle you want as well as what you're able to afford in retirement and see if frugality fits. * Being frugal can be liberating and it shouldn't be viewed as a punishment. * It can include some relatively painless steps such as downsizing in areas you don't cherish. ## Target Proportionally A frugal budget considers the proportion of spending for each category as a way to find value and savings as efficiently as possible. The Employee Benefit Research Institute conducted a survey in 2022 and broke down how people aged 62 to 75 spend their money. Housing expenses took up 30% of their budgets followed by food at 25%, transportation at 12%, and medical and health insurance at 8%. The Institute followed up with another survey in 2023 focusing on retirement confidence. This study found that 49% of retired respondents felt that their overall living expenses were higher than they anticipated. Of them, 18% said that these expenses were much higher. ## Choose a Lifestyle The most obvious thing to target first is where and how you'll live: your home. Do you want to downsize from your two-story house to an apartment or condo? Relocate to a warmer climate or a small town? Do you want to try living a nomadic life in an RV or on a sailboat? Or are you like many people who just want to stay put, at least for now? ### It's important to think about the lifestyle you want in retirement so you can apply frugal strategies to it. ## Downsize for Savings Downsizing is part of the equation for many, including those who decide to stay put for now. Smaller homes are less expensive to buy and maintain. Downsizing also provides an opportunity to sell or donate household items that are no longer needed. You may be able to save money by using family and friends and renting a truck instead of hiring a moving company because you'll have fewer belongings than you did before retiring. ## Trim Transportation Costs If you have two cars, sell one. Retirement may also be a good time to buy a newer, more fuel-efficient vehicle. Be sure to look at ways to [reduce your auto insurance payments](https://www.investopedia.com/articles/pf/08/car-insurance-costs.asp), too. See if you can cut costs there. A smaller Class C might make sense if you're planning to buy a motor home. Class A motor homes are expensive to own and maintain as well as costly to drive. You may not need a vehicle at all if you plan to live on a boat. ## A Frugal Approach to Food The best way to be frugal with food is to eat at home. Create a menu, build a shopping list, and stick to it. Impulse buying should only enter the picture when you come across an unexpected bargain. Shop for groceries at supercenters, dollar stores, wholesale clubs, and farmers' markets. Many stores offer discount days with 10% or more taken off your entire bill. Save on tipping when you're dining out by looking for cafeteria-style or fast-casual restaurants with limited or no wait staff. Some of the nicer ones have excellent food offerings, table-side drink refills, and even staff to clear your table after you finish eating. Early bird specials offer additional savings when dining out, especially in resort areas. ## Help Yourself to Better Health It only makes sense to stay as healthy as possible. Stay up to date on vaccinations and flu shots. Get and stay fit by walking regularly. Walking is free and it's an excellent way to stay fit. [Medicare Advantage](https://www.investopedia.com/terms/m/medicare-advantage.asp) (Part C) plans are often less expensive than traditional [Medicare](https://www.investopedia.com/terms/m/medicare.asp). The downside might be a limited range of physician choices. Schedule elective medical procedures after you've met your annual [deductible](https://www.investopedia.com/terms/d/deductible.asp) and avoid out-of-network doctors when possible. Take advantage of free preventative services that might be included in your plan, like breast or colon cancer screenings. See your family doctor periodically for a checkup. ## Entertainment Options Eliminate cable TV or at least reduce it down to the most basic package unless it's necessary for reception. Add Netflix or Hulu for movies and other streaming options. Museums, art galleries, and many live performances are free or discounted to retirees. Check for discounts through AARP or [AAA](https://www.caasco.com/) if you belong to either of these organizations. Many schools allow retirees to audit college classes for free without credit. ## Clothing and All the Rest Ask about retiree discounts everywhere you shop even if there isn't a sign advertising them. You might be surprised at how many places offer them. It never hurts to ask. And as you have more time than when you were working, use it to your advantage. Go to thrift stores. Attend garage sales, yard sales, and swap meets. Grow your own food or at least some of it. ## What Are Some Tax Breaks Available to Retirees? You're entitled to a higher federal standard deduction if you've reached age 65 by the last day of the tax year. You can claim an extra $1,850 on your 2023 tax return in addition to the regular standard deduction for your filing status. This is the return you'll file in 2024. ## Is There a Cost to Join AARP? The cost of becoming a member of AARP is negligible, as little as $12 a year for your first year as of 2024. You must agree to an automatic renewal of your membership and the price will increase at that time but the increase is only by $4 to $16 a year. You can get discounts for multi-year memberships. ## How Much Does Medicare Cost? The lowest cost of Part B medical insurance coverage is $174.70 per month in 2024. This is based on your annual income from 2022. Premiums increase for high earners. Single taxpayers can't earn more than $103,000 per year or $206,000 if they're married and filing a joint return to qualify for this premium. Earners of $500,000 or more can pay as much as $594 a month for coverage. ## The Bottom Line Don't get up early. Waiting until daylight saves electricity. Give yourself plenty of time to get where you need to go and save on gasoline. One of the biggest enemies of frugality is rushing. It doesn't just waste energy. It also wastes resources. Don't try to be frugal about everything all at once. Frugality isn't meant to be a punishment. Enjoy your frugal lifestyle and stay comfortable for less.	The key to living frugally yet comfortably in retirement is knowing the difference between frugal and cheap. Paying less for inferior quality is cheap. Paying less for similar or superior quality is frugal. It's all a matter of being methodical in your search for frugal comfort. Frugal budgeting aims to achieve a cost-effective lifestyle in retirement that doesn't sacrifice comfort. This involves knowing not only where to cut costs but also how to do so. Frugal budgeting is not haphazard. It's thoughtful and documented. This involves creating a repeatable monthly budget that projects out a full year to allow for quarterly, semiannual, and annual expenses like income taxes, real estate taxes, and insurance premiums. Key Takeaways A frugal budget is a cost-conscious one that carefully considers spending and helps you save as efficiently as possible.It is important to think about the lifestyle you want as well as what you're able to afford in retirement and see if frugality fits.Being frugal can be liberating and it shouldn't be viewed as a punishment.It can include some relatively painless steps such as downsizing in areas you don't cherish. Target Proportionally A frugal budget considers the proportion of spending for each category as a way to find value and savings as efficiently as possible. The Employee Benefit Research Institute conducted a survey in 2022 and broke down how people aged 62 to 75 spend their money. Housing expenses took up 30% of their budgets followed by food at 25%, transportation at 12%, and medical and health insurance at 8%. The Institute followed up with another survey in 2023 focusing on retirement confidence. This study found that 49% of retired respondents felt that their overall living expenses were higher than they anticipated. Of them, 18% said that these expenses were much higher. Choose a Lifestyle The most obvious thing to target first is where and how you'll live: your home. Do you want to downsize from your two-story house to an apartment or condo? Relocate to a warmer climate or a small town? Do you want to try living a nomadic life in an RV or on a sailboat? Or are you like many people who just want to stay put, at least for now? It's important to think about the lifestyle you want in retirement so you can apply frugal strategies to it. Downsize for Savings Downsizing is part of the equation for many, including those who decide to stay put for now. Smaller homes are less expensive to buy and maintain. Downsizing also provides an opportunity to sell or donate household items that are no longer needed. You may be able to save money by using family and friends and renting a truck instead of hiring a moving company because you'll have fewer belongings than you did before retiring. Trim Transportation Costs If you have two cars, sell one. Retirement may also be a good time to buy a newer, more fuel-efficient vehicle. Be sure to look at ways to reduce your auto insurance payments, too. See if you can cut costs there. A smaller Class C might make sense if you're planning to buy a motor home. Class A motor homes are expensive to own and maintain as well as costly to drive. You may not need a vehicle at all if you plan to live on a boat. A Frugal Approach to Food The best way to be frugal with food is to eat at home. Create a menu, build a shopping list, and stick to it. Impulse buying should only enter the picture when you come across an unexpected bargain. Shop for groceries at supercenters, dollar stores, wholesale clubs, and farmers' markets. Many stores offer discount days with 10% or more taken off your entire bill. Save on tipping when you're dining out by looking for cafeteria-style or fast-casual restaurants with limited or no wait staff. Some of the nicer ones have excellent food offerings, table-side drink refills, and even staff to clear your table after you finish eating. Early bird specials offer additional savings when dining out, especially in resort areas. Help Yourself to Better Health It only makes sense to stay as healthy as possible. Stay up to date on vaccinations and flu shots. Get and stay fit by walking regularly. Walking is free and it's an excellent way to stay fit. Medicare Advantage (Part C) plans are often less expensive than traditional Medicare. The downside might be a limited range of physician choices. Schedule elective medical procedures after you've met your annual deductible and avoid out-of-network doctors when possible. Take advantage of free preventative services that might be included in your plan, like breast or colon cancer screenings. See your family doctor periodically for a checkup. Entertainment Options Eliminate cable TV or at least reduce it down to the most basic package unless it's necessary for reception. Add Netflix or Hulu for movies and other streaming options. Museums, art galleries, and many live performances are free or discounted to retirees. Check for discounts through AARP or AAA if you belong to either of these organizations. Many schools allow retirees to audit college classes for free without credit. Clothing and All the Rest Ask about retiree discounts everywhere you shop even if there isn't a sign advertising them. You might be surprised at how many places offer them. It never hurts to ask. And as you have more time than when you were working, use it to your advantage. Go to thrift stores. Attend garage sales, yard sales, and swap meets. Grow your own food or at least some of it. What Are Some Tax Breaks Available to Retirees? You're entitled to a higher federal standard deduction if you've reached age 65 by the last day of the tax year. You can claim an extra $1,850 on your 2023 tax return in addition to the regular standard deduction for your filing status. This is the return you'll file in 2024. Is There a Cost to Join AARP? The cost of becoming a member of AARP is negligible, as little as $12 a year for your first year as of 2024. You must agree to an automatic renewal of your membership and the price will increase at that time but the increase is only by $4 to $16 a year. You can get discounts for multi-year memberships. How Much Does Medicare Cost? The lowest cost of Part B medical insurance coverage is $174.70 per month in 2024. This is based on your annual income from 2022. Premiums increase for high earners. Single taxpayers can't earn more than $103,000 per year or $206,000 if they're married and filing a joint return to qualify for this premium. Earners of $500,000 or more can pay as much as $594 a month for coverage. The Bottom Line Don't get up early. Waiting until daylight saves electricity. Give yourself plenty of time to get where you need to go and save on gasoline. One of the biggest enemies of frugality is rushing. It doesn't just waste energy. It also wastes resources. Don't try to be frugal about everything all at once. Frugality isn't meant to be a punishment. Enjoy your frugal lifestyle and stay comfortable for less.	[ [ "budgeting", "https://www.investopedia.com/terms/b/budget.asp" ], [ "creating a repeatable monthly budget", "https://www.investopedia.com/budgeting-calculator-5101411" ], [ "income taxes", "https://www.investopedia.com/terms/f/federal_income_tax.asp" ], [ "real estate taxes", "https://www.investopedia.com/terms/p/propertytax.asp" ], [ "insurance premiums", "https://www.investopedia.com/terms/i/insurance-premium.asp" ], [ "reduce your auto insurance payments", "https://www.investopedia.com/articles/pf/08/car-insurance-costs.asp" ], [ "Medicare Advantage", "https://www.investopedia.com/terms/m/medicare-advantage.asp" ], [ "Medicare", "https://www.investopedia.com/terms/m/medicare.asp" ], [ "deductible", "https://www.investopedia.com/terms/d/deductible.asp" ], [ "AAA", "https://www.caasco.com/" ] ]
https://www.investopedia.com/terms/w/wamc.asp	Weighted Average Market Capitalization: Overview, Alternatives	<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-weighted-average-market-capitalization"></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 Weighted Average Market Capitalization? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The weighted average market capitalization refers to a type of stock market index construction that is based on 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 the index's constituent stocks. Large companies would, therefore, account for a greater portion of an index than smaller stocks. This means the movement of an index would depend on a small set of stocks. </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 most well-known market capitalization weight index is the S&P 500, which tracks the 500 largest assets by market capitalization. The top four holdings combine for over 10% of the entire index. These include Apple (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl">AAPL</a>), Microsoft (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft">MSFT</a>), Amazon (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn">AMZN</a>), and Meta, formerly Facebook, (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>).<span class="ql-inline-citation" data-cite="1"></span> The S&P 500 is widely considered a gauge of the strength of the broader market and a benchmark for performance. </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>Weighted average market capitalization is a type of market index in which each component is weighted according to the size of its total market capitalization.</li><li>Market capitalization is the sum of the total value of a company's outstanding shares multiplied by the price of one share.</li><li>With a weighted average market capitalization, components that have a higher market cap have more influence because they constitute a higher percentage in the index; those with smaller caps have less influence.</li><li>A weighted market cap index is seen as being both stable, and reflective of the broader market, in which larger companies have a greater influence than smaller ones.</li><li>On the downside, a weighted market cap index can hurt index investors if there is a rally in small-cap stocks, as those investors won't benefit as much as they would in an equal-weighted index.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-weighted-average-market-capitalization"></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 Weighted Average Market Capitalization </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The weighted average market capitalization is determined by multiplying the current market price by the number of outstanding shares and then taking an average to determine the weighting. For example, if a company's market capitalization is $1 million, and the market capitalization of all stocks in the index is $100 million, the company would represent 1% of the index. Morningstar calculates the metric by taking a geometric mean of the market capitalization of the stocks in a fund, whereas other providers use an arithmetic mean.<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"> Some investors believe a weighted average market capitalization is the optimal method of asset allocation as it reflects the actual behavior of markets. This way larger companies tend to have a greater influence over the index, just as is the case in the S&P 500. This leads to a natural rebalancing mechanism where growing companies are admitted to the index, and shrinking ones become excluded. Investors also believe the methodology causes less risk because a larger proportion of the fund is allocated to stable companies. </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"> But there are some limitations to the strategy. When small-cap stocks outperform larger ones, as they have for most of history, there are fewer opportunities for index investors to gain lofty returns. Meanwhile, market-cap-weighted indexes like the S&P 500 give off the appearance of diversification, but a few stocks dictate a larger portion of the movement. This represents a big bet that 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> holds through bull and bear markets. </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 efficient market hypothesis says that stock prices reflect all information available, and trade at fair market value on all exchanges. </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-alternatives-to-weighted-average-market-capitalization"></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"> Alternatives to Weighted Average Market Capitalization </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Alternative methods of asset allocation include price weighting and equal market cap weighting among many more. The holdings of a price-weighted index are determined by a simple mathematical average of several stock prices. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djia.asp">Dow Jones Industrial Average</a> is perhaps the most well-known index that employs price weighting.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> In contrast, an equal-weighted index gives the same weight to each stock in a portfolio or fund. For example, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/exchangetradedfunds/08/market-equal-weight.asp">S&P 500 Equal Weight Index</a> is the equal-weighted version of the popular market-cap-weighted S&P 500.<span class="ql-inline-citation" data-cite="4"></span> </p></div>	## What Is the Weighted Average Market Capitalization? The weighted average market capitalization refers to a type of stock market index construction that is based on the [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp) of the index's constituent stocks. Large companies would, therefore, account for a greater portion of an index than smaller stocks. This means the movement of an index would depend on a small set of stocks. The most well-known market capitalization weight index is the S&P 500, which tracks the 500 largest assets by market capitalization. The top four holdings combine for over 10% of the entire index. These include Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl)), Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft)), Amazon ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn)), and Meta, formerly Facebook, ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)). The S&P 500 is widely considered a gauge of the strength of the broader market and a benchmark for performance. ### Key Takeaways * Weighted average market capitalization is a type of market index in which each component is weighted according to the size of its total market capitalization. * Market capitalization is the sum of the total value of a company's outstanding shares multiplied by the price of one share. * With a weighted average market capitalization, components that have a higher market cap have more influence because they constitute a higher percentage in the index; those with smaller caps have less influence. * A weighted market cap index is seen as being both stable, and reflective of the broader market, in which larger companies have a greater influence than smaller ones. * On the downside, a weighted market cap index can hurt index investors if there is a rally in small-cap stocks, as those investors won't benefit as much as they would in an equal-weighted index. ## Understanding the Weighted Average Market Capitalization The weighted average market capitalization is determined by multiplying the current market price by the number of outstanding shares and then taking an average to determine the weighting. For example, if a company's market capitalization is $1 million, and the market capitalization of all stocks in the index is $100 million, the company would represent 1% of the index. Morningstar calculates the metric by taking a geometric mean of the market capitalization of the stocks in a fund, whereas other providers use an arithmetic mean. Some investors believe a weighted average market capitalization is the optimal method of asset allocation as it reflects the actual behavior of markets. This way larger companies tend to have a greater influence over the index, just as is the case in the S&P 500. This leads to a natural rebalancing mechanism where growing companies are admitted to the index, and shrinking ones become excluded. Investors also believe the methodology causes less risk because a larger proportion of the fund is allocated to stable companies. But there are some limitations to the strategy. When small-cap stocks outperform larger ones, as they have for most of history, there are fewer opportunities for index investors to gain lofty returns. Meanwhile, market-cap-weighted indexes like the S&P 500 give off the appearance of diversification, but a few stocks dictate a larger portion of the movement. This represents a big bet that the [efficient market hypothesis](https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp) holds through bull and bear markets. The efficient market hypothesis says that stock prices reflect all information available, and trade at fair market value on all exchanges. ## Alternatives to Weighted Average Market Capitalization Alternative methods of asset allocation include price weighting and equal market cap weighting among many more. The holdings of a price-weighted index are determined by a simple mathematical average of several stock prices. The [Dow Jones Industrial Average](https://www.investopedia.com/terms/d/djia.asp) is perhaps the most well-known index that employs price weighting. In contrast, an equal-weighted index gives the same weight to each stock in a portfolio or fund. For example, the [S&P 500 Equal Weight Index](https://www.investopedia.com/articles/exchangetradedfunds/08/market-equal-weight.asp) is the equal-weighted version of the popular market-cap-weighted S&P 500.	What Is the Weighted Average Market Capitalization? The weighted average market capitalization refers to a type of stock market index construction that is based on the market capitalization of the index's constituent stocks. Large companies would, therefore, account for a greater portion of an index than smaller stocks. This means the movement of an index would depend on a small set of stocks. The most well-known market capitalization weight index is the S&P 500, which tracks the 500 largest assets by market capitalization. The top four holdings combine for over 10% of the entire index. These include Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), and Meta, formerly Facebook, (META). The S&P 500 is widely considered a gauge of the strength of the broader market and a benchmark for performance. Key Takeaways Weighted average market capitalization is a type of market index in which each component is weighted according to the size of its total market capitalization.Market capitalization is the sum of the total value of a company's outstanding shares multiplied by the price of one share.With a weighted average market capitalization, components that have a higher market cap have more influence because they constitute a higher percentage in the index; those with smaller caps have less influence.A weighted market cap index is seen as being both stable, and reflective of the broader market, in which larger companies have a greater influence than smaller ones.On the downside, a weighted market cap index can hurt index investors if there is a rally in small-cap stocks, as those investors won't benefit as much as they would in an equal-weighted index. Understanding the Weighted Average Market Capitalization The weighted average market capitalization is determined by multiplying the current market price by the number of outstanding shares and then taking an average to determine the weighting. For example, if a company's market capitalization is $1 million, and the market capitalization of all stocks in the index is $100 million, the company would represent 1% of the index. Morningstar calculates the metric by taking a geometric mean of the market capitalization of the stocks in a fund, whereas other providers use an arithmetic mean. Some investors believe a weighted average market capitalization is the optimal method of asset allocation as it reflects the actual behavior of markets. This way larger companies tend to have a greater influence over the index, just as is the case in the S&P 500. This leads to a natural rebalancing mechanism where growing companies are admitted to the index, and shrinking ones become excluded. Investors also believe the methodology causes less risk because a larger proportion of the fund is allocated to stable companies. But there are some limitations to the strategy. When small-cap stocks outperform larger ones, as they have for most of history, there are fewer opportunities for index investors to gain lofty returns. Meanwhile, market-cap-weighted indexes like the S&P 500 give off the appearance of diversification, but a few stocks dictate a larger portion of the movement. This represents a big bet that the efficient market hypothesis holds through bull and bear markets. The efficient market hypothesis says that stock prices reflect all information available, and trade at fair market value on all exchanges. Alternatives to Weighted Average Market Capitalization Alternative methods of asset allocation include price weighting and equal market cap weighting among many more. The holdings of a price-weighted index are determined by a simple mathematical average of several stock prices. The Dow Jones Industrial Average is perhaps the most well-known index that employs price weighting. In contrast, an equal-weighted index gives the same weight to each stock in a portfolio or fund. For example, the S&P 500 Equal Weight Index is the equal-weighted version of the popular market-cap-weighted S&P 500.	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https://www.investopedia.com/terms/a/auctionmarket.asp	Auction Market: Definition, How It Works in Trading, 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-an-auction-market"></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 Auction Market? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> In an auction market, buyers enter <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/competitivebid.asp" rel="noopener noreferrer">competitive bids</a> and sellers submit competitive offers at the same time. The price at which a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/082614/how-stock-market-works.asp" rel="noopener noreferrer">stock trades</a> represents the highest price that a buyer is willing to pay and the lowest price that a seller is willing to accept. Matching bids and offers are then paired together, and the orders are executed. The <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nyse.asp" rel="noopener noreferrer">New York Stock Exchange (NYSE)</a> is an example of an auction market. </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-auction-market-process"></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"> Auction Market Process </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The process involved in an auction market differs from the process in an over-the-counter <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/over-the-countermarket.asp" rel="noopener noreferrer">(OTC) market</a>. On the NYSE, for example, there are no direct <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/negotiation.asp" rel="noopener noreferrer">negotiations</a> between individual buyers and sellers, while negotiations occur in OTC trades. Most traditional auctions involve multiple potential buyers or bidders, but only a single seller, whereas auction markets for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp" rel="noopener noreferrer">securities</a> have multiple buyers and multiple sellers, all looking to make deals simultaneously. </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>An auction market is one where buyers and sellers enter competitive bids simultaneously.</li><li>The price at which a stock trades represents the highest price that a buyer is willing to pay and the lowest price that a seller is willing to accept.</li><li>A double auction market is when a buyer’s price and a seller’s asking price match, and the trade proceeds at that price.</li><li>Auction markets do not involve direct negotiations between individual buyers and sellers, while negotiations occur for OTC trades.</li><li>The U.S. Treasury holds auctions, which are open to the public and large investment entities, to finance certain government financial activities.</li></ul></div></div></div> <span class="heading-toc" id="toc-double-auction-markets"></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"> Double Auction Markets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/auction.asp" rel="noopener noreferrer">auction</a> market also known as a double auction market, allows buyers and sellers to submit prices they deem acceptable to a list. When a match between a buyer’s price and a seller’s asking price is found, the trade proceeds at that price. Trades without matches will not be executed. </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-examples-of-the-auction-market-process"></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"> Examples of the Auction Market Process </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Imagine that four buyers want to buy a share of company XYZ and make the following bids: $10.00, $10.02, $10.03 and $10.06, respectively. Conversely, four sellers wish to sell shares of company XYZ, and these sellers submitted offers to sell their shares at the following prices: $10.06, $10.09, $10.12 and $10.13, respectively. </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 this scenario, the individuals that made bids/offers for company XYZ at $10.06 will have their orders executed. All remaining orders will not immediately be executed, and the current price of company XYZ will be $10.06. </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-treasury-auctions"></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"> Treasury Auctions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/ustreasury.asp" rel="noopener noreferrer">U.S. Treasury</a> holds <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bill-auction.asp" rel="noopener noreferrer">auctions</a> to finance certain government financial activities. The Treasury auction is open to the public and various larger investment entities. These bids are submitted electronically and are divided into competing and noncompeting bids depending on the person or entity who places the recorded bid. </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"> Noncompeting bids are addressed first because noncompetitive bidders are guaranteed to receive a predetermined amount of securities as a minimum and up to a maximum of $5 million. These are most commonly entered by individual investors or those representing small entities. </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 competitive bidding, once the auction period closes, all of the incoming bids are reviewed to determine the winning price. Securities are sold to the competing bidders based on the amount listed within the bid. Once all of the securities have been sold, the remaining competing bidders will not receive any securities. </p></div>	## What Is an Auction Market? In an auction market, buyers enter [competitive bids](https://www.investopedia.com/terms/c/competitivebid.asp) and sellers submit competitive offers at the same time. The price at which a [stock trades](https://www.investopedia.com/articles/investing/082614/how-stock-market-works.asp) represents the highest price that a buyer is willing to pay and the lowest price that a seller is willing to accept. Matching bids and offers are then paired together, and the orders are executed. The [New York Stock Exchange (NYSE)](https://www.investopedia.com/terms/n/nyse.asp) is an example of an auction market. ## Auction Market Process The process involved in an auction market differs from the process in an over-the-counter [(OTC) market](https://www.investopedia.com/terms/o/over-the-countermarket.asp). On the NYSE, for example, there are no direct [negotiations](https://www.investopedia.com/terms/n/negotiation.asp) between individual buyers and sellers, while negotiations occur in OTC trades. Most traditional auctions involve multiple potential buyers or bidders, but only a single seller, whereas auction markets for [securities](https://www.investopedia.com/terms/s/security.asp) have multiple buyers and multiple sellers, all looking to make deals simultaneously. ### Key Takeaways * An auction market is one where buyers and sellers enter competitive bids simultaneously. * The price at which a stock trades represents the highest price that a buyer is willing to pay and the lowest price that a seller is willing to accept. * A double auction market is when a buyer’s price and a seller’s asking price match, and the trade proceeds at that price. * Auction markets do not involve direct negotiations between individual buyers and sellers, while negotiations occur for OTC trades. * The U.S. Treasury holds auctions, which are open to the public and large investment entities, to finance certain government financial activities. ## Double Auction Markets An [auction](https://www.investopedia.com/terms/a/auction.asp) market also known as a double auction market, allows buyers and sellers to submit prices they deem acceptable to a list. When a match between a buyer’s price and a seller’s asking price is found, the trade proceeds at that price. Trades without matches will not be executed. ## Examples of the Auction Market Process Imagine that four buyers want to buy a share of company XYZ and make the following bids: $10.00, $10.02, $10.03 and $10.06, respectively. Conversely, four sellers wish to sell shares of company XYZ, and these sellers submitted offers to sell their shares at the following prices: $10.06, $10.09, $10.12 and $10.13, respectively. In this scenario, the individuals that made bids/offers for company XYZ at $10.06 will have their orders executed. All remaining orders will not immediately be executed, and the current price of company XYZ will be $10.06. ## Treasury Auctions The [U.S. Treasury](https://www.investopedia.com/terms/u/ustreasury.asp) holds [auctions](https://www.investopedia.com/terms/b/bill-auction.asp) to finance certain government financial activities. The Treasury auction is open to the public and various larger investment entities. These bids are submitted electronically and are divided into competing and noncompeting bids depending on the person or entity who places the recorded bid. Noncompeting bids are addressed first because noncompetitive bidders are guaranteed to receive a predetermined amount of securities as a minimum and up to a maximum of $5 million. These are most commonly entered by individual investors or those representing small entities. In competitive bidding, once the auction period closes, all of the incoming bids are reviewed to determine the winning price. Securities are sold to the competing bidders based on the amount listed within the bid. Once all of the securities have been sold, the remaining competing bidders will not receive any securities.	What Is an Auction Market? In an auction market, buyers enter competitive bids and sellers submit competitive offers at the same time. The price at which a stock trades represents the highest price that a buyer is willing to pay and the lowest price that a seller is willing to accept. Matching bids and offers are then paired together, and the orders are executed. The New York Stock Exchange (NYSE) is an example of an auction market. Auction Market Process The process involved in an auction market differs from the process in an over-the-counter (OTC) market. On the NYSE, for example, there are no direct negotiations between individual buyers and sellers, while negotiations occur in OTC trades. Most traditional auctions involve multiple potential buyers or bidders, but only a single seller, whereas auction markets for securities have multiple buyers and multiple sellers, all looking to make deals simultaneously. Key Takeaways An auction market is one where buyers and sellers enter competitive bids simultaneously.The price at which a stock trades represents the highest price that a buyer is willing to pay and the lowest price that a seller is willing to accept.A double auction market is when a buyer’s price and a seller’s asking price match, and the trade proceeds at that price.Auction markets do not involve direct negotiations between individual buyers and sellers, while negotiations occur for OTC trades.The U.S. Treasury holds auctions, which are open to the public and large investment entities, to finance certain government financial activities. Double Auction Markets An auction market also known as a double auction market, allows buyers and sellers to submit prices they deem acceptable to a list. When a match between a buyer’s price and a seller’s asking price is found, the trade proceeds at that price. Trades without matches will not be executed. Examples of the Auction Market Process Imagine that four buyers want to buy a share of company XYZ and make the following bids: $10.00, $10.02, $10.03 and $10.06, respectively. Conversely, four sellers wish to sell shares of company XYZ, and these sellers submitted offers to sell their shares at the following prices: $10.06, $10.09, $10.12 and $10.13, respectively. In this scenario, the individuals that made bids/offers for company XYZ at $10.06 will have their orders executed. All remaining orders will not immediately be executed, and the current price of company XYZ will be $10.06. Treasury Auctions The U.S. Treasury holds auctions to finance certain government financial activities. The Treasury auction is open to the public and various larger investment entities. These bids are submitted electronically and are divided into competing and noncompeting bids depending on the person or entity who places the recorded bid. Noncompeting bids are addressed first because noncompetitive bidders are guaranteed to receive a predetermined amount of securities as a minimum and up to a maximum of $5 million. These are most commonly entered by individual investors or those representing small entities. In competitive bidding, once the auction period closes, all of the incoming bids are reviewed to determine the winning price. Securities are sold to the competing bidders based on the amount listed within the bid. Once all of the securities have been sold, the remaining competing bidders will not receive any securities.	[ [ "competitive bids", "https://www.investopedia.com/terms/c/competitivebid.asp" ], [ "stock trades", "https://www.investopedia.com/articles/investing/082614/how-stock-market-works.asp" ], [ "New York Stock Exchange (NYSE)", "https://www.investopedia.com/terms/n/nyse.asp" ], [ "(OTC) market", "https://www.investopedia.com/terms/o/over-the-countermarket.asp" ], [ "negotiations", "https://www.investopedia.com/terms/n/negotiation.asp" ], [ "securities", "https://www.investopedia.com/terms/s/security.asp" ], [ "auction", "https://www.investopedia.com/terms/a/auction.asp" ], [ "U.S. Treasury", "https://www.investopedia.com/terms/u/ustreasury.asp" ], [ "auctions", "https://www.investopedia.com/terms/b/bill-auction.asp" ] ]
https://www.investopedia.com/stock-analysis/cotd/022614/bullish-and-bearish-macd-crossovers-lnkd-wyn-amt-twc.aspx	Bullish And Bearish MACD Crossovers	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/macd.asp" rel="noopener noreferrer">MACD indicator</a> is used for both trend following and gauging momentum. While there are multiple ways to use the MACD, one way to watch for the fast line to cross above the slow line, indicating a shift in momentum. The following four stocks have witnessed a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crossover.asp" rel="noopener noreferrer">crossover</a>, indicating a short-term continuation in the current direction. Indicators typically need a context though, and bycombining the MACD trade signal with price analysis we get a more well-rounded outlook of what these signals mean for these stocks. </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-linkedin"></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"> LinkedIn </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> (NYSE:<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft" rel="noopener noreferrer">LNKD</a>) witnessed a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading/macd/" rel="noopener noreferrer">bullish MACD crossover</a> on February 25. This is the fourth bullish crossover since November, and each time it has occurred the price has made it's way to the top of its current <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-channel.asp" rel="noopener noreferrer">trend channel</a>. Currently the channel intersects near $220, providing a reasonable target based on current conditions. Overall the trend is down though, confirmed by a downward sloping trend channel and lower price highs and lower price lows, as well as the MACD being well below the zero line. If the price were to move above the recent high at $225, there is a potential case for more bullishness, but as it stands the bullish crossover likely only means a rally to the top of the channel. At the top of the channel traders can then look for bearish crossovers assuming the downtrend will continue. </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-square figure-high-res" id="mntl-sc-block_6-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:96.3%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/JiwupP7Fnp2WR_4IAJpqhkQZqZg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-01-212d8345a518486eab93bbcee69ceafa.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/JiwupP7Fnp2WR_4IAJpqhkQZqZg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-01-212d8345a518486eab93bbcee69ceafa.jpg" data-srcset="https://www.investopedia.com/thmb/cpy2GhkH2Dx2JEHT38eNYA0oSWc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-01-212d8345a518486eab93bbcee69ceafa.jpg 750w" data-tracking-container="true" height="3816" id="mntl-sc-block-image_1-0" width="3959"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3816" sizes="750px" src="https://www.investopedia.com/thmb/JiwupP7Fnp2WR_4IAJpqhkQZqZg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-01-212d8345a518486eab93bbcee69ceafa.jpg" srcset="https://www.investopedia.com/thmb/cpy2GhkH2Dx2JEHT38eNYA0oSWc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-01-212d8345a518486eab93bbcee69ceafa.jpg 750w" width="3959"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner">Image by Sabrina Jiang © Investopedia 2020</span> </figcaption></figure> <span class="heading-toc" id="toc-wyndham-worldwide"></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"> Wyndham WorldWide </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> (NYSE:WYN) experienced a deep correction after hitting a high of $75.25 in late January. The depth of the correction created lower lows and lower highs bringing the MACD into negative territory. Through the latter part of February though the stock has stabilized and started to edge higher. This has resulted in a bullish MACD crossover. For those thinking the longer term uptrend will continue this crossover provides an entry, with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stop-lossorder.asp" rel="noopener noreferrer">stop</a> placed near $68 and a target above $75. If the price rallies from here, but is unable to reach the former high, traders will be watching for a bearish MACD crossover in anticipation of this short-term downtrend continuing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <figure class="comp mntl-sc-block finance-sc-block-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_10-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:95.8%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/LKAeYenyUsQD32gMlh_1jCHFM-Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-02-d7dbe4a2336f47fcae2c652c6dc593dd.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/LKAeYenyUsQD32gMlh_1jCHFM-Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-02-d7dbe4a2336f47fcae2c652c6dc593dd.jpg" data-srcset="https://www.investopedia.com/thmb/hihFOXjrmkAJmZ3J2rhIcoOTOCY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-02-d7dbe4a2336f47fcae2c652c6dc593dd.jpg 750w" data-tracking-container="true" height="3793" id="mntl-sc-block-image_2-0" width="3959"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3793" sizes="750px" src="https://www.investopedia.com/thmb/LKAeYenyUsQD32gMlh_1jCHFM-Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-02-d7dbe4a2336f47fcae2c652c6dc593dd.jpg" srcset="https://www.investopedia.com/thmb/hihFOXjrmkAJmZ3J2rhIcoOTOCY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-02-d7dbe4a2336f47fcae2c652c6dc593dd.jpg 750w" width="3959"/> </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">Image by Sabrina Jiang © Investopedia 2020 </span> </figcaption></figure> <span class="heading-toc" id="toc-american-tower"></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"> American Tower </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> (NYSE:<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amt" rel="noopener noreferrer">AMT</a>) recently created a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/doubletop.asp" rel="noopener noreferrer">double top</a> when if failed to clear $85 on February 21 and then saw a dramatic decline in the two days following. The sharp sell-off created a MACD bearish crossover. The prior bearish crossover (January 24) resulted in a sell signal that occurred right near the bottom of the move before a bounce. This shows the MACD signals are not always profitable. Therefore, traders may also want to watch $78.38, that is the low between the two tops. If that price is broken it completes the double top and creates the expectation that the price will continue lower. With two attempts to break a strong resistance area, and very strong selling reactions this bearish crossover looks more promising than the last, yet caution is warranted as the price is currently inside a pattern and volatility is temporarily high. </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-square figure-high-res" id="mntl-sc-block_14-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:96.8%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/lNczW6mZ9vF5lCnTzaw_GmkAT9E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-03-9c9424bba328482c8258c7548824523f.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/lNczW6mZ9vF5lCnTzaw_GmkAT9E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-03-9c9424bba328482c8258c7548824523f.jpg" data-srcset="https://www.investopedia.com/thmb/DXc5nnKuWvKbzvQpDh47EiuYBnI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-03-9c9424bba328482c8258c7548824523f.jpg 750w" data-tracking-container="true" height="3834" id="mntl-sc-block-image_3-0" width="3959"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3834" sizes="750px" src="https://www.investopedia.com/thmb/lNczW6mZ9vF5lCnTzaw_GmkAT9E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-03-9c9424bba328482c8258c7548824523f.jpg" srcset="https://www.investopedia.com/thmb/DXc5nnKuWvKbzvQpDh47EiuYBnI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-03-9c9424bba328482c8258c7548824523f.jpg 750w" width="3959"/> </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">Image by Sabrina Jiang © Investopedia 2020</span> </figcaption></figure> <span class="heading-toc" id="toc-time-warner-cable"></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"> Time Warner Cable </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> (NYSE:TWC) is in an overall uptrend, but after a short-term selloff from the February 14 $147.28 high, it's seen a bearish MACD crossover. The price hasn't created any lower lows or lower swing highs, and the MACD remains above the zero line, therefore this isn't necessarily a sell signal. While the price may proceed a bit lower, filling more of the February 13 price gap, the price is likely to find support near $135. Therefore, the bearish crossover in this case indicates that a pullback is underway in an uptrend and buyers may be looking to pick up longs in the vicinity of the trendline. If the price drops below $130 there is a case of more bearishness, but until that occurs bulls may want to actually watch for a bullish crossover instead of focusing on this bearish one. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-square figure-high-res" id="mntl-sc-block_18-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:95.8%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/4t--aNou7TkbqgfuCJ1RwWA5djE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-04-01555a442c5447ccbf406d1c48f9e9ab.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/4t--aNou7TkbqgfuCJ1RwWA5djE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-04-01555a442c5447ccbf406d1c48f9e9ab.jpg" data-srcset="https://www.investopedia.com/thmb/KfcTlcBeDGAaLvNuKPbqfpJEzKU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-04-01555a442c5447ccbf406d1c48f9e9ab.jpg 750w" data-tracking-container="true" height="3793" id="mntl-sc-block-image_4-0" width="3959"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3793" sizes="750px" src="https://www.investopedia.com/thmb/4t--aNou7TkbqgfuCJ1RwWA5djE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-04-01555a442c5447ccbf406d1c48f9e9ab.jpg" srcset="https://www.investopedia.com/thmb/KfcTlcBeDGAaLvNuKPbqfpJEzKU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-04-01555a442c5447ccbf406d1c48f9e9ab.jpg 750w" width="3959"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_4-0"> <span class="figure-article-caption-owner">Image by Sabrina Jiang © Investopedia 2020</span> </figcaption></figure> <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_19-0"> <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_20-0"> While a MACD can be traded on its own, using price action to provide a context for trades is often prudent. Just because a stock flashes a bullish crossover doesn't mean it is a good buy--for example if the trend is down. Instead, it may be better to wait for a bearish crossover and trade in the direction of the down trend. No matter what method is used, losing trades will occur. Therefore, establish risk and position size parameters before the trade based on your personal risk tolerance. </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"> Disclosure: <em>At the time of writing, the author did not own shares of any company mentioned in this article.</em> </p></div>	The [MACD indicator](https://www.investopedia.com/terms/m/macd.asp) is used for both trend following and gauging momentum. While there are multiple ways to use the MACD, one way to watch for the fast line to cross above the slow line, indicating a shift in momentum. The following four stocks have witnessed a [crossover](https://www.investopedia.com/terms/c/crossover.asp), indicating a short-term continuation in the current direction. Indicators typically need a context though, and bycombining the MACD trade signal with price analysis we get a more well-rounded outlook of what these signals mean for these stocks. ## LinkedIn (NYSE:[LNKD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft)) witnessed a [bullish MACD crossover](https://www.investopedia.com/trading/macd/) on February 25. This is the fourth bullish crossover since November, and each time it has occurred the price has made it's way to the top of its current [trend channel](https://www.investopedia.com/terms/p/price-channel.asp). Currently the channel intersects near $220, providing a reasonable target based on current conditions. Overall the trend is down though, confirmed by a downward sloping trend channel and lower price highs and lower price lows, as well as the MACD being well below the zero line. If the price were to move above the recent high at $225, there is a potential case for more bullishness, but as it stands the bullish crossover likely only means a rally to the top of the channel. At the top of the channel traders can then look for bearish crossovers assuming the downtrend will continue. ![Image]() ![Image](https://www.investopedia.com/thmb/JiwupP7Fnp2WR_4IAJpqhkQZqZg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-01-212d8345a518486eab93bbcee69ceafa.jpg) Image by Sabrina Jiang © Investopedia 2020 ## Wyndham WorldWide (NYSE:WYN) experienced a deep correction after hitting a high of $75.25 in late January. The depth of the correction created lower lows and lower highs bringing the MACD into negative territory. Through the latter part of February though the stock has stabilized and started to edge higher. This has resulted in a bullish MACD crossover. For those thinking the longer term uptrend will continue this crossover provides an entry, with a [stop](https://www.investopedia.com/terms/s/stop-lossorder.asp) placed near $68 and a target above $75. If the price rallies from here, but is unable to reach the former high, traders will be watching for a bearish MACD crossover in anticipation of this short-term downtrend continuing. ![Image]() ![Image](https://www.investopedia.com/thmb/LKAeYenyUsQD32gMlh_1jCHFM-Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-02-d7dbe4a2336f47fcae2c652c6dc593dd.jpg) Image by Sabrina Jiang © Investopedia 2020 ## American Tower (NYSE:[AMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amt)) recently created a [double top](https://www.investopedia.com/terms/d/doubletop.asp) when if failed to clear $85 on February 21 and then saw a dramatic decline in the two days following. The sharp sell-off created a MACD bearish crossover. The prior bearish crossover (January 24) resulted in a sell signal that occurred right near the bottom of the move before a bounce. This shows the MACD signals are not always profitable. Therefore, traders may also want to watch $78.38, that is the low between the two tops. If that price is broken it completes the double top and creates the expectation that the price will continue lower. With two attempts to break a strong resistance area, and very strong selling reactions this bearish crossover looks more promising than the last, yet caution is warranted as the price is currently inside a pattern and volatility is temporarily high. ![Image]() ![Image](https://www.investopedia.com/thmb/lNczW6mZ9vF5lCnTzaw_GmkAT9E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-03-9c9424bba328482c8258c7548824523f.jpg) Image by Sabrina Jiang © Investopedia 2020 ## Time Warner Cable (NYSE:TWC) is in an overall uptrend, but after a short-term selloff from the February 14 $147.28 high, it's seen a bearish MACD crossover. The price hasn't created any lower lows or lower swing highs, and the MACD remains above the zero line, therefore this isn't necessarily a sell signal. While the price may proceed a bit lower, filling more of the February 13 price gap, the price is likely to find support near $135. Therefore, the bearish crossover in this case indicates that a pullback is underway in an uptrend and buyers may be looking to pick up longs in the vicinity of the trendline. If the price drops below $130 there is a case of more bearishness, but until that occurs bulls may want to actually watch for a bullish crossover instead of focusing on this bearish one. ![Image]() ![Image](https://www.investopedia.com/thmb/4t--aNou7TkbqgfuCJ1RwWA5djE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Bullish_And_Bearish_MACD_Crossovers_Jul_2020-04-01555a442c5447ccbf406d1c48f9e9ab.jpg) Image by Sabrina Jiang © Investopedia 2020 ## The Bottom Line While a MACD can be traded on its own, using price action to provide a context for trades is often prudent. Just because a stock flashes a bullish crossover doesn't mean it is a good buy--for example if the trend is down. Instead, it may be better to wait for a bearish crossover and trade in the direction of the down trend. No matter what method is used, losing trades will occur. Therefore, establish risk and position size parameters before the trade based on your personal risk tolerance. Disclosure: At the time of writing, the author did not own shares of any company mentioned in this article.	The MACD indicator is used for both trend following and gauging momentum. While there are multiple ways to use the MACD, one way to watch for the fast line to cross above the slow line, indicating a shift in momentum. The following four stocks have witnessed a crossover, indicating a short-term continuation in the current direction. Indicators typically need a context though, and bycombining the MACD trade signal with price analysis we get a more well-rounded outlook of what these signals mean for these stocks. LinkedIn (NYSE:LNKD) witnessed a bullish MACD crossover on February 25. This is the fourth bullish crossover since November, and each time it has occurred the price has made it's way to the top of its current trend channel. Currently the channel intersects near $220, providing a reasonable target based on current conditions. Overall the trend is down though, confirmed by a downward sloping trend channel and lower price highs and lower price lows, as well as the MACD being well below the zero line. If the price were to move above the recent high at $225, there is a potential case for more bullishness, but as it stands the bullish crossover likely only means a rally to the top of the channel. At the top of the channel traders can then look for bearish crossovers assuming the downtrend will continue. Image by Sabrina Jiang © Investopedia 2020 Wyndham WorldWide (NYSE:WYN) experienced a deep correction after hitting a high of $75.25 in late January. The depth of the correction created lower lows and lower highs bringing the MACD into negative territory. Through the latter part of February though the stock has stabilized and started to edge higher. This has resulted in a bullish MACD crossover. For those thinking the longer term uptrend will continue this crossover provides an entry, with a stop placed near $68 and a target above $75. If the price rallies from here, but is unable to reach the former high, traders will be watching for a bearish MACD crossover in anticipation of this short-term downtrend continuing. Image by Sabrina Jiang © Investopedia 2020 American Tower (NYSE:AMT) recently created a double top when if failed to clear $85 on February 21 and then saw a dramatic decline in the two days following. The sharp sell-off created a MACD bearish crossover. The prior bearish crossover (January 24) resulted in a sell signal that occurred right near the bottom of the move before a bounce. This shows the MACD signals are not always profitable. Therefore, traders may also want to watch $78.38, that is the low between the two tops. If that price is broken it completes the double top and creates the expectation that the price will continue lower. With two attempts to break a strong resistance area, and very strong selling reactions this bearish crossover looks more promising than the last, yet caution is warranted as the price is currently inside a pattern and volatility is temporarily high. Image by Sabrina Jiang © Investopedia 2020 Time Warner Cable (NYSE:TWC) is in an overall uptrend, but after a short-term selloff from the February 14 $147.28 high, it's seen a bearish MACD crossover. The price hasn't created any lower lows or lower swing highs, and the MACD remains above the zero line, therefore this isn't necessarily a sell signal. While the price may proceed a bit lower, filling more of the February 13 price gap, the price is likely to find support near $135. Therefore, the bearish crossover in this case indicates that a pullback is underway in an uptrend and buyers may be looking to pick up longs in the vicinity of the trendline. If the price drops below $130 there is a case of more bearishness, but until that occurs bulls may want to actually watch for a bullish crossover instead of focusing on this bearish one. Image by Sabrina Jiang © Investopedia 2020 The Bottom Line While a MACD can be traded on its own, using price action to provide a context for trades is often prudent. Just because a stock flashes a bullish crossover doesn't mean it is a good buy--for example if the trend is down. Instead, it may be better to wait for a bearish crossover and trade in the direction of the down trend. No matter what method is used, losing trades will occur. Therefore, establish risk and position size parameters before the trade based on your personal risk tolerance. Disclosure: At the time of writing, the author did not own shares of any company mentioned in this article.	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https://www.investopedia.com/the-great-work-from-home-migration-5184172	The Great Work-From-Home Migration	<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 COVID-19 pandemic shut down the U.S. economy, many companies were unprepared for everyone to suddenly be working from home, leaving them scrambling to set up remote procedures. “More than half of the people who were forced to work from home overnight had never done it before with any regularity,” says Kate Lister, president of Global Workplace Analytics, a research consultancy. It has been estimated that only 20% of employees were working from home before COVID-19.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> When the pandemic hit, both companies and workers were thrust into an unprecedented situation in which <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/work-from-home-guide/">they had to quickly figure out which tools they needed</a>, both hard and soft; what space they required; and how to manage their workflow. Some of that included sending laptops to employees, arranging for Zoom and Slack tutorials, setting up virtual private network (VPN) systems, and ensuring that workers had the mental support required to succeed in the new normal. </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"> All of a sudden, any boundaries between work and personal life went out the window. People were working from wherever they could find spare space in their house or apartment, while parents added juggling virtual school and childcare at the same time. As time went on, some of those issues became more manageable but were still a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-economic-impact-of-a-hybrid-office-5200417">major adjustment</a>. About half of those surveyed by Pew Research in October 2020 said they liked the flexibility and the ability to manage their own hours, while 65% said they missed interacting with colleagues in person.<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_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A big upside for companies that previously had been wary of remote work having an adverse impact on productivity was the positive effect on their bottom line. In fact, 83% of those surveyed by PricewaterhouseCoopers (PwC) in January 2021 said remote work has been a success.<span class="ql-inline-citation" data-cite="3"></span> Still, no one expected it to last this long. </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>Companies and employees showed remarkable resilience by quickly figuring out how to cobble together remote work operations.</li> <li>Working from home did not hurt productivity; 83% of those surveyed by PwC called remote work a success.</li> <li>As companies began to evaluate their plans for return to the office, the Delta variant struck and, for many, has altered or delayed those plans.</li> <li>While some companies want everyone back, most are looking at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/hybrid-office-5200246">hybrid</a> or remote-by-choice options.</li> <li>Companies are also evaluating their office-space needs.</li> <li>Housing inventory dried up as a result of remote work, as many employees looked for more space.</li> <li>Home prices are expected to remain high, with inventory remaining tight into the third quarter.</li> <li>Experts predict the housing market to begin easing by the end of 2021.</li> </ul></div></div></div> <span class="heading-toc" id="toc-the-rise-of-the-delta-variant"></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"> The Rise of the Delta Variant </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Just as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-reopen-your-small-business-safely-4844160">companies were beginning to evaluate whether they wanted employees to return</a> to their offices, a new and more dangerous Delta variant of the COVID-19 virus arrived,<span class="ql-inline-citation" data-cite="19"></span> bringing with it the possibility of new restrictions and ever more stringent laws and guidelines. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> A survey of 3,500 workers commissioned by employment screening service, GoodHire, found that more than half of those surveyed are seriously concerned about the new COVID-19 outbreaks and do not feel safe about going back to an office environment.<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_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Additionally, 74% of employees said they would volunteer their vaccination status to their employer to ensure the office environment was safe. Further, just 16% of workers say they are ready to accept a mandated return-to-office without additional safety measures in place.<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_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Based on results of the GoodHire survey, 84% of American workers surveyed want some combination of the following: </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>Masks for all employees in-office</li><li>Required proof of vaccination for all returning workers</li><li>Limits on the number of people allowed in-office </li><li>Daily sanitizing of all work surfaces </li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> “The office is no longer the primary location of choice for employee collaboration and productivity,” says GoodHire Chief Operating Officer, Max Wesman, “In fact, our survey showed that people are bypassing job ads altogether that don’t mention a remote work option.”<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_23-0"></div> <span class="heading-toc" id="toc-a-reimagining-of-the-workplace"></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"> A Reimagining of the Workplace </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Some companies, including Twitter, Slack, and Square, plan to remain remote for the foreseeable future, while others, including Netflix, LinkedIn, and Google are considering a hybrid approach.<span class="ql-inline-citation" data-cite="15"></span> Microsoft, another hybrid proponent, created a Hybrid Workplace Dial that breaks down the level of its office occupancy into six stages based on local health conditions and government guidance.<span class="ql-inline-citation" data-cite="5"></span><br/> </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"> Still other companies want all workers back full time. Conditions for any back-to-the-office approach, however, have been affected by the rise of the Delta variant according to news sources. Goldman Sachs, Credit Suisse, and Morgan Stanley are among those altering their return to the office plans to include requiring proof of vaccination in order to come back. Unvaccinated employees will be expected to work from home.<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_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> For many companies, precise plans depend on how much the country gets the pandemic under control.<strong> </strong>Ford, for example, recently pushed back its plan to start bringing back some workers to Jan. 2022 from Oct. 2021, according to the Detroit Free Press.<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_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Most employers (75%), in the PwC survey said they would like to see employees return to the workplace by July.<span class="ql-inline-citation" data-cite="3"></span> In the GoodHire survey, however, 85% of workers say they and their co-workers prefer working remotely.<span class="ql-inline-citation" data-cite="16"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> One thing that stands out is that companies seem to be taking a longer view. LinkedIn recently created a new internal position—Vice President of Flex Work—to address how the “workplace of the future” might look. “It’s a super interesting challenge to solve, challenging us all to think creatively, make careful decisions and collaborate more effectively,” posted Shannon Hardy, who has taken the job.<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_34-0"></div> <span class="heading-toc" id="toc-working-from-home-created-a-housing-bubble-will-it-last"></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"> Working From Home Created a Housing Bubble. Will it Last? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Another side effect of the work-from-home migration is its impact on the housing market. Two things happened when remote work became the norm: Some people quickly realized they needed more space, so they rushed to buy a new home. Others realized they could work from anywhere, which prompted some workers to move closer to family members who often lived in different parts of the country. With everyone working from home, it didn’t matter where you were. </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"> According to a recent report from Zillow, the trend toward working from home, at least part time, is here to stay. That will likely keep the housing market heated for the near term, especially as interest rates remain at attractively low levels.<span class="ql-inline-citation" data-cite="7"></span> Although the latest statistics from real estate brokerage Redfin show a softening in demand since the Zillow report, the median home sale price is still up 16% from a year ago<strong> </strong>and new listings spent only 18 days on the market and sold for 1.6% above the asking price.<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_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Still, there is some good news on the horizon for buyers. In its latest housing market update, Zillow said it expects a total of 5.89 million existing-home sales in 2021, up 4.3% from 2020 but down from the 5.91 million total 2021 sales expected in its prior forecast. Continued high inflation, Zillow said, "will put upward pressure on interest rates which can potentially dampen home purchase demand and home value appreciation."<span class="ql-inline-citation" data-cite="18"></span><br/> </p></div>	As the COVID-19 pandemic shut down the U.S. economy, many companies were unprepared for everyone to suddenly be working from home, leaving them scrambling to set up remote procedures. “More than half of the people who were forced to work from home overnight had never done it before with any regularity,” says Kate Lister, president of Global Workplace Analytics, a research consultancy. It has been estimated that only 20% of employees were working from home before COVID-19. When the pandemic hit, both companies and workers were thrust into an unprecedented situation in which [they had to quickly figure out which tools they needed](https://www.investopedia.com/personal-finance/work-from-home-guide/), both hard and soft; what space they required; and how to manage their workflow. Some of that included sending laptops to employees, arranging for Zoom and Slack tutorials, setting up virtual private network (VPN) systems, and ensuring that workers had the mental support required to succeed in the new normal. All of a sudden, any boundaries between work and personal life went out the window. People were working from wherever they could find spare space in their house or apartment, while parents added juggling virtual school and childcare at the same time. As time went on, some of those issues became more manageable but were still a [major adjustment](https://www.investopedia.com/the-economic-impact-of-a-hybrid-office-5200417). About half of those surveyed by Pew Research in October 2020 said they liked the flexibility and the ability to manage their own hours, while 65% said they missed interacting with colleagues in person. A big upside for companies that previously had been wary of remote work having an adverse impact on productivity was the positive effect on their bottom line. In fact, 83% of those surveyed by PricewaterhouseCoopers (PwC) in January 2021 said remote work has been a success. Still, no one expected it to last this long. ### Key Takeaways * Companies and employees showed remarkable resilience by quickly figuring out how to cobble together remote work operations. * Working from home did not hurt productivity; 83% of those surveyed by PwC called remote work a success. * As companies began to evaluate their plans for return to the office, the Delta variant struck and, for many, has altered or delayed those plans. * While some companies want everyone back, most are looking at [hybrid](https://www.investopedia.com/hybrid-office-5200246) or remote-by-choice options. * Companies are also evaluating their office-space needs. * Housing inventory dried up as a result of remote work, as many employees looked for more space. * Home prices are expected to remain high, with inventory remaining tight into the third quarter. * Experts predict the housing market to begin easing by the end of 2021. ## The Rise of the Delta Variant Just as [companies were beginning to evaluate whether they wanted employees to return](https://www.investopedia.com/how-to-reopen-your-small-business-safely-4844160) to their offices, a new and more dangerous Delta variant of the COVID-19 virus arrived, bringing with it the possibility of new restrictions and ever more stringent laws and guidelines. A survey of 3,500 workers commissioned by employment screening service, GoodHire, found that more than half of those surveyed are seriously concerned about the new COVID-19 outbreaks and do not feel safe about going back to an office environment. Additionally, 74% of employees said they would volunteer their vaccination status to their employer to ensure the office environment was safe. Further, just 16% of workers say they are ready to accept a mandated return-to-office without additional safety measures in place. Based on results of the GoodHire survey, 84% of American workers surveyed want some combination of the following: * Masks for all employees in-office * Required proof of vaccination for all returning workers * Limits on the number of people allowed in-office * Daily sanitizing of all work surfaces “The office is no longer the primary location of choice for employee collaboration and productivity,” says GoodHire Chief Operating Officer, Max Wesman, “In fact, our survey showed that people are bypassing job ads altogether that don’t mention a remote work option.” ## A Reimagining of the Workplace Some companies, including Twitter, Slack, and Square, plan to remain remote for the foreseeable future, while others, including Netflix, LinkedIn, and Google are considering a hybrid approach. Microsoft, another hybrid proponent, created a Hybrid Workplace Dial that breaks down the level of its office occupancy into six stages based on local health conditions and government guidance. Still other companies want all workers back full time. Conditions for any back-to-the-office approach, however, have been affected by the rise of the Delta variant according to news sources. Goldman Sachs, Credit Suisse, and Morgan Stanley are among those altering their return to the office plans to include requiring proof of vaccination in order to come back. Unvaccinated employees will be expected to work from home. For many companies, precise plans depend on how much the country gets the pandemic under control.Ford, for example, recently pushed back its plan to start bringing back some workers to Jan. 2022 from Oct. 2021, according to the Detroit Free Press. Most employers (75%), in the PwC survey said they would like to see employees return to the workplace by July. In the GoodHire survey, however, 85% of workers say they and their co-workers prefer working remotely. One thing that stands out is that companies seem to be taking a longer view. LinkedIn recently created a new internal position—Vice President of Flex Work—to address how the “workplace of the future” might look. “It’s a super interesting challenge to solve, challenging us all to think creatively, make careful decisions and collaborate more effectively,” posted Shannon Hardy, who has taken the job. ## Working From Home Created a Housing Bubble. Will it Last? Another side effect of the work-from-home migration is its impact on the housing market. Two things happened when remote work became the norm: Some people quickly realized they needed more space, so they rushed to buy a new home. Others realized they could work from anywhere, which prompted some workers to move closer to family members who often lived in different parts of the country. With everyone working from home, it didn’t matter where you were. According to a recent report from Zillow, the trend toward working from home, at least part time, is here to stay. That will likely keep the housing market heated for the near term, especially as interest rates remain at attractively low levels. Although the latest statistics from real estate brokerage Redfin show a softening in demand since the Zillow report, the median home sale price is still up 16% from a year agoand new listings spent only 18 days on the market and sold for 1.6% above the asking price. Still, there is some good news on the horizon for buyers. In its latest housing market update, Zillow said it expects a total of 5.89 million existing-home sales in 2021, up 4.3% from 2020 but down from the 5.91 million total 2021 sales expected in its prior forecast. Continued high inflation, Zillow said, "will put upward pressure on interest rates which can potentially dampen home purchase demand and home value appreciation."	As the COVID-19 pandemic shut down the U.S. economy, many companies were unprepared for everyone to suddenly be working from home, leaving them scrambling to set up remote procedures. “More than half of the people who were forced to work from home overnight had never done it before with any regularity,” says Kate Lister, president of Global Workplace Analytics, a research consultancy. It has been estimated that only 20% of employees were working from home before COVID-19. When the pandemic hit, both companies and workers were thrust into an unprecedented situation in which they had to quickly figure out which tools they needed, both hard and soft; what space they required; and how to manage their workflow. Some of that included sending laptops to employees, arranging for Zoom and Slack tutorials, setting up virtual private network (VPN) systems, and ensuring that workers had the mental support required to succeed in the new normal. All of a sudden, any boundaries between work and personal life went out the window. People were working from wherever they could find spare space in their house or apartment, while parents added juggling virtual school and childcare at the same time. As time went on, some of those issues became more manageable but were still a major adjustment. About half of those surveyed by Pew Research in October 2020 said they liked the flexibility and the ability to manage their own hours, while 65% said they missed interacting with colleagues in person. A big upside for companies that previously had been wary of remote work having an adverse impact on productivity was the positive effect on their bottom line. In fact, 83% of those surveyed by PricewaterhouseCoopers (PwC) in January 2021 said remote work has been a success. Still, no one expected it to last this long. Key Takeaways Companies and employees showed remarkable resilience by quickly figuring out how to cobble together remote work operations. Working from home did not hurt productivity; 83% of those surveyed by PwC called remote work a success. As companies began to evaluate their plans for return to the office, the Delta variant struck and, for many, has altered or delayed those plans. While some companies want everyone back, most are looking at hybrid or remote-by-choice options. Companies are also evaluating their office-space needs. Housing inventory dried up as a result of remote work, as many employees looked for more space. Home prices are expected to remain high, with inventory remaining tight into the third quarter. Experts predict the housing market to begin easing by the end of 2021. The Rise of the Delta Variant Just as companies were beginning to evaluate whether they wanted employees to return to their offices, a new and more dangerous Delta variant of the COVID-19 virus arrived, bringing with it the possibility of new restrictions and ever more stringent laws and guidelines. A survey of 3,500 workers commissioned by employment screening service, GoodHire, found that more than half of those surveyed are seriously concerned about the new COVID-19 outbreaks and do not feel safe about going back to an office environment. Additionally, 74% of employees said they would volunteer their vaccination status to their employer to ensure the office environment was safe. Further, just 16% of workers say they are ready to accept a mandated return-to-office without additional safety measures in place. Based on results of the GoodHire survey, 84% of American workers surveyed want some combination of the following: Masks for all employees in-officeRequired proof of vaccination for all returning workersLimits on the number of people allowed in-office Daily sanitizing of all work surfaces “The office is no longer the primary location of choice for employee collaboration and productivity,” says GoodHire Chief Operating Officer, Max Wesman, “In fact, our survey showed that people are bypassing job ads altogether that don’t mention a remote work option.” A Reimagining of the Workplace Some companies, including Twitter, Slack, and Square, plan to remain remote for the foreseeable future, while others, including Netflix, LinkedIn, and Google are considering a hybrid approach. Microsoft, another hybrid proponent, created a Hybrid Workplace Dial that breaks down the level of its office occupancy into six stages based on local health conditions and government guidance. Still other companies want all workers back full time. Conditions for any back-to-the-office approach, however, have been affected by the rise of the Delta variant according to news sources. Goldman Sachs, Credit Suisse, and Morgan Stanley are among those altering their return to the office plans to include requiring proof of vaccination in order to come back. Unvaccinated employees will be expected to work from home. For many companies, precise plans depend on how much the country gets the pandemic under control. Ford, for example, recently pushed back its plan to start bringing back some workers to Jan. 2022 from Oct. 2021, according to the Detroit Free Press. Most employers (75%), in the PwC survey said they would like to see employees return to the workplace by July. In the GoodHire survey, however, 85% of workers say they and their co-workers prefer working remotely. One thing that stands out is that companies seem to be taking a longer view. LinkedIn recently created a new internal position—Vice President of Flex Work—to address how the “workplace of the future” might look. “It’s a super interesting challenge to solve, challenging us all to think creatively, make careful decisions and collaborate more effectively,” posted Shannon Hardy, who has taken the job. Working From Home Created a Housing Bubble. Will it Last? Another side effect of the work-from-home migration is its impact on the housing market. Two things happened when remote work became the norm: Some people quickly realized they needed more space, so they rushed to buy a new home. Others realized they could work from anywhere, which prompted some workers to move closer to family members who often lived in different parts of the country. With everyone working from home, it didn’t matter where you were. According to a recent report from Zillow, the trend toward working from home, at least part time, is here to stay. That will likely keep the housing market heated for the near term, especially as interest rates remain at attractively low levels. Although the latest statistics from real estate brokerage Redfin show a softening in demand since the Zillow report, the median home sale price is still up 16% from a year ago and new listings spent only 18 days on the market and sold for 1.6% above the asking price. Still, there is some good news on the horizon for buyers. In its latest housing market update, Zillow said it expects a total of 5.89 million existing-home sales in 2021, up 4.3% from 2020 but down from the 5.91 million total 2021 sales expected in its prior forecast. Continued high inflation, Zillow said, "will put upward pressure on interest rates which can potentially dampen home purchase demand and home value appreciation."	[ [ "they had to quickly figure out which tools they needed", "https://www.investopedia.com/personal-finance/work-from-home-guide/" ], [ "major adjustment", "https://www.investopedia.com/the-economic-impact-of-a-hybrid-office-5200417" ], [ "hybrid", "https://www.investopedia.com/hybrid-office-5200246" ], [ "companies were beginning to evaluate whether they wanted employees to return", "https://www.investopedia.com/how-to-reopen-your-small-business-safely-4844160" ] ]
https://www.investopedia.com/terms/s/softlanding.asp	Soft Landing: Definition and History in Economics	<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-soft-landing"></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 Soft Landing? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A soft landing, in economics, is a cyclical slowdown in economic growth that avoids <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/recession.asp">recession</a>. A soft landing is the goal of a central bank when it seeks to raise interest rates just enough to stop an economy from overheating and experiencing high <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a>, without causing a severe downturn. Soft landing may also refer to a gradual, relatively painless slowdown in a particular industry or economic sector. </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 soft landing refers to a moderate economic slowdown following a period of growth.</li> <li>The Federal Reserve and other central banks aim for a soft landing when they <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/010616/impact-fed-interest-rate-hike.asp">raise interest rates</a> to curb inflation.</li> <li>The Fed has a mixed record in accomplishing a soft landing during past rate hiking cycles.</li> <li>The likelihood of a soft landing is reduced by the time lags associated with monetary policy.</li> </ul></div></div></div> <span class="heading-toc" id="toc-understanding-soft-landings"></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 Soft Landings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> While airline passengers can take soft landings for granted these days, the Federal Reserve's past interest-rate hiking cycles don't have the same track record of regular success.<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_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The term "soft landing" gained currency during the tenure of former Federal Reserve chair <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/alangreenspan.asp">Alan Greenspan</a>, widely credited with engineering one in 1994-1995. Federal Reserve Chair Jerome Powell has also suggested the Fed achieved soft landings in 1965 and 1984 and was on course for another one in 2020 before the COVID-19 pandemic intervened.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> In contrast, a recession followed the last five instances when inflation peaked above 5%, in 1970, 1974, 1980, 1990, and 2008. Inflation has gone above 5% in 2022, and given the definition of a recession (two consecutive quarters of negative GDP growth), which occurred after Q1 and Q2 of 2022, the economy was in a recession; however, Q3 saw GDP growth.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="7"></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_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> To combat this inflation, the Fed implemented interest rate increases over the year, which resulted in a decrease in inflation combined with economic growth in Q3.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="7"></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_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The term "soft landing" comes from aviation, where it refers to the kind of landing that goes smoothly.</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"> The Fed's soft landings record is, at best, mixed because the central bank doesn't exercise nearly the same control over the course of the economy as a pilot has over aircraft. The Fed's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/08/monetary-policy-recession.asp">main policy tools</a>—interest rates and asset holdings—are blunt instruments not designed to solve supply chain disruptions or pandemics.<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_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> In dismissing another vehicular analogy, former Fed chair <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benbernanke.asp">Ben Bernanke</a> once said that "if making monetary policy is like driving a car, then the car is one that has an unreliable speedometer, a foggy windshield, and a tendency to respond unpredictably and with a delay to the accelerator or the brake." Nothing that's happened since has made the Fed's job look any easier.<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_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-what-is-a-soft-landing-vs-a-hard-landing-in-economics"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Soft Landing vs. a Hard Landing in Economics?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A country's central bank adjusts interest rates to manage the economy. If inflation is too high, a central bank will increase interest rates with the goal of slowing down spending. If the central bank raises interest rates too high or too soon, that would be a hard landing. If the central bank raises interests slowly or by a small amount, that is a soft landing. There is a fine line between the two and how the raising of interest rates will impact the economy. A central bank would not want a hard landing as it could have serious negative repercussions.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_24-0"><span class="heading-toc" id="toc-what-are-the-main-causes-of-inflation"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Main Causes of Inflation?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The main causes of inflation are demand-pull inflation (when the demand for goods and services is greater than the supply to meet that demand), cost-push inflation (the increase in prices due to the increase in prices of raw materials and labor), an increase in the money supply, rising wages, and a devaluation of a nation's currency.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_26-0"><span class="heading-toc" id="toc-what-are-the-components-of-monetary-policy"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Components of Monetary Policy?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A country's central bank has three primary tools to control its monetary policy. These are controlling the reserve requirements of banks, adjusting the discount rate (the interest rate charged to financial institutions when borrowing from the central bank), and open market operations (the buying and selling of securities).</p></div> </div> <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"> The Fed's attempts to bring about a soft landing are complicated by the policy lags Bernanke and many others have noted. Because the economy takes time to respond to changes in monetary policy, the Fed must determine the pace of rate hikes without the benefit of seeing the full effect of prior ones, or of its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bostonfed.org/publications/research-department-working-paper/2015/uncertainty-and-the-signaling-channel-of-monetary-policy.aspx">policy signaling</a>. </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"> For signaling to have an effect, the Fed's policy must be seen as at least somewhat predictable, limiting the central bank's flexibility in responding to economic developments. Such constraints mean luck still plays at least as big a role as skill when it comes to soft economic landings. </p></div>	## What Is a Soft Landing? A soft landing, in economics, is a cyclical slowdown in economic growth that avoids [recession](https://www.investopedia.com/terms/r/recession.asp). A soft landing is the goal of a central bank when it seeks to raise interest rates just enough to stop an economy from overheating and experiencing high [inflation](https://www.investopedia.com/terms/i/inflation.asp), without causing a severe downturn. Soft landing may also refer to a gradual, relatively painless slowdown in a particular industry or economic sector. ### Key Takeaways * A soft landing refers to a moderate economic slowdown following a period of growth. * The Federal Reserve and other central banks aim for a soft landing when they [raise interest rates](https://www.investopedia.com/articles/investing/010616/impact-fed-interest-rate-hike.asp) to curb inflation. * The Fed has a mixed record in accomplishing a soft landing during past rate hiking cycles. * The likelihood of a soft landing is reduced by the time lags associated with monetary policy. ## Understanding Soft Landings While airline passengers can take soft landings for granted these days, the Federal Reserve's past interest-rate hiking cycles don't have the same track record of regular success. The term "soft landing" gained currency during the tenure of former Federal Reserve chair [Alan Greenspan](https://www.investopedia.com/terms/a/alangreenspan.asp), widely credited with engineering one in 1994-1995. Federal Reserve Chair Jerome Powell has also suggested the Fed achieved soft landings in 1965 and 1984 and was on course for another one in 2020 before the COVID-19 pandemic intervened. In contrast, a recession followed the last five instances when inflation peaked above 5%, in 1970, 1974, 1980, 1990, and 2008. Inflation has gone above 5% in 2022, and given the definition of a recession (two consecutive quarters of negative GDP growth), which occurred after Q1 and Q2 of 2022, the economy was in a recession; however, Q3 saw GDP growth. To combat this inflation, the Fed implemented interest rate increases over the year, which resulted in a decrease in inflation combined with economic growth in Q3. ### The term "soft landing" comes from aviation, where it refers to the kind of landing that goes smoothly. ## Special Considerations The Fed's soft landings record is, at best, mixed because the central bank doesn't exercise nearly the same control over the course of the economy as a pilot has over aircraft. The Fed's [main policy tools](https://www.investopedia.com/articles/economics/08/monetary-policy-recession.asp)—interest rates and asset holdings—are blunt instruments not designed to solve supply chain disruptions or pandemics. In dismissing another vehicular analogy, former Fed chair [Ben Bernanke](https://www.investopedia.com/terms/b/benbernanke.asp) once said that "if making monetary policy is like driving a car, then the car is one that has an unreliable speedometer, a foggy windshield, and a tendency to respond unpredictably and with a delay to the accelerator or the brake." Nothing that's happened since has made the Fed's job look any easier. ## What Is a Soft Landing vs. a Hard Landing in Economics? A country's central bank adjusts interest rates to manage the economy. If inflation is too high, a central bank will increase interest rates with the goal of slowing down spending. If the central bank raises interest rates too high or too soon, that would be a hard landing. If the central bank raises interests slowly or by a small amount, that is a soft landing. There is a fine line between the two and how the raising of interest rates will impact the economy. A central bank would not want a hard landing as it could have serious negative repercussions. ## What Are the Main Causes of Inflation? The main causes of inflation are demand-pull inflation (when the demand for goods and services is greater than the supply to meet that demand), cost-push inflation (the increase in prices due to the increase in prices of raw materials and labor), an increase in the money supply, rising wages, and a devaluation of a nation's currency. ## What Are the Components of Monetary Policy? A country's central bank has three primary tools to control its monetary policy. These are controlling the reserve requirements of banks, adjusting the discount rate (the interest rate charged to financial institutions when borrowing from the central bank), and open market operations (the buying and selling of securities). ## The Bottom Line The Fed's attempts to bring about a soft landing are complicated by the policy lags Bernanke and many others have noted. Because the economy takes time to respond to changes in monetary policy, the Fed must determine the pace of rate hikes without the benefit of seeing the full effect of prior ones, or of its [policy signaling](https://www.bostonfed.org/publications/research-department-working-paper/2015/uncertainty-and-the-signaling-channel-of-monetary-policy.aspx). For signaling to have an effect, the Fed's policy must be seen as at least somewhat predictable, limiting the central bank's flexibility in responding to economic developments. Such constraints mean luck still plays at least as big a role as skill when it comes to soft economic landings.	What Is a Soft Landing? A soft landing, in economics, is a cyclical slowdown in economic growth that avoids recession. A soft landing is the goal of a central bank when it seeks to raise interest rates just enough to stop an economy from overheating and experiencing high inflation, without causing a severe downturn. Soft landing may also refer to a gradual, relatively painless slowdown in a particular industry or economic sector. Key Takeaways A soft landing refers to a moderate economic slowdown following a period of growth. The Federal Reserve and other central banks aim for a soft landing when they raise interest rates to curb inflation. The Fed has a mixed record in accomplishing a soft landing during past rate hiking cycles. The likelihood of a soft landing is reduced by the time lags associated with monetary policy. Understanding Soft Landings While airline passengers can take soft landings for granted these days, the Federal Reserve's past interest-rate hiking cycles don't have the same track record of regular success. The term "soft landing" gained currency during the tenure of former Federal Reserve chair Alan Greenspan, widely credited with engineering one in 1994-1995. Federal Reserve Chair Jerome Powell has also suggested the Fed achieved soft landings in 1965 and 1984 and was on course for another one in 2020 before the COVID-19 pandemic intervened. In contrast, a recession followed the last five instances when inflation peaked above 5%, in 1970, 1974, 1980, 1990, and 2008. Inflation has gone above 5% in 2022, and given the definition of a recession (two consecutive quarters of negative GDP growth), which occurred after Q1 and Q2 of 2022, the economy was in a recession; however, Q3 saw GDP growth. To combat this inflation, the Fed implemented interest rate increases over the year, which resulted in a decrease in inflation combined with economic growth in Q3. The term "soft landing" comes from aviation, where it refers to the kind of landing that goes smoothly. Special Considerations The Fed's soft landings record is, at best, mixed because the central bank doesn't exercise nearly the same control over the course of the economy as a pilot has over aircraft. The Fed's main policy tools—interest rates and asset holdings—are blunt instruments not designed to solve supply chain disruptions or pandemics. In dismissing another vehicular analogy, former Fed chair Ben Bernanke once said that "if making monetary policy is like driving a car, then the car is one that has an unreliable speedometer, a foggy windshield, and a tendency to respond unpredictably and with a delay to the accelerator or the brake." Nothing that's happened since has made the Fed's job look any easier. What Is a Soft Landing vs. a Hard Landing in Economics? A country's central bank adjusts interest rates to manage the economy. If inflation is too high, a central bank will increase interest rates with the goal of slowing down spending. If the central bank raises interest rates too high or too soon, that would be a hard landing. If the central bank raises interests slowly or by a small amount, that is a soft landing. There is a fine line between the two and how the raising of interest rates will impact the economy. A central bank would not want a hard landing as it could have serious negative repercussions. What Are the Main Causes of Inflation? The main causes of inflation are demand-pull inflation (when the demand for goods and services is greater than the supply to meet that demand), cost-push inflation (the increase in prices due to the increase in prices of raw materials and labor), an increase in the money supply, rising wages, and a devaluation of a nation's currency. What Are the Components of Monetary Policy? A country's central bank has three primary tools to control its monetary policy. These are controlling the reserve requirements of banks, adjusting the discount rate (the interest rate charged to financial institutions when borrowing from the central bank), and open market operations (the buying and selling of securities). The Bottom Line The Fed's attempts to bring about a soft landing are complicated by the policy lags Bernanke and many others have noted. Because the economy takes time to respond to changes in monetary policy, the Fed must determine the pace of rate hikes without the benefit of seeing the full effect of prior ones, or of its policy signaling. For signaling to have an effect, the Fed's policy must be seen as at least somewhat predictable, limiting the central bank's flexibility in responding to economic developments. Such constraints mean luck still plays at least as big a role as skill when it comes to soft economic landings.	[ [ "recession", "https://www.investopedia.com/terms/r/recession.asp" ], [ "inflation", "https://www.investopedia.com/terms/i/inflation.asp" ], [ "raise interest rates", "https://www.investopedia.com/articles/investing/010616/impact-fed-interest-rate-hike.asp" ], [ "Alan Greenspan", "https://www.investopedia.com/terms/a/alangreenspan.asp" ], [ "main policy tools", "https://www.investopedia.com/articles/economics/08/monetary-policy-recession.asp" ], [ "Ben Bernanke", "https://www.investopedia.com/terms/b/benbernanke.asp" ], [ "policy signaling", "https://www.bostonfed.org/publications/research-department-working-paper/2015/uncertainty-and-the-signaling-channel-of-monetary-policy.aspx" ] ]
https://www.investopedia.com/terms/e/endorser.asp	Endorser: What They are, What They do, Best Practices	<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-endorser"></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 Endorser? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> An endorser is a person who is authorized to sign a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/negotiable.asp">negotiable</a> security in order to transfer ownership from one party to another or to approve the terms and conditions of a contract. Endorsing a check before it is cashed or deposited is the most common and widely known example, but an endorser is also required to complete such transactions as transferring a car title or trading financial security. </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-endorsement"></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 Endorsement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Most people endorse a check to cash it, deposit it or sign it over to someone else. Signatures are usually required on the back of a check or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialinstrument.asp">financial instrument</a>. Incorrectly endorsing a check can result in the bank returning the check to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/issuer.asp">issuer</a>. </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-best-practices-for-an-endorser"></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"> Best Practices for an Endorser </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> To properly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-endorse-a-check-5188585">endorse a check</a>, the name signed on the back of the check needs to match the payee name written on the front of the check. If the payee name was misspelled or written incorrectly, sign it with the incorrect version, and then sign again using the correct name. Most checks have a small section for you to write in, known as the endorsement area. Try to keep your entire signature and any other instructions in that area. </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 easiest way to endorse (but also the most dangerous) is to simply sign the check without adding any restrictions. To use that method, known as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blank-endorsement.asp">blank endorsement</a>, sign your name in the endorsement area. But only do this if you’re about to deposit the check or cash it. For example, a blank endorsement might make sense if you’re in a bank lobby or making a remote deposit at home. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> If you’ll mail the check, deposit it at an ATM, or carry it around for a while, use another method: Either leave the check unsigned until you’re ready to deposit, or add a restriction to the endorsement. Do this because blank endorsements are risky because somebody else can steal the endorsed check and cash it or deposit to a different account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> A restrictive endorsement helps ensure that a check gets deposited into a particular account. To do this, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/account-number.asp">include your account number</a> with your endorsement, and provide instructions saying the money can only be deposited to your account. </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 payee can also sign a check over to somebody else, effectively paying that person with the check you received. To do so, write "Pay to the order of..." and name the new payee. Be aware that some banks do not allow this type of endorsement because the technique is sometimes used fraudulently. </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"> You don't have to endorse checks. Some banks allow you to deposit checks without a signature, account number, or anything else on the back. </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"> You can also skip the endorsement altogether. With no endorsement, nobody can see your signature or your account number unless your bank adds the account number during processing. </p></div>	## What Is an Endorser? An endorser is a person who is authorized to sign a [negotiable](https://www.investopedia.com/terms/n/negotiable.asp) security in order to transfer ownership from one party to another or to approve the terms and conditions of a contract. Endorsing a check before it is cashed or deposited is the most common and widely known example, but an endorser is also required to complete such transactions as transferring a car title or trading financial security. ## Understanding Endorsement Most people endorse a check to cash it, deposit it or sign it over to someone else. Signatures are usually required on the back of a check or [financial instrument](https://www.investopedia.com/terms/f/financialinstrument.asp). Incorrectly endorsing a check can result in the bank returning the check to the [issuer](https://www.investopedia.com/terms/i/issuer.asp). ## Best Practices for an Endorser To properly [endorse a check](https://www.investopedia.com/how-to-endorse-a-check-5188585), the name signed on the back of the check needs to match the payee name written on the front of the check. If the payee name was misspelled or written incorrectly, sign it with the incorrect version, and then sign again using the correct name. Most checks have a small section for you to write in, known as the endorsement area. Try to keep your entire signature and any other instructions in that area. The easiest way to endorse (but also the most dangerous) is to simply sign the check without adding any restrictions. To use that method, known as a [blank endorsement](https://www.investopedia.com/terms/b/blank-endorsement.asp), sign your name in the endorsement area. But only do this if you’re about to deposit the check or cash it. For example, a blank endorsement might make sense if you’re in a bank lobby or making a remote deposit at home. If you’ll mail the check, deposit it at an ATM, or carry it around for a while, use another method: Either leave the check unsigned until you’re ready to deposit, or add a restriction to the endorsement. Do this because blank endorsements are risky because somebody else can steal the endorsed check and cash it or deposit to a different account. A restrictive endorsement helps ensure that a check gets deposited into a particular account. To do this, [include your account number](https://www.investopedia.com/terms/a/account-number.asp) with your endorsement, and provide instructions saying the money can only be deposited to your account. A payee can also sign a check over to somebody else, effectively paying that person with the check you received. To do so, write "Pay to the order of..." and name the new payee. Be aware that some banks do not allow this type of endorsement because the technique is sometimes used fraudulently. You don't have to endorse checks. Some banks allow you to deposit checks without a signature, account number, or anything else on the back. You can also skip the endorsement altogether. With no endorsement, nobody can see your signature or your account number unless your bank adds the account number during processing.	What Is an Endorser? An endorser is a person who is authorized to sign a negotiable security in order to transfer ownership from one party to another or to approve the terms and conditions of a contract. Endorsing a check before it is cashed or deposited is the most common and widely known example, but an endorser is also required to complete such transactions as transferring a car title or trading financial security. Understanding Endorsement Most people endorse a check to cash it, deposit it or sign it over to someone else. Signatures are usually required on the back of a check or financial instrument. Incorrectly endorsing a check can result in the bank returning the check to the issuer. Best Practices for an Endorser To properly endorse a check, the name signed on the back of the check needs to match the payee name written on the front of the check. If the payee name was misspelled or written incorrectly, sign it with the incorrect version, and then sign again using the correct name. Most checks have a small section for you to write in, known as the endorsement area. Try to keep your entire signature and any other instructions in that area. The easiest way to endorse (but also the most dangerous) is to simply sign the check without adding any restrictions. To use that method, known as a blank endorsement, sign your name in the endorsement area. But only do this if you’re about to deposit the check or cash it. For example, a blank endorsement might make sense if you’re in a bank lobby or making a remote deposit at home. If you’ll mail the check, deposit it at an ATM, or carry it around for a while, use another method: Either leave the check unsigned until you’re ready to deposit, or add a restriction to the endorsement. Do this because blank endorsements are risky because somebody else can steal the endorsed check and cash it or deposit to a different account. A restrictive endorsement helps ensure that a check gets deposited into a particular account. To do this, include your account number with your endorsement, and provide instructions saying the money can only be deposited to your account. A payee can also sign a check over to somebody else, effectively paying that person with the check you received. To do so, write "Pay to the order of..." and name the new payee. Be aware that some banks do not allow this type of endorsement because the technique is sometimes used fraudulently. You don't have to endorse checks. Some banks allow you to deposit checks without a signature, account number, or anything else on the back. You can also skip the endorsement altogether. With no endorsement, nobody can see your signature or your account number unless your bank adds the account number during processing.	[ [ "negotiable", "https://www.investopedia.com/terms/n/negotiable.asp" ], [ "financial instrument", "https://www.investopedia.com/terms/f/financialinstrument.asp" ], [ "issuer", "https://www.investopedia.com/terms/i/issuer.asp" ], [ "endorse a check", "https://www.investopedia.com/how-to-endorse-a-check-5188585" ], [ "blank endorsement", "https://www.investopedia.com/terms/b/blank-endorsement.asp" ], [ "include your account number", "https://www.investopedia.com/terms/a/account-number.asp" ] ]
https://www.investopedia.com/terms/p/periodic_interest_rate.asp	Periodic Interest Rate: Definition, How It Works, and Example	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-periodic-interest-rate"></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 Periodic Interest Rate? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A periodic interest rate is a rate that can be charged on a loan, or realized on an investment over a specific period of time. Lenders typically quote interest rates on an annual basis, but the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compound.asp" rel="noopener noreferrer">interest compounds</a> more frequently than annually in most cases. The periodic interest rate is the annual interest rate divided by the number of compounding periods. </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>A greater number of compounding periods allows interest to be earned on or added to interest a greater number of times.</p></div></div></div> <span class="heading-toc" id="toc-how-a-periodic-interest-rate-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 Periodic Interest Rate Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The number of compounding periods directly affects the periodic interest rate of an investment or a loan. An investment's periodic rate is 1% if it has an effective annual return of 12% and it compounds every month. Its periodic interest rate is 0.00033 if you are compounding the daily periodic rate, it would be the equivalent of 0.03%. </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 more frequently an investment compounds, the more quickly it grows. Imagine that two options are available on a $1,000 investment. Under option one, the investor receives an 8% annual interest rate and the interest compounds monthly. Under option two, the investor receives an 8.125% interest rate, compounded annually. </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"> By the end of a 10-year period, the $1,000 investment under option one grows to $2,219.64, but under option two, it grows to $2,184.04. The more frequent compounding of option one yields a greater return even though the interest rate is higher in option two. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><ul><li>Lenders typically quote interest rates on an annual basis, but the interest compounds more frequently than annually in most cases.</li><li>Interest on mortgages usually compounds monthly.</li><li>Credit card lenders typically calculate interest based on a daily periodic rate so the interest rate is multiplied by the amount the borrower owes at the end of each day.</li></ul></div></div></div> <span class="heading-toc" id="toc-example-of-a-periodic-interest-rate"></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"> Example of a Periodic Interest Rate </span> </h2> <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/m/mortgageinterest.asp" rel="noopener noreferrer">interest on a mortgage</a> is compounded or applied on a monthly basis. If the annual interest rate on that mortgage is 8%, the periodic interest rate used to calculate the interest assessed in any single month is 0.08 divided by 12, working out to 0.0067 or 0.67%. </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 remaining principal balance of the mortgage loan would have a 0.67% interest rate applied to it each month. </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-types-of-interest-rates"></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"> Types of Interest Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The annual interest rate typically quoted on loans or investments is the nominal interest rate—the periodic rate <em>before</em> compounding has been taken into account. The effective interest rate is the actual interest rate after the effects of compounding have been included in the calculation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> You must know a loan's nominal rate and the number of compounding periods to calculate its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/effectiveinterest.asp" rel="noopener noreferrer">effective annual interest rate</a>. First, divide the nominal rate by the number of compounding periods. The result is the periodic rate. Now add this number to 1 and take the sum by the power of the number of compounding interest rates. Subtract 1 from the product to get the effective interest rate. </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"> For example, if a mortgage compounds monthly and has a nominal annual interest rate of 6%, its periodic rate is 0.5%. When you convert the percentage to a decimal and add 1, the sum is 1.005. This number to the 12th power is 1.0617. When you subtract 1 from this number, the difference is 0.0617 or 6.17%. The effective rate is slightly higher than the nominal rate. </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"> Credit card lenders typically calculate interest based on a daily periodic rate. The interest rate is multiplied by the amount the borrower owes at the end of each day. This interest is then <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/040315/what-does-it-mean-when-interest-accrues-daily.asp" rel="noopener noreferrer">added to that day's balance</a>, and the whole process happens again 24 hours later—when what the borrower owes is typically more unless they have made a payment because now their balance includes the previous day's interest. These lenders often quote an annual percentage rate (APR), glossing over this <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/ask-cfpb/what-is-a-daily-periodic-rate-on-a-credit-card-en-46/" rel="noopener noreferrer">daily periodic rate calculation</a>. You can identify your daily periodic rate by dividing the APR by 365, although some lenders determine daily periodic rates by dividing by 360. </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-special-consideration"></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"> Special Consideration </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Some revolving loans offer a "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.fdic.gov/regulations/laws/rules/6500-3200.html" rel="noopener noreferrer">grace period</a>" from accumulating interest, allowing borrowers to pay off their balances by a certain date within the billing cycle without further interest compounding on their balances. The date and duration of your grace period, if any, should be clearly identified in your contract with the lender. </p></div>	## What Is a Periodic Interest Rate? A periodic interest rate is a rate that can be charged on a loan, or realized on an investment over a specific period of time. Lenders typically quote interest rates on an annual basis, but the [interest compounds](https://www.investopedia.com/terms/c/compound.asp) more frequently than annually in most cases. The periodic interest rate is the annual interest rate divided by the number of compounding periods. ### A greater number of compounding periods allows interest to be earned on or added to interest a greater number of times. ## How a Periodic Interest Rate Works The number of compounding periods directly affects the periodic interest rate of an investment or a loan. An investment's periodic rate is 1% if it has an effective annual return of 12% and it compounds every month. Its periodic interest rate is 0.00033 if you are compounding the daily periodic rate, it would be the equivalent of 0.03%. The more frequently an investment compounds, the more quickly it grows. Imagine that two options are available on a $1,000 investment. Under option one, the investor receives an 8% annual interest rate and the interest compounds monthly. Under option two, the investor receives an 8.125% interest rate, compounded annually. By the end of a 10-year period, the $1,000 investment under option one grows to $2,219.64, but under option two, it grows to $2,184.04. The more frequent compounding of option one yields a greater return even though the interest rate is higher in option two. ### Key Takeaways * Lenders typically quote interest rates on an annual basis, but the interest compounds more frequently than annually in most cases. * Interest on mortgages usually compounds monthly. * Credit card lenders typically calculate interest based on a daily periodic rate so the interest rate is multiplied by the amount the borrower owes at the end of each day. ## Example of a Periodic Interest Rate The [interest on a mortgage](https://www.investopedia.com/terms/m/mortgageinterest.asp) is compounded or applied on a monthly basis. If the annual interest rate on that mortgage is 8%, the periodic interest rate used to calculate the interest assessed in any single month is 0.08 divided by 12, working out to 0.0067 or 0.67%. The remaining principal balance of the mortgage loan would have a 0.67% interest rate applied to it each month. ## Types of Interest Rates The annual interest rate typically quoted on loans or investments is the nominal interest rate—the periodic rate before compounding has been taken into account. The effective interest rate is the actual interest rate after the effects of compounding have been included in the calculation. You must know a loan's nominal rate and the number of compounding periods to calculate its [effective annual interest rate](https://www.investopedia.com/terms/e/effectiveinterest.asp). First, divide the nominal rate by the number of compounding periods. The result is the periodic rate. Now add this number to 1 and take the sum by the power of the number of compounding interest rates. Subtract 1 from the product to get the effective interest rate. For example, if a mortgage compounds monthly and has a nominal annual interest rate of 6%, its periodic rate is 0.5%. When you convert the percentage to a decimal and add 1, the sum is 1.005. This number to the 12th power is 1.0617. When you subtract 1 from this number, the difference is 0.0617 or 6.17%. The effective rate is slightly higher than the nominal rate. Credit card lenders typically calculate interest based on a daily periodic rate. The interest rate is multiplied by the amount the borrower owes at the end of each day. This interest is then [added to that day's balance](https://www.investopedia.com/ask/answers/040315/what-does-it-mean-when-interest-accrues-daily.asp), and the whole process happens again 24 hours later—when what the borrower owes is typically more unless they have made a payment because now their balance includes the previous day's interest. These lenders often quote an annual percentage rate (APR), glossing over this [daily periodic rate calculation](https://www.consumerfinance.gov/ask-cfpb/what-is-a-daily-periodic-rate-on-a-credit-card-en-46/). You can identify your daily periodic rate by dividing the APR by 365, although some lenders determine daily periodic rates by dividing by 360. ## Special Consideration Some revolving loans offer a "[grace period](https://www.fdic.gov/regulations/laws/rules/6500-3200.html)" from accumulating interest, allowing borrowers to pay off their balances by a certain date within the billing cycle without further interest compounding on their balances. The date and duration of your grace period, if any, should be clearly identified in your contract with the lender.	What Is a Periodic Interest Rate? A periodic interest rate is a rate that can be charged on a loan, or realized on an investment over a specific period of time. Lenders typically quote interest rates on an annual basis, but the interest compounds more frequently than annually in most cases. The periodic interest rate is the annual interest rate divided by the number of compounding periods. A greater number of compounding periods allows interest to be earned on or added to interest a greater number of times. How a Periodic Interest Rate Works The number of compounding periods directly affects the periodic interest rate of an investment or a loan. An investment's periodic rate is 1% if it has an effective annual return of 12% and it compounds every month. Its periodic interest rate is 0.00033 if you are compounding the daily periodic rate, it would be the equivalent of 0.03%. The more frequently an investment compounds, the more quickly it grows. Imagine that two options are available on a $1,000 investment. Under option one, the investor receives an 8% annual interest rate and the interest compounds monthly. Under option two, the investor receives an 8.125% interest rate, compounded annually. By the end of a 10-year period, the $1,000 investment under option one grows to $2,219.64, but under option two, it grows to $2,184.04. The more frequent compounding of option one yields a greater return even though the interest rate is higher in option two. Key Takeaways Lenders typically quote interest rates on an annual basis, but the interest compounds more frequently than annually in most cases.Interest on mortgages usually compounds monthly.Credit card lenders typically calculate interest based on a daily periodic rate so the interest rate is multiplied by the amount the borrower owes at the end of each day. Example of a Periodic Interest Rate The interest on a mortgage is compounded or applied on a monthly basis. If the annual interest rate on that mortgage is 8%, the periodic interest rate used to calculate the interest assessed in any single month is 0.08 divided by 12, working out to 0.0067 or 0.67%. The remaining principal balance of the mortgage loan would have a 0.67% interest rate applied to it each month. Types of Interest Rates The annual interest rate typically quoted on loans or investments is the nominal interest rate—the periodic rate before compounding has been taken into account. The effective interest rate is the actual interest rate after the effects of compounding have been included in the calculation. You must know a loan's nominal rate and the number of compounding periods to calculate its effective annual interest rate. First, divide the nominal rate by the number of compounding periods. The result is the periodic rate. Now add this number to 1 and take the sum by the power of the number of compounding interest rates. Subtract 1 from the product to get the effective interest rate. For example, if a mortgage compounds monthly and has a nominal annual interest rate of 6%, its periodic rate is 0.5%. When you convert the percentage to a decimal and add 1, the sum is 1.005. This number to the 12th power is 1.0617. When you subtract 1 from this number, the difference is 0.0617 or 6.17%. The effective rate is slightly higher than the nominal rate. Credit card lenders typically calculate interest based on a daily periodic rate. The interest rate is multiplied by the amount the borrower owes at the end of each day. This interest is then added to that day's balance, and the whole process happens again 24 hours later—when what the borrower owes is typically more unless they have made a payment because now their balance includes the previous day's interest. These lenders often quote an annual percentage rate (APR), glossing over this daily periodic rate calculation. You can identify your daily periodic rate by dividing the APR by 365, although some lenders determine daily periodic rates by dividing by 360. Special Consideration Some revolving loans offer a "grace period" from accumulating interest, allowing borrowers to pay off their balances by a certain date within the billing cycle without further interest compounding on their balances. The date and duration of your grace period, if any, should be clearly identified in your contract with the lender.	[ [ "interest compounds", "https://www.investopedia.com/terms/c/compound.asp" ], [ "interest on a mortgage", "https://www.investopedia.com/terms/m/mortgageinterest.asp" ], [ "effective annual interest rate", "https://www.investopedia.com/terms/e/effectiveinterest.asp" ], [ "added to that day's balance", "https://www.investopedia.com/ask/answers/040315/what-does-it-mean-when-interest-accrues-daily.asp" ], [ "daily periodic rate calculation", "https://www.consumerfinance.gov/ask-cfpb/what-is-a-daily-periodic-rate-on-a-credit-card-en-46/" ], [ "grace period", "https://www.fdic.gov/regulations/laws/rules/6500-3200.html" ] ]
https://www.investopedia.com/ask/answers/051515/how-do-i-calculate-bonds-modified-duration-using-excel.asp	How to Calculate Macaulay Duration in Excel	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/051415/what-difference-between-macaulay-duration-and-modified-duration.asp">modified duration</a> of a bond is an adjusted version of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/macaulayduration.asp">Macaulay duration</a> and both methods are used to calculate the changes in a bond's duration and price for each percentage change in the yield to maturity. </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 formula for modified duration tells you the change in the value of a bond in relation to a change in its yield to maturity.</li><li>In Excel, the formula is built into the MDURATION function.</li><li>Follow this step-by-step example to complete the formula.</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"> You can use Microsoft Excel to calculate a bond's modified duration given these parameters: settlement date, maturity date, coupon rate, yield to maturity, and frequency. </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-what-modified-duration-tells-you"></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 Modified Duration Tells You </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Modified duration determines the change in the value of a fixed income security in relation to a change in the yield to maturity. The formula used to calculate a bond's modified duration is the Macaulay duration of the bond divided by 1 plus the bond's yield to maturity divided by the number of coupon periods per year.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> In Excel, the formula used to calculate a bond's modified duration is built into the MDURATION function. This function returns the modified Macaulay duration for a security, assuming the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/parvalue.asp">par value</a> is $100.<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-example-of-modified-duration-calculation-in-excel"></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"> Example of Modified Duration Calculation in Excel </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> For instance, say you want to calculate the modified Macaulay duration of a 10-year bond with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/settlementdate.asp">settlement date</a> on Jan. 1, 2020, a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturitydate.asp">maturity date</a> on Jan. 1, 2030, an annual coupon rate of 5%, and an annual yield to maturity of 7%. The coupon is paid quarterly. </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"> To find the modified duration take the following steps in Excel: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <li>First, right-click on columns A and B.</li> <li>Next, left-click on Column Width and change the value to 32 for each of the columns, then click OK. Enter "Bond Description" into cell A1, then select cell A1 and press the CTRL and B keys together to boldface the title. Then, enter "Bond Data" into cell B1, then select cell B1 and press the CTRL and B keys together to boldface the title.</li> <li>Enter "Bond's Settlement Date" into cell A2 and "January 1, 2020" into cell B2. Next, enter "Bond's Maturity Date" into cell A3 and "January 1, 2030" into cell B3. Then, enter "Annual <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon-rate.asp">Coupon Rate</a>" into cell A4 and "5%" into B4. In cell A5, enter "Annual Yield to Maturity" and in cell B5, enter "7%." Since the coupon is paid quarterly, the frequency is 4. Enter "Coupon Payment Frequency" into cell A6 and "4" into cell B6.</li> <li>Next, enter "Basis" into cell A7 and "3" into cell B8. In Excel, the basis is optional and the value chosen calculates the modified duration using actual calendar days for the accrual period and assumes that there are 365 days in a year.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li>Now you can solve the modified Macaulay duration of the bond. Enter "Modified Duration" into cell A8 and the formula "=MDURATION (B2, B3, B4, B5, B6, B7)" into cell B8. The resulting modified duration is 7.59.</li> </ol> <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 formula used to calculate the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/percentage-change.asp">percentage change</a> in the price of the bond is the change in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yieldtomaturity.asp">yield to maturity</a> multiplied by the negative value of the modified duration multiplied by 100%. Therefore, if interest rates increase by 1%, the price of the bond is expected to drop 7.59% = [0.01 * (-7.59) * 100%]. </p></div>	The [modified duration](https://www.investopedia.com/ask/answers/051415/what-difference-between-macaulay-duration-and-modified-duration.asp) of a bond is an adjusted version of the [Macaulay duration](https://www.investopedia.com/terms/m/macaulayduration.asp) and both methods are used to calculate the changes in a bond's duration and price for each percentage change in the yield to maturity. ### Key Takeaways * The formula for modified duration tells you the change in the value of a bond in relation to a change in its yield to maturity. * In Excel, the formula is built into the MDURATION function. * Follow this step-by-step example to complete the formula. You can use Microsoft Excel to calculate a bond's modified duration given these parameters: settlement date, maturity date, coupon rate, yield to maturity, and frequency. ## What Modified Duration Tells You Modified duration determines the change in the value of a fixed income security in relation to a change in the yield to maturity. The formula used to calculate a bond's modified duration is the Macaulay duration of the bond divided by 1 plus the bond's yield to maturity divided by the number of coupon periods per year. In Excel, the formula used to calculate a bond's modified duration is built into the MDURATION function. This function returns the modified Macaulay duration for a security, assuming the [par value](https://www.investopedia.com/terms/p/parvalue.asp) is $100. ## Example of Modified Duration Calculation in Excel For instance, say you want to calculate the modified Macaulay duration of a 10-year bond with a [settlement date](https://www.investopedia.com/terms/s/settlementdate.asp) on Jan. 1, 2020, a [maturity date](https://www.investopedia.com/terms/m/maturitydate.asp) on Jan. 1, 2030, an annual coupon rate of 5%, and an annual yield to maturity of 7%. The coupon is paid quarterly. To find the modified duration take the following steps in Excel: 1. First, right-click on columns A and B. 2. Next, left-click on Column Width and change the value to 32 for each of the columns, then click OK. Enter "Bond Description" into cell A1, then select cell A1 and press the CTRL and B keys together to boldface the title. Then, enter "Bond Data" into cell B1, then select cell B1 and press the CTRL and B keys together to boldface the title. 3. Enter "Bond's Settlement Date" into cell A2 and "January 1, 2020" into cell B2. Next, enter "Bond's Maturity Date" into cell A3 and "January 1, 2030" into cell B3. Then, enter "Annual [Coupon Rate](https://www.investopedia.com/terms/c/coupon-rate.asp)" into cell A4 and "5%" into B4. In cell A5, enter "Annual Yield to Maturity" and in cell B5, enter "7%." Since the coupon is paid quarterly, the frequency is 4. Enter "Coupon Payment Frequency" into cell A6 and "4" into cell B6. 4. Next, enter "Basis" into cell A7 and "3" into cell B8. In Excel, the basis is optional and the value chosen calculates the modified duration using actual calendar days for the accrual period and assumes that there are 365 days in a year. 6. Now you can solve the modified Macaulay duration of the bond. Enter "Modified Duration" into cell A8 and the formula "=MDURATION (B2, B3, B4, B5, B6, B7)" into cell B8. The resulting modified duration is 7.59. The formula used to calculate the [percentage change](https://www.investopedia.com/terms/p/percentage-change.asp) in the price of the bond is the change in [yield to maturity](https://www.investopedia.com/terms/y/yieldtomaturity.asp) multiplied by the negative value of the modified duration multiplied by 100%. Therefore, if interest rates increase by 1%, the price of the bond is expected to drop 7.59% = [0.01 \* (-7.59) \* 100%].	The modified duration of a bond is an adjusted version of the Macaulay duration and both methods are used to calculate the changes in a bond's duration and price for each percentage change in the yield to maturity. Key Takeaways The formula for modified duration tells you the change in the value of a bond in relation to a change in its yield to maturity.In Excel, the formula is built into the MDURATION function.Follow this step-by-step example to complete the formula. You can use Microsoft Excel to calculate a bond's modified duration given these parameters: settlement date, maturity date, coupon rate, yield to maturity, and frequency. What Modified Duration Tells You Modified duration determines the change in the value of a fixed income security in relation to a change in the yield to maturity. The formula used to calculate a bond's modified duration is the Macaulay duration of the bond divided by 1 plus the bond's yield to maturity divided by the number of coupon periods per year. In Excel, the formula used to calculate a bond's modified duration is built into the MDURATION function. This function returns the modified Macaulay duration for a security, assuming the par value is $100. Example of Modified Duration Calculation in Excel For instance, say you want to calculate the modified Macaulay duration of a 10-year bond with a settlement date on Jan. 1, 2020, a maturity date on Jan. 1, 2030, an annual coupon rate of 5%, and an annual yield to maturity of 7%. The coupon is paid quarterly. To find the modified duration take the following steps in Excel: First, right-click on columns A and B. Next, left-click on Column Width and change the value to 32 for each of the columns, then click OK. Enter "Bond Description" into cell A1, then select cell A1 and press the CTRL and B keys together to boldface the title. Then, enter "Bond Data" into cell B1, then select cell B1 and press the CTRL and B keys together to boldface the title. Enter "Bond's Settlement Date" into cell A2 and "January 1, 2020" into cell B2. Next, enter "Bond's Maturity Date" into cell A3 and "January 1, 2030" into cell B3. Then, enter "Annual Coupon Rate" into cell A4 and "5%" into B4. In cell A5, enter "Annual Yield to Maturity" and in cell B5, enter "7%." Since the coupon is paid quarterly, the frequency is 4. Enter "Coupon Payment Frequency" into cell A6 and "4" into cell B6. Next, enter "Basis" into cell A7 and "3" into cell B8. In Excel, the basis is optional and the value chosen calculates the modified duration using actual calendar days for the accrual period and assumes that there are 365 days in a year. Now you can solve the modified Macaulay duration of the bond. Enter "Modified Duration" into cell A8 and the formula "=MDURATION (B2, B3, B4, B5, B6, B7)" into cell B8. The resulting modified duration is 7.59. The formula used to calculate the percentage change in the price of the bond is the change in yield to maturity multiplied by the negative value of the modified duration multiplied by 100%. Therefore, if interest rates increase by 1%, the price of the bond is expected to drop 7.59% = [0.01 * (-7.59) * 100%].	[ [ "modified duration", "https://www.investopedia.com/ask/answers/051415/what-difference-between-macaulay-duration-and-modified-duration.asp" ], [ "Macaulay duration", "https://www.investopedia.com/terms/m/macaulayduration.asp" ], [ "par value", "https://www.investopedia.com/terms/p/parvalue.asp" ], [ "settlement date", "https://www.investopedia.com/terms/s/settlementdate.asp" ], [ "maturity date", "https://www.investopedia.com/terms/m/maturitydate.asp" ], [ "Coupon Rate", "https://www.investopedia.com/terms/c/coupon-rate.asp" ], [ "percentage change", "https://www.investopedia.com/terms/p/percentage-change.asp" ], [ "yield to maturity", "https://www.investopedia.com/terms/y/yieldtomaturity.asp" ] ]
https://www.investopedia.com/terms/u/underlying-asset.asp	Underlying Asset (Derivatives)—Definition, How It Works, 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-an-underlying-asset"></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 Underlying Asset </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Underlying asset are the financial assets upon which a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp">derivative’s</a> price is based. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option.asp">Options</a> are an example of a derivative. A derivative is a financial instrument with a price that is based on a different asset. </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-the-basics-of-underlying-asset"></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"> The Basics of Underlying Asset </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Underlying assets give derivatives their value. For example, an option on stock XYZ gives the holder the right to buy or sell XYZ at the strike price up until expiration. The underlying asset for the option is the stock of XYZ. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/06/stockswithoptions.asp">Option chains are available</a> on many, but not all, stocks. </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"> An underlying asset can be used to identify the item within the agreement that provides value to the contract. The underlying asset supports the security involved in the agreement, which the parties involved agree to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/052715/what-kinds-derivatives-are-types-contingent-claims.asp">exchange as part of the derivative contract</a>. </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-understanding-derivative-contracts"></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"> Understanding Derivative Contracts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The price of an option or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a> contract is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/060315/how-price-derivative-determined.asp">derived from the price</a> of an underlying asset. In an option contract, the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/writing-an-option.asp">writer</a> must either buy or sell the underlying asset to the buyer on the specified date at the agreed-upon price. The buyer is not obligated to purchase the underlying asset, but they can exercise their right if they choose to do so. If the option is about to expire, and the underlying asset has not moved favorably enough to make exercising the option worthwhile, the buyer can let it expire and they will lose the amount they paid for the option. </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"> Futures are an obligation to the buyer and the seller. The seller of the future agrees to provide the underlying asset at expiry, and the buyer of the contract agrees to buy the underlying at expiry. The price they receive and pay, respectively, is the price they entered the futures contract at. Most futures traders close out their positions prior to expiration since retail traders and <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> have little need to take physical possession of barrels of oil, for example. But, they can buy or sell the contract at one price, and if it moves favorably they can exit the trade and make a profit that way. Futures are a derivative because the price of an oil futures contract is based on the price movement of oil, for example. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_14-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_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>Underlying assets represent the assets from which derivatives derive their value. </li><li>Knowing the value of an underlying asset helps traders determine the appropriate action (buy, sell, or hold) with their derivative. </li></ul><p><br/></p></div></div></div> <span class="heading-toc" id="toc-example-of-an-underlying-asset"></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"> Example of an Underlying Asset </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> In cases involving stock options, the underlying asset is the stock itself. For example, with a stock option to purchase 100 shares of Company X at a price of $100, the underlying asset is the stock of Company X. The underlying asset is used to determine the value of the option up till expiration. The value of the underlying asset may change before the expiration of the contract, affecting the value of the option. The value of the underlying asset at any given time lets traders know whether the option is worth <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exercise.asp">exercising</a> or not. </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 underlying asset could also be a currency or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketindex.asp">market index</a>, such as the S&P 500. In the case of stock indexes, the underlying asset is comprised of the common stocks within the stock market index. </p></div>	## What is an Underlying Asset Underlying asset are the financial assets upon which a [derivative’s](https://www.investopedia.com/terms/d/derivative.asp) price is based. [Options](https://www.investopedia.com/terms/o/option.asp) are an example of a derivative. A derivative is a financial instrument with a price that is based on a different asset. ## The Basics of Underlying Asset Underlying assets give derivatives their value. For example, an option on stock XYZ gives the holder the right to buy or sell XYZ at the strike price up until expiration. The underlying asset for the option is the stock of XYZ. [Option chains are available](https://www.investopedia.com/ask/answers/06/stockswithoptions.asp) on many, but not all, stocks. An underlying asset can be used to identify the item within the agreement that provides value to the contract. The underlying asset supports the security involved in the agreement, which the parties involved agree to [exchange as part of the derivative contract](https://www.investopedia.com/ask/answers/052715/what-kinds-derivatives-are-types-contingent-claims.asp). ## Understanding Derivative Contracts The price of an option or [futures](https://www.investopedia.com/terms/f/futures.asp) contract is [derived from the price](https://www.investopedia.com/ask/answers/060315/how-price-derivative-determined.asp) of an underlying asset. In an option contract, the [writer](https://www.investopedia.com/terms/w/writing-an-option.asp) must either buy or sell the underlying asset to the buyer on the specified date at the agreed-upon price. The buyer is not obligated to purchase the underlying asset, but they can exercise their right if they choose to do so. If the option is about to expire, and the underlying asset has not moved favorably enough to make exercising the option worthwhile, the buyer can let it expire and they will lose the amount they paid for the option. Futures are an obligation to the buyer and the seller. The seller of the future agrees to provide the underlying asset at expiry, and the buyer of the contract agrees to buy the underlying at expiry. The price they receive and pay, respectively, is the price they entered the futures contract at. Most futures traders close out their positions prior to expiration since retail traders and [hedge funds](https://www.investopedia.com/terms/h/hedgefund.asp) have little need to take physical possession of barrels of oil, for example. But, they can buy or sell the contract at one price, and if it moves favorably they can exit the trade and make a profit that way. Futures are a derivative because the price of an oil futures contract is based on the price movement of oil, for example. ### Key Takeaways * Underlying assets represent the assets from which derivatives derive their value. * Knowing the value of an underlying asset helps traders determine the appropriate action (buy, sell, or hold) with their derivative. ## Example of an Underlying Asset In cases involving stock options, the underlying asset is the stock itself. For example, with a stock option to purchase 100 shares of Company X at a price of $100, the underlying asset is the stock of Company X. The underlying asset is used to determine the value of the option up till expiration. The value of the underlying asset may change before the expiration of the contract, affecting the value of the option. The value of the underlying asset at any given time lets traders know whether the option is worth [exercising](https://www.investopedia.com/terms/e/exercise.asp) or not. The underlying asset could also be a currency or [market index](https://www.investopedia.com/terms/m/marketindex.asp), such as the S&P 500. In the case of stock indexes, the underlying asset is comprised of the common stocks within the stock market index.	What is an Underlying Asset Underlying asset are the financial assets upon which a derivative’s price is based. Options are an example of a derivative. A derivative is a financial instrument with a price that is based on a different asset. The Basics of Underlying Asset Underlying assets give derivatives their value. For example, an option on stock XYZ gives the holder the right to buy or sell XYZ at the strike price up until expiration. The underlying asset for the option is the stock of XYZ. Option chains are available on many, but not all, stocks. An underlying asset can be used to identify the item within the agreement that provides value to the contract. The underlying asset supports the security involved in the agreement, which the parties involved agree to exchange as part of the derivative contract. Understanding Derivative Contracts The price of an option or futures contract is derived from the price of an underlying asset. In an option contract, the writer must either buy or sell the underlying asset to the buyer on the specified date at the agreed-upon price. The buyer is not obligated to purchase the underlying asset, but they can exercise their right if they choose to do so. If the option is about to expire, and the underlying asset has not moved favorably enough to make exercising the option worthwhile, the buyer can let it expire and they will lose the amount they paid for the option. Futures are an obligation to the buyer and the seller. The seller of the future agrees to provide the underlying asset at expiry, and the buyer of the contract agrees to buy the underlying at expiry. The price they receive and pay, respectively, is the price they entered the futures contract at. Most futures traders close out their positions prior to expiration since retail traders and hedge funds have little need to take physical possession of barrels of oil, for example. But, they can buy or sell the contract at one price, and if it moves favorably they can exit the trade and make a profit that way. Futures are a derivative because the price of an oil futures contract is based on the price movement of oil, for example. Key Takeaways Underlying assets represent the assets from which derivatives derive their value. Knowing the value of an underlying asset helps traders determine the appropriate action (buy, sell, or hold) with their derivative. Example of an Underlying Asset In cases involving stock options, the underlying asset is the stock itself. For example, with a stock option to purchase 100 shares of Company X at a price of $100, the underlying asset is the stock of Company X. The underlying asset is used to determine the value of the option up till expiration. The value of the underlying asset may change before the expiration of the contract, affecting the value of the option. The value of the underlying asset at any given time lets traders know whether the option is worth exercising or not. The underlying asset could also be a currency or market index, such as the S&P 500. In the case of stock indexes, the underlying asset is comprised of the common stocks within the stock market index.	[ [ "derivative’s", "https://www.investopedia.com/terms/d/derivative.asp" ], [ "Options", "https://www.investopedia.com/terms/o/option.asp" ], [ "Option chains are available", "https://www.investopedia.com/ask/answers/06/stockswithoptions.asp" ], [ "exchange as part of the derivative contract", "https://www.investopedia.com/ask/answers/052715/what-kinds-derivatives-are-types-contingent-claims.asp" ], [ "futures", "https://www.investopedia.com/terms/f/futures.asp" ], [ "derived from the price", "https://www.investopedia.com/ask/answers/060315/how-price-derivative-determined.asp" ], [ "writer", "https://www.investopedia.com/terms/w/writing-an-option.asp" ], [ "hedge funds", "https://www.investopedia.com/terms/h/hedgefund.asp" ], [ "exercising", "https://www.investopedia.com/terms/e/exercise.asp" ], [ "market index", "https://www.investopedia.com/terms/m/marketindex.asp" ] ]
https://www.investopedia.com/her-money-mindset-survey-8647284	Survey: Women Are Confident Money Managers Who Crave Shame-Free Support	<div class="loc article-content"><div class="comp article__primary-video-container--jw mntl-block" id="article__primary-video-container--jw_1-0"></div> <div class="comp article__broad-video--jw mntl-jwplayer-broad mntl-block is-hidden" data-pixel-depth="100" id="article__broad-video--jw_1-0"><div class="comp mntl-jwplayer-broad__title mntl-block" id="mntl-jwplayer-broad__title_1-0"><svg class="icon trending-icon mntl-jwplayer-broad__title-icon--trending"> <use xlink:href="#trending-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> <div class="comp mntl-jwplayer-broad__title--text mntl-text-block type--monkey-bold" id="mntl-jwplayer-broad__title--text_1-0">Trending Videos</div> <button class="comp mntl-jwplayer-broad__title-icon--close mntl-block" data-click-tracked="false" id="mntl-jwplayer-broad__title-icon--close_1-0"><svg class="icon close-icon"> <use xlink:href="#close-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> <span class="comp mntl-text-block visually-hidden" id="mntl-text-block_1-0">Close this video player</span></button></div> <div class="comp mntl-jwplayer-broad__video mntl-jwplayer mm-video lazyload" data-bgset="" data-sizes="auto" id="mntl-jwplayer-broad__video_1-0"></div></div> <div class="comp article-content mntl-block" id="article-content_1-0"><div class="comp mntl-sc-page mntl-block" 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="[1, 1000]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="60" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> As women are poised to inherit $30 billion of assets from older generations by 2030, a joint survey from Investopedia and REAL SIMPLE found this demographic needs more wealth-building guidance and shame-free support, even within friendships. </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 2024 Her Money Mindset Survey polled a representative sample of U.S. women to learn how women across generations and income levels are thinking about, talking about, and engaging with money. </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>On average, 63% of women's income is directed to necessities and 64% of women have under $500 at the end of each month after their necessities are paid. </li><li>Only 39% of women are invested, and participation varies based on age, income level, and financial literacy.</li><li>1 in 5 women have helped someone cover a significant expense and are currently struggling to meet at least one expense of their own.</li><li>While money talks between friends are fairly common, the level of detail shared (and how truthful those details are) varies.</li><li>Overall, women are confident financial decision makers and want to learn about saving money and investing. </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"> "Too often, we're discouraged from talking about money. We worry it might seem crass, impolite, or inappropriate. But experts agree that open conversations around our finances help normalize the topic, motivate us to save, and make complex situations less confusing," said REAL SIMPLE Editor in Chief <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.realsimple.com/author/lauren-iannotti" rel="nofollow">Lauren Iannotti</a>. “Collaborating with Investopedia, we set out to uncover the barriers hindering women's financial confidence because when we determine what's holding us back, we can set a plan to move ahead.” </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 study, which was conducted during a period of high inflation and ongoing economic uncertainty, found that even on a tight budget, women are generous, and actively seek out more information. They have more to learn—and talk about—but overall, women are resilient, confident money managers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <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"> Women Are Focused on Short-Term Finances </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> One thing that U.S. women have in common across generations and income levels is that the majority of monthly income (63%) is spent on necessities, including housing, transportation, healthcare, education, and child care. Another 20% goes to flexible spending, and approximately 17% helps fund their financial goals. </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"> Monthly bills are eating up a lot of dollars, too. The 2024 Her Money Mindset Survey found that 64% of women have just under $500 left each month after covering the necessities—$422 on average. Another 44% have less than $250 left each month. </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"> Overall, although most women are able to cover monthly expenses, 54% said they are currently struggling to cover at least one type of monthly expense. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_18-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/nj0gh/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="2 in 5 Women Are Struggling To Cover Household Expenses"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Most women surveyed (67%) carry some debt, too. Credit card debt is the most common, followed by mortgages and car loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> While stretching dollars, women are very aware of where their money is going, and have big short-term goals, too. More than ¾ of women (76%) keep an eye on where their money goes every month, while 72% are saving for short-term goals. </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 addition to covering bills and other necessities, the most common three-year financial goals include saving for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement-planning-4689695">retirement</a>, buying a car, and paying (or paying down) credit card debt. </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/buqM4/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Bills & Necessary Expenses Top Near-Term Financial Goals"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <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"> Some Women Are Investing, But Mindset Varies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> The narrative surrounding women investors is often one of underrepresentation and hesitance, but that is not the whole story. Women's investment behavior is nuanced, and The 2024 Her Money Mindset survey highlights the interplay of age, income, and financial literacy in how women see themselves as investors. </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"> Overall, 39% of women surveyed currently hold investments. When you break that down further, the rate of women investors is higher among those in Generation X or older (42% of which currently hold investments). Women who make more than $75,000 annually are also more invested (58%), and are more likely to hold multiple types of investments. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_33-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/MiPdV/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Retirement Accounts Are Most Popular Among Respondents"></iframe></div> <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"> Retirement accounts, stocks, and mutual funds are the most common types of investments held. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cryptocurrency-guide-for-women-8646738">Cryptocurrency</a> is more popular among women who are <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/021914/money-habits-millennials.asp">millennials</a> or younger, too. </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-callout mntl-block" id="mntl-sc-block_37-0"><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_38-0"><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>51% of invested women are proud of an investment decision they have made. <br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> The survey asked women to share more about their investing decisions, and four main themes emerged from the anonymous responses: Women take pride in seeking professional help from financial advisors, teaching themselves about investing, discussing their strategies, and detailing the habits they have developed along the way. </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"> For example, one Gen X survey respondent said: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <blockquote class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> “I am most proud of myself for investing part of my savings into the stock market and learning about everyday trends within the market.” </blockquote> <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-spotlight--4-card-tout finance-sc-block-spotlight mntl-sc-block-spotlight mntl-block theme-4-card-tout" id="mntl-sc-block_45-0"><h3 class="comp mntl-sc-block-spotlight__heading mntl-text-block" id="mntl-sc-block-spotlight__heading_1-0">Investing for Independence</h3> <div class="comp mntl-sc-block-spotlight__articles mntl-document-spotlight mntl-document-card-list mntl-card-list mntl-block" data-chunk="36" id="mntl-sc-block-spotlight__articles_1-0"><a class="comp mntl-card-list-items mntl-document-card mntl-card card" data-cta="Read Now ▸" data-doc-id="8647102" data-ordinal="1" data-tax-levels="" href="https://www.investopedia.com/women-are-investors-how-to-shift-your-mindset-8647102" id="mntl-card-list-items_1-0"> <div class="card__media" data-tag="Investing Basics"> <img alt="Illustration of a woman flying through space while surrounded by coins, pie charts, and stock tickers. 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class="card__title"><span class="card__title-text">9 Women-Run Companies to Invest In</span></span> <div class="comp displayed-date" id="displayed-date_4-0"> <span class="displayed-date__date-text"></span> <span class="displayed-date__date">May 14, 2024</span> </div> </div> </a></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-subheading__text"> What’s Holding Some Women Back? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Despite positive investing sentiment, knowledge gaps are hindering some women from investing—or even just thinking of themselves as investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> For example, a little over half of the women told Investopedia & REAL SIMPLE that they are not invested (53%), but 10% of those respondents went on to say they have a retirement account, such as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k)</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">IRA</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"> The reality is, if you hold such an account, you are in fact invested. </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"> Why aren’t more women investing? The most common reason reported was that women don’t feel like they have enough money to invest. Perhaps unsurprisingly, women with lower <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/household_income.asp">household incomes</a> are more likely to cite this reason. </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"> Another reality? You don’t need thousands of extra dollars to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/11/3-s-simple-investing.asp">start investing</a>. </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"> "Think about putting aside money to invest every month as another way you are actually paying yourself. Just like you wouldn’t work without getting paid, pay your future self—even if it’s just a little bit—every month," said Investopedia Editor in Chief <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/contributors/54471/">Caleb Silver</a>. "Investing something as small as $50 a month can grow into tens of thousands of dollars by the time you retire. Start simple with index funds or ETFs, and watch your initial investments and their dividends compound over time." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_60-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/DseHy/" frameborder="0" id="mntl-sc-block-iframe__uri_4-0" title="Most Who Don't Invest Say They Lack Funds"></iframe></div> <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"> Aside from feeling like money may not spread far enough to pay bills <em>and</em> invest, fear and uncertainty impact women's willingness to jump into investing with both feet: 29% of those who aren’t invested say it’s because they fear losing money, and 25% don't know where to start. </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"> Women with higher household incomes are actually <em>more</em> likely to cite a lack of knowledge or a fear of losing money as their primary reason for not investing. </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"> There is curiosity, though: nearly 1 in 4 women say they want to learn more about investing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <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"> Women Are Financially Generous, Despite Own Struggles </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> Most women surveyed (67%) have acted as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-financially-support-loved-ones-8647499">financial supporter</a> for someone in their life. That rate jumps to 73% for younger women, too. </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"> This level of generosity extends to smaller purchases, too. On an ordinary day, almost all women say they would pay for a friend's meal, which has an average cost of $24. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_73-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/6U9lc/" frameborder="0" id="mntl-sc-block-iframe__uri_5-0" title="Helping Family Members Financially"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> For many, generosity is not dependent on a woman’s financial well-being, either: 1 in 5 women said they have at one point helped someone cover a significant expense and are also currently struggling to cover housing expenses. </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"> If they need financial help themselves, women are actually more likely to have asked a friend for a loan before asking a significant other or family member. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_79-0"> <span class="mntl-sc-block-heading__text"> Money Conversations Are Complicated </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> When it comes to communicating about money, women have ambivalent feelings. The 2024 Her Money Mindset survey found that while there is often some degree of money talks happening between friends, the level of detail shared—and how truthful those details are—are a mixed bag. </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"> Overall, 70% of women say that they sometimes talk to their friends about money. Younger women (millennials and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/generation-z-gen-z-definition-5218554">generation z</a>) tend to be more comfortable talking about money matters with friends and those with household incomes above $75,000 are most likely to broach these topics with their friends. </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"> The women we surveyed told us that talking about money with friends can lead to bonding, and a greater support system. Among those who talk to their friends about money, budgeting and planning for the future are the most common money conversation topics, and 1 in 3 have also discussed investing decisions with their friends. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> However, while the women we surveyed told us that talking about money with friends can lead to bonding and more support, sharing details is rare. Half (51%) of women who talk to their friends about money say they share very little about their own financial situation. </p> <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-callout mntl-block" id="mntl-sc-block_88-0"><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_89-0"><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>Fewer than 1 in 4 women who talk with their friends about money have shared with their friends how much money they make. </p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> Of those who will not discuss money with friends, most (54%) say it is because they feel it is not appropriate. This response is more common among women who are Gen X or older, while younger generations are more likely to avoid talking about money because it’s too awkward. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_92-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/yzf2n/" frameborder="0" id="mntl-sc-block-iframe__uri_6-0" title="Most Who Don't Talk About Money With Friends Don't Think It's Appropriate"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> Income differences and financial financial situations play the biggest role in women avoiding money conversations with friends. Fear of judgment and shame are common, especially among women with household incomes below $75,000 a year, and those in different financial situations than their peers. In some cases, these feelings result in lies or omissions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_95-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_96-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/XbEv6/" frameborder="0" id="mntl-sc-block-iframe__uri_7-0" title="1 in 4 Women Have Lied To Their Friends About Debt"></iframe></div> <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 what some Her Money Mindset survey respondents across generations told us anonymously when asked to share a time they lied about money: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_99-0"></div> <blockquote class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_100-0"> “I was embarrassed to share how much debt I had or how little I had in my bank account, so I lied.” -Gen Z woman (18-26 years old) </blockquote> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_101-0"></div> <blockquote class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_102-0"> “I felt ashamed that I couldn’t pay off my student loan and credit card debt compared to some of my friends. The financial burden of helping out my parents (sharing expenses under the same roof) seemed to be the differentiator, since many of my friends had younger parents who were working and supporting them.” -Millennial woman (27-42 years old) </blockquote> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <blockquote class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_104-0"> “I was asked by a friend if I had any debt and I said no even though I have medical debt. I was embarrassed.” -Millennial woman (27-42 years old) </blockquote> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_105-0"></div> <blockquote class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_106-0"> “I didn’t want to let on how difficult of a financial situation we were in when both me and my husband were laid off around the same time so downplayed it and said we had enough in savings to live on, which was untrue.” -Woman age 59 or older </blockquote> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_107-0"></div> <div class="comp mntl-sc-block finance-sc-block-spotlight--4-card-tout finance-sc-block-spotlight mntl-sc-block-spotlight mntl-block theme-4-card-tout" id="mntl-sc-block_108-0"><h3 class="comp mntl-sc-block-spotlight__heading mntl-text-block" id="mntl-sc-block-spotlight__heading_2-0">Money & Relationships</h3> <div class="comp mntl-sc-block-spotlight__articles 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life stages (kid, teen, and adult), playing hopscotch with coins and stock tickers in the background." class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/Kn44L69tVuxETmcF5_8reObmAA4=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/INV-HER-MONEY-MINDSET-HOW-TO-TALK-TO-KIDS-ABOUT-MONEY-FINAL-11-954b75bd035a41d781de8badf31d498d.png" width="400"/> </noscript> </div> <div class="card__content" data-tag="Financial Literacy "> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">How To Talk To Kids About Money—And Why You Should Do So Early</span></span> <div class="comp displayed-date" id="displayed-date_7-0"> <span class="displayed-date__date-text">Updated</span> <span class="displayed-date__date">May 14, 2024</span> </div> </div> </a> <a class="comp mntl-card-list-items mntl-document-card mntl-card card" data-cta="Read Now ▸" data-doc-id="8647093" data-ordinal="4" data-tax-levels="" 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The woman carries multiple bags and is surrounded by coins, which orbit her like electrons, but her gaze is fixed on the starry sky above her." class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/c_3H_Hgq0M7un8I-SrPyd30rFCw=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/INV-HER-MONEY-MINDSET-FINANCIAL-INDEPENDENCE-FINAL-1-146c255e6d7e4b45a7b7b6944575f25f.png" width="400"/> </noscript> </div> <div class="card__content" data-tag="Budgeting & Savings"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">How To Achieve Financial Independence</span></span> <div class="comp displayed-date" id="displayed-date_8-0"> <span class="displayed-date__date-text"></span> <span class="displayed-date__date">May 14, 2024</span> </div> </div> </a></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_109-0"></div> <h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_110-0"> <span class="mntl-sc-block-heading__text"> Overall, Women Are Confident Financial Decision Makers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_111-0"> Tight budgets, knowledge gaps, and uncomfortable conversations aside, the 2024 Her Money Mindset survey found that women are taking charge of their finances. </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"> More than half of all women (58%) told Investopedia and REAL SIMPLE that they feel somewhat or very confident in their ability to make good financial decisions, and that confidence increases with age and income. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_114-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_115-0"><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_116-0"><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>The 2024 Her Money Mindset Survey found 66% of women have made at least one financial decision they’re super proud of.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_117-0"> When comparing their financial know-how to friends and partners, 40% of women feel confirmed they know more than their friends, and 36% feel they know more than their partner and are able to make more responsible decisions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_118-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_119-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/FgWad/" frameborder="0" id="mntl-sc-block-iframe__uri_8-0" title="1 in 4 Women Believe Its Important For Them To Learn About Investing"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_120-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_121-0"> Ahead of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-advisor/women-and-great-wealth-transfer/">great wealth transfer that will put more wealth in women’s hands</a> than ever before, women are directing this confidence into action and leading, or in some cases owning, financial decision-making for their household. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_122-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_123-0"> Our survey found 60% of all women make decisions about their finances independently, and the other 40% share financial decision-making with someone else. Half of the women surveyed are married or living with a significant other, and in that citation, women said they are talking about money with their partner, sharing finances, and sharing responsibilities, despite often earning less than their partner. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_124-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_125-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/QKGLr/" frameborder="0" id="mntl-sc-block-iframe__uri_9-0" title="1 in 5 Women Who Live With Partner Are Responsible For Investing Decisions"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_126-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_127-0"> Women are taking an active role in learning more about managing finances, too: 39% of women said they look for financial information at least monthly. That rate is even higher for millennials and younger women (48%). The preferred sources of education? Financial information websites, online searches, and talking to friends and family. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_128-0"></div> <h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_129-0"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_130-0"> For the 2024 Her Money Mindset Survey, REAL SIMPLE and Investopedia surveyed 2,002 American women (aged 18+) from January 9th to 22nd, 2024. The survey was fielded online via a self-administered questionnaire to an opt-in panel of respondents from a market research vendor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_131-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_132-0"> 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.<br/> </p> <div class="comp mntl-block js-scads-inline-content" id="mntl-block_1-0"><div class="comp mntl-block" id="mntl-block_2-0"><div class="comp mm-ads-scads-leaderboard-fixed mm-ads-leaderboard-fixed-lazy mm-ads-leaderboard-fixed mm-ads-gpt-adunit has-right-label leaderboard js-lazy-ad scads-to-load gpt leaderboard dynamic" id="mm-ads-scads-leaderboard-fixed_1-0"> <div class="wrapper" data-pos="atf" data-priority="99" data-rtb="true" data-sizes="[[728, 90]]" data-targeting="{}" data-type="leaderboard" data-wait-for-third-party="false" id="leaderboard-fixed"></div> </div></div> <div class="comp mntl-block" id="mntl-block_3-0"><div class="comp mm-ads-native-fluid mm-ads-native" id="mm-ads-native-fluid_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 native dynamic" id="mm-ads-native__adunit_1-0"> <div class="wrapper" data-pos="native" data-priority="4" data-rtb="false" data-sizes='[[1, 3],"fluid"]' data-targeting="{}" data-type="native" data-wait-for-third-party="false" id="native"></div> </div></div></div></div></div></div> <div class="comp textnote-placeholder mntl-block" id="textnote-placeholder_1-0"></div> <div class="comp textnote mm-ads-gpt-adunit gpt textnote" id="textnote_1-0"> <div class="wrapper" id="textnote"></div> </div> </div>	Trending Videos Close this video player As women are poised to inherit $30 billion of assets from older generations by 2030, a joint survey from Investopedia and REAL SIMPLE found this demographic needs more wealth-building guidance and shame-free support, even within friendships. The 2024 Her Money Mindset Survey polled a representative sample of U.S. women to learn how women across generations and income levels are thinking about, talking about, and engaging with money. ### Key Takeaways * On average, 63% of women's income is directed to necessities and 64% of women have under $500 at the end of each month after their necessities are paid. * Only 39% of women are invested, and participation varies based on age, income level, and financial literacy. * 1 in 5 women have helped someone cover a significant expense and are currently struggling to meet at least one expense of their own. * While money talks between friends are fairly common, the level of detail shared (and how truthful those details are) varies. * Overall, women are confident financial decision makers and want to learn about saving money and investing. "Too often, we're discouraged from talking about money. We worry it might seem crass, impolite, or inappropriate. But experts agree that open conversations around our finances help normalize the topic, motivate us to save, and make complex situations less confusing," said REAL SIMPLE Editor in Chief [Lauren Iannotti](https://www.realsimple.com/author/lauren-iannotti). “Collaborating with Investopedia, we set out to uncover the barriers hindering women's financial confidence because when we determine what's holding us back, we can set a plan to move ahead.” The study, which was conducted during a period of high inflation and ongoing economic uncertainty, found that even on a tight budget, women are generous, and actively seek out more information. They have more to learn—and talk about—but overall, women are resilient, confident money managers. ## Women Are Focused on Short-Term Finances One thing that U.S. women have in common across generations and income levels is that the majority of monthly income (63%) is spent on necessities, including housing, transportation, healthcare, education, and child care. Another 20% goes to flexible spending, and approximately 17% helps fund their financial goals. Monthly bills are eating up a lot of dollars, too. The 2024 Her Money Mindset Survey found that 64% of women have just under $500 left each month after covering the necessities—$422 on average. Another 44% have less than $250 left each month. Overall, although most women are able to cover monthly expenses, 54% said they are currently struggling to cover at least one type of monthly expense. Most women surveyed (67%) carry some debt, too. Credit card debt is the most common, followed by mortgages and car loans. While stretching dollars, women are very aware of where their money is going, and have big short-term goals, too. More than ¾ of women (76%) keep an eye on where their money goes every month, while 72% are saving for short-term goals. In addition to covering bills and other necessities, the most common three-year financial goals include saving for [retirement](https://www.investopedia.com/retirement-planning-4689695), buying a car, and paying (or paying down) credit card debt. ## Some Women Are Investing, But Mindset Varies The narrative surrounding women investors is often one of underrepresentation and hesitance, but that is not the whole story. Women's investment behavior is nuanced, and The 2024 Her Money Mindset survey highlights the interplay of age, income, and financial literacy in how women see themselves as investors. Overall, 39% of women surveyed currently hold investments. When you break that down further, the rate of women investors is higher among those in Generation X or older (42% of which currently hold investments). Women who make more than $75,000 annually are also more invested (58%), and are more likely to hold multiple types of investments. Retirement accounts, stocks, and mutual funds are the most common types of investments held. [Cryptocurrency](https://www.investopedia.com/cryptocurrency-guide-for-women-8646738) is more popular among women who are [millennials](https://www.investopedia.com/articles/personal-finance/021914/money-habits-millennials.asp) or younger, too. ### 51% of invested women are proud of an investment decision they have made. The survey asked women to share more about their investing decisions, and four main themes emerged from the anonymous responses: Women take pride in seeking professional help from financial advisors, teaching themselves about investing, discussing their strategies, and detailing the habits they have developed along the way. For example, one Gen X survey respondent said: > “I am most proud of myself for investing part of my savings into the stock market and learning about everyday trends within the market.” ### Investing for Independence [![Illustration of a woman flying through space while surrounded by coins, pie charts, and stock tickers. ]() ![Illustration of a woman flying through space while surrounded by coins, pie charts, and stock tickers. ](https://www.investopedia.com/thmb/9nkPwQohVzPLHPfQZs0Vt4AdY30=/600x450/filters:no_upscale():max_bytes(150000):strip_icc()/INV-HER-MONEY-MINDSET-HOW-TO-SHIFT-YOUR-MINDSET-FINAL-11-9b8da206f30146cba19be4d9932b1d5d.png) Women Are Investors: How To Shift Your Mindset Updated May 16, 2024](https://www.investopedia.com/women-are-investors-how-to-shift-your-mindset-8647102) [![Woman sitting on a crypto coin.]() ![Woman sitting on a crypto coin.](https://www.investopedia.com/thmb/LHhGNXl7ri7GgVmdqdgWh-phvmE=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/INV-HER-MONEY-MINDSET-WOMEN-IN-CRYPTO-FINAL-1-d4db409dfb2b489d97e2eff605c1062f.png) Getting Into Crypto: A Support Guide for Women Updated May 14, 2024](https://www.investopedia.com/cryptocurrency-guide-for-women-8646738) [![Illustration of three women dancing in from of clouds make of coins with a starry sky behind them and sparkles in the air.]() ![Illustration of three women dancing in from of clouds make of coins with a starry sky behind them and sparkles in the air.](https://www.investopedia.com/thmb/h79AIPl6-gRHR0tsnfouPSmrpT0=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/INV-HER-MONEY-MINDSET-How-To-Break-Through-The-Wage-Gap-Barrier-FINAL-11-0d8d90a5f7214c25a5a832a4a7d5cf87.png) How Women Can Break Through the Gender Wage Gap Barrier Updated May 14, 2024](https://www.investopedia.com/how-to-overcome-gender-wage-gap-8646898) [![Illustration of a woman admiring cards with different icons of businesses on them.]() ![Illustration of a woman admiring cards with different icons of businesses on them.](https://www.investopedia.com/thmb/2t6icN7rCCyKeeAoWyMkZnUqTS0=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/INV-HER-MONEY-MINDSET-Women-Owned-Businesses-To-Invest-In-FINAL-1-187985b800e7436fb92057a07e43605f.png) 9 Women-Run Companies to Invest In May 14, 2024](https://www.investopedia.com/women-run-companies-to-invest-in-8417339) ### What’s Holding Some Women Back? Despite positive investing sentiment, knowledge gaps are hindering some women from investing—or even just thinking of themselves as investors. For example, a little over half of the women told Investopedia & REAL SIMPLE that they are not invested (53%), but 10% of those respondents went on to say they have a retirement account, such as a [401(k)](https://www.investopedia.com/terms/1/401kplan.asp) or [IRA](https://www.investopedia.com/terms/i/ira.asp). The reality is, if you hold such an account, you are in fact invested. Why aren’t more women investing? The most common reason reported was that women don’t feel like they have enough money to invest. Perhaps unsurprisingly, women with lower [household incomes](https://www.investopedia.com/terms/h/household_income.asp) are more likely to cite this reason. Another reality? You don’t need thousands of extra dollars to [start investing](https://www.investopedia.com/articles/basics/11/3-s-simple-investing.asp). "Think about putting aside money to invest every month as another way you are actually paying yourself. Just like you wouldn’t work without getting paid, pay your future self—even if it’s just a little bit—every month," said Investopedia Editor in Chief [Caleb Silver](https://www.investopedia.com/contributors/54471/). "Investing something as small as $50 a month can grow into tens of thousands of dollars by the time you retire. Start simple with index funds or ETFs, and watch your initial investments and their dividends compound over time." Aside from feeling like money may not spread far enough to pay bills and invest, fear and uncertainty impact women's willingness to jump into investing with both feet: 29% of those who aren’t invested say it’s because they fear losing money, and 25% don't know where to start. Women with higher household incomes are actually more likely to cite a lack of knowledge or a fear of losing money as their primary reason for not investing. There is curiosity, though: nearly 1 in 4 women say they want to learn more about investing. ## Women Are Financially Generous, Despite Own Struggles Most women surveyed (67%) have acted as a [financial supporter](https://www.investopedia.com/how-to-financially-support-loved-ones-8647499) for someone in their life. That rate jumps to 73% for younger women, too. This level of generosity extends to smaller purchases, too. On an ordinary day, almost all women say they would pay for a friend's meal, which has an average cost of $24. For many, generosity is not dependent on a woman’s financial well-being, either: 1 in 5 women said they have at one point helped someone cover a significant expense and are also currently struggling to cover housing expenses. If they need financial help themselves, women are actually more likely to have asked a friend for a loan before asking a significant other or family member. ## Money Conversations Are Complicated When it comes to communicating about money, women have ambivalent feelings. The 2024 Her Money Mindset survey found that while there is often some degree of money talks happening between friends, the level of detail shared—and how truthful those details are—are a mixed bag. Overall, 70% of women say that they sometimes talk to their friends about money. Younger women (millennials and [generation z](https://www.investopedia.com/generation-z-gen-z-definition-5218554)) tend to be more comfortable talking about money matters with friends and those with household incomes above $75,000 are most likely to broach these topics with their friends. The women we surveyed told us that talking about money with friends can lead to bonding, and a greater support system. Among those who talk to their friends about money, budgeting and planning for the future are the most common money conversation topics, and 1 in 3 have also discussed investing decisions with their friends. However, while the women we surveyed told us that talking about money with friends can lead to bonding and more support, sharing details is rare. Half (51%) of women who talk to their friends about money say they share very little about their own financial situation. ### Fewer than 1 in 4 women who talk with their friends about money have shared with their friends how much money they make. Of those who will not discuss money with friends, most (54%) say it is because they feel it is not appropriate. This response is more common among women who are Gen X or older, while younger generations are more likely to avoid talking about money because it’s too awkward. Income differences and financial financial situations play the biggest role in women avoiding money conversations with friends. Fear of judgment and shame are common, especially among women with household incomes below $75,000 a year, and those in different financial situations than their peers. In some cases, these feelings result in lies or omissions. Here’s what some Her Money Mindset survey respondents across generations told us anonymously when asked to share a time they lied about money: > “I was embarrassed to share how much debt I had or how little I had in my bank account, so I lied.” -Gen Z woman (18-26 years old) > “I felt ashamed that I couldn’t pay off my student loan and credit card debt compared to some of my friends. The financial burden of helping out my parents (sharing expenses under the same roof) seemed to be the differentiator, since many of my friends had younger parents who were working and supporting them.” -Millennial woman (27-42 years old) > “I was asked by a friend if I had any debt and I said no even though I have medical debt. I was embarrassed.” -Millennial woman (27-42 years old) > “I didn’t want to let on how difficult of a financial situation we were in when both me and my husband were laid off around the same time so downplayed it and said we had enough in savings to live on, which was untrue.” -Woman age 59 or older ### Money & Relationships [![Woman looking at picture frames of her family members, while holding a frame over herself.]() ![Woman looking at picture frames of her family members, while holding a frame over herself.](https://www.investopedia.com/thmb/fyccUMcWAd6K0gicCjDB1kOPCc8=/600x450/filters:no_upscale():max_bytes(150000):strip_icc()/INV-HER-MONEY-MINDSET-How-To-Financially-Support-Loved-Ones-FINAL-1-af1ceb5f89194f5eab57b6a070d6f8ff.png) How to Financially Support Loved Ones Without Sacrificing Your Well-being Updated May 14, 2024](https://www.investopedia.com/how-to-financially-support-loved-ones-8647499) [![Woman and partner clinking wine glasses.]() ![Woman and partner clinking wine glasses.](https://www.investopedia.com/thmb/GBrxIeOz3K3Y_vv504amS3dNmvI=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/INV-HER-MONEY-MINDSET-HOW-TO-TALK-ABOUT-MONEY-WITH-YOUR-PARTNER-FINAL-1-f2e1ae40a5c5456ba1ef77d811c2640b.png) How to Talk About Money with Your Partner Updated May 01, 2024](https://www.investopedia.com/how-to-talk-about-money-with-partner-8612447) [![An illustration of a person at three life stages (kid, teen, and adult), playing hopscotch with coins and stock tickers in the background.]() ![An illustration of a person at three life stages (kid, teen, and adult), playing hopscotch with coins and stock tickers in the background.](https://www.investopedia.com/thmb/Kn44L69tVuxETmcF5_8reObmAA4=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/INV-HER-MONEY-MINDSET-HOW-TO-TALK-TO-KIDS-ABOUT-MONEY-FINAL-11-954b75bd035a41d781de8badf31d498d.png) How To Talk To Kids About Money—And Why You Should Do So Early Updated May 14, 2024](https://www.investopedia.com/how-to-talk-to-kids-about-money-8646557) [![Illustration of a woman considering her financial independence options. The woman carries multiple bags and is surrounded by coins, which orbit her like electrons, but her gaze is fixed on the starry sky above her.]() ![Illustration of a woman considering her financial independence options. The woman carries multiple bags and is surrounded by coins, which orbit her like electrons, but her gaze is fixed on the starry sky above her.](https://www.investopedia.com/thmb/c_3H_Hgq0M7un8I-SrPyd30rFCw=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/INV-HER-MONEY-MINDSET-FINANCIAL-INDEPENDENCE-FINAL-1-146c255e6d7e4b45a7b7b6944575f25f.png) How To Achieve Financial Independence May 14, 2024](https://www.investopedia.com/how-to-achieve-financial-independence-8647093) ## Overall, Women Are Confident Financial Decision Makers Tight budgets, knowledge gaps, and uncomfortable conversations aside, the 2024 Her Money Mindset survey found that women are taking charge of their finances. More than half of all women (58%) told Investopedia and REAL SIMPLE that they feel somewhat or very confident in their ability to make good financial decisions, and that confidence increases with age and income. ### The 2024 Her Money Mindset Survey found 66% of women have made at least one financial decision they’re super proud of. When comparing their financial know-how to friends and partners, 40% of women feel confirmed they know more than their friends, and 36% feel they know more than their partner and are able to make more responsible decisions. Ahead of a [great wealth transfer that will put more wealth in women’s hands](https://www.investopedia.com/financial-advisor/women-and-great-wealth-transfer/) than ever before, women are directing this confidence into action and leading, or in some cases owning, financial decision-making for their household. Our survey found 60% of all women make decisions about their finances independently, and the other 40% share financial decision-making with someone else. Half of the women surveyed are married or living with a significant other, and in that citation, women said they are talking about money with their partner, sharing finances, and sharing responsibilities, despite often earning less than their partner. Women are taking an active role in learning more about managing finances, too: 39% of women said they look for financial information at least monthly. That rate is even higher for millennials and younger women (48%). The preferred sources of education? Financial information websites, online searches, and talking to friends and family. ## Methodology For the 2024 Her Money Mindset Survey, REAL SIMPLE and Investopedia surveyed 2,002 American women (aged 18+) from January 9th to 22nd, 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.	Trending Videos Close this video player As women are poised to inherit $30 billion of assets from older generations by 2030, a joint survey from Investopedia and REAL SIMPLE found this demographic needs more wealth-building guidance and shame-free support, even within friendships. The 2024 Her Money Mindset Survey polled a representative sample of U.S. women to learn how women across generations and income levels are thinking about, talking about, and engaging with money. Key Takeaways On average, 63% of women's income is directed to necessities and 64% of women have under $500 at the end of each month after their necessities are paid. Only 39% of women are invested, and participation varies based on age, income level, and financial literacy.1 in 5 women have helped someone cover a significant expense and are currently struggling to meet at least one expense of their own.While money talks between friends are fairly common, the level of detail shared (and how truthful those details are) varies.Overall, women are confident financial decision makers and want to learn about saving money and investing. "Too often, we're discouraged from talking about money. We worry it might seem crass, impolite, or inappropriate. But experts agree that open conversations around our finances help normalize the topic, motivate us to save, and make complex situations less confusing," said REAL SIMPLE Editor in Chief Lauren Iannotti. “Collaborating with Investopedia, we set out to uncover the barriers hindering women's financial confidence because when we determine what's holding us back, we can set a plan to move ahead.” The study, which was conducted during a period of high inflation and ongoing economic uncertainty, found that even on a tight budget, women are generous, and actively seek out more information. They have more to learn—and talk about—but overall, women are resilient, confident money managers. Women Are Focused on Short-Term Finances One thing that U.S. women have in common across generations and income levels is that the majority of monthly income (63%) is spent on necessities, including housing, transportation, healthcare, education, and child care. Another 20% goes to flexible spending, and approximately 17% helps fund their financial goals. Monthly bills are eating up a lot of dollars, too. The 2024 Her Money Mindset Survey found that 64% of women have just under $500 left each month after covering the necessities—$422 on average. Another 44% have less than $250 left each month. Overall, although most women are able to cover monthly expenses, 54% said they are currently struggling to cover at least one type of monthly expense. Most women surveyed (67%) carry some debt, too. Credit card debt is the most common, followed by mortgages and car loans. While stretching dollars, women are very aware of where their money is going, and have big short-term goals, too. More than ¾ of women (76%) keep an eye on where their money goes every month, while 72% are saving for short-term goals. In addition to covering bills and other necessities, the most common three-year financial goals include saving for retirement, buying a car, and paying (or paying down) credit card debt. Some Women Are Investing, But Mindset Varies The narrative surrounding women investors is often one of underrepresentation and hesitance, but that is not the whole story. Women's investment behavior is nuanced, and The 2024 Her Money Mindset survey highlights the interplay of age, income, and financial literacy in how women see themselves as investors. Overall, 39% of women surveyed currently hold investments. When you break that down further, the rate of women investors is higher among those in Generation X or older (42% of which currently hold investments). Women who make more than $75,000 annually are also more invested (58%), and are more likely to hold multiple types of investments. Retirement accounts, stocks, and mutual funds are the most common types of investments held. Cryptocurrency is more popular among women who are millennials or younger, too. 51% of invested women are proud of an investment decision they have made. The survey asked women to share more about their investing decisions, and four main themes emerged from the anonymous responses: Women take pride in seeking professional help from financial advisors, teaching themselves about investing, discussing their strategies, and detailing the habits they have developed along the way. For example, one Gen X survey respondent said: “I am most proud of myself for investing part of my savings into the stock market and learning about everyday trends within the market.” Investing for Independence Women Are Investors: How To Shift Your Mindset Updated May 16, 2024 Getting Into Crypto: A Support Guide for Women Updated May 14, 2024 How Women Can Break Through the Gender Wage Gap Barrier Updated May 14, 2024 9 Women-Run Companies to Invest In May 14, 2024 What’s Holding Some Women Back? Despite positive investing sentiment, knowledge gaps are hindering some women from investing—or even just thinking of themselves as investors. For example, a little over half of the women told Investopedia & REAL SIMPLE that they are not invested (53%), but 10% of those respondents went on to say they have a retirement account, such as a 401(k) or IRA. The reality is, if you hold such an account, you are in fact invested. Why aren’t more women investing? The most common reason reported was that women don’t feel like they have enough money to invest. Perhaps unsurprisingly, women with lower household incomes are more likely to cite this reason. Another reality? You don’t need thousands of extra dollars to start investing. "Think about putting aside money to invest every month as another way you are actually paying yourself. Just like you wouldn’t work without getting paid, pay your future self—even if it’s just a little bit—every month," said Investopedia Editor in Chief Caleb Silver. "Investing something as small as $50 a month can grow into tens of thousands of dollars by the time you retire. Start simple with index funds or ETFs, and watch your initial investments and their dividends compound over time." Aside from feeling like money may not spread far enough to pay bills and invest, fear and uncertainty impact women's willingness to jump into investing with both feet: 29% of those who aren’t invested say it’s because they fear losing money, and 25% don't know where to start. Women with higher household incomes are actually more likely to cite a lack of knowledge or a fear of losing money as their primary reason for not investing. There is curiosity, though: nearly 1 in 4 women say they want to learn more about investing. Women Are Financially Generous, Despite Own Struggles Most women surveyed (67%) have acted as a financial supporter for someone in their life. That rate jumps to 73% for younger women, too. This level of generosity extends to smaller purchases, too. On an ordinary day, almost all women say they would pay for a friend's meal, which has an average cost of $24. For many, generosity is not dependent on a woman’s financial well-being, either: 1 in 5 women said they have at one point helped someone cover a significant expense and are also currently struggling to cover housing expenses. If they need financial help themselves, women are actually more likely to have asked a friend for a loan before asking a significant other or family member. Money Conversations Are Complicated When it comes to communicating about money, women have ambivalent feelings. The 2024 Her Money Mindset survey found that while there is often some degree of money talks happening between friends, the level of detail shared—and how truthful those details are—are a mixed bag. Overall, 70% of women say that they sometimes talk to their friends about money. Younger women (millennials and generation z) tend to be more comfortable talking about money matters with friends and those with household incomes above $75,000 are most likely to broach these topics with their friends. The women we surveyed told us that talking about money with friends can lead to bonding, and a greater support system. Among those who talk to their friends about money, budgeting and planning for the future are the most common money conversation topics, and 1 in 3 have also discussed investing decisions with their friends. However, while the women we surveyed told us that talking about money with friends can lead to bonding and more support, sharing details is rare. Half (51%) of women who talk to their friends about money say they share very little about their own financial situation. Fewer than 1 in 4 women who talk with their friends about money have shared with their friends how much money they make. Of those who will not discuss money with friends, most (54%) say it is because they feel it is not appropriate. This response is more common among women who are Gen X or older, while younger generations are more likely to avoid talking about money because it’s too awkward. Income differences and financial financial situations play the biggest role in women avoiding money conversations with friends. Fear of judgment and shame are common, especially among women with household incomes below $75,000 a year, and those in different financial situations than their peers. In some cases, these feelings result in lies or omissions. Here’s what some Her Money Mindset survey respondents across generations told us anonymously when asked to share a time they lied about money: “I was embarrassed to share how much debt I had or how little I had in my bank account, so I lied.” -Gen Z woman (18-26 years old) “I felt ashamed that I couldn’t pay off my student loan and credit card debt compared to some of my friends. The financial burden of helping out my parents (sharing expenses under the same roof) seemed to be the differentiator, since many of my friends had younger parents who were working and supporting them.” -Millennial woman (27-42 years old) “I was asked by a friend if I had any debt and I said no even though I have medical debt. I was embarrassed.” -Millennial woman (27-42 years old) “I didn’t want to let on how difficult of a financial situation we were in when both me and my husband were laid off around the same time so downplayed it and said we had enough in savings to live on, which was untrue.” -Woman age 59 or older Money & Relationships How to Financially Support Loved Ones Without Sacrificing Your Well-being Updated May 14, 2024 How to Talk About Money with Your Partner Updated May 01, 2024 How To Talk To Kids About Money—And Why You Should Do So Early Updated May 14, 2024 How To Achieve Financial Independence May 14, 2024 Overall, Women Are Confident Financial Decision Makers Tight budgets, knowledge gaps, and uncomfortable conversations aside, the 2024 Her Money Mindset survey found that women are taking charge of their finances. More than half of all women (58%) told Investopedia and REAL SIMPLE that they feel somewhat or very confident in their ability to make good financial decisions, and that confidence increases with age and income. The 2024 Her Money Mindset Survey found 66% of women have made at least one financial decision they’re super proud of. When comparing their financial know-how to friends and partners, 40% of women feel confirmed they know more than their friends, and 36% feel they know more than their partner and are able to make more responsible decisions. Ahead of a great wealth transfer that will put more wealth in women’s hands than ever before, women are directing this confidence into action and leading, or in some cases owning, financial decision-making for their household. Our survey found 60% of all women make decisions about their finances independently, and the other 40% share financial decision-making with someone else. Half of the women surveyed are married or living with a significant other, and in that citation, women said they are talking about money with their partner, sharing finances, and sharing responsibilities, despite often earning less than their partner. Women are taking an active role in learning more about managing finances, too: 39% of women said they look for financial information at least monthly. That rate is even higher for millennials and younger women (48%). The preferred sources of education? Financial information websites, online searches, and talking to friends and family. Methodology For the 2024 Her Money Mindset Survey, REAL SIMPLE and Investopedia surveyed 2,002 American women (aged 18+) from January 9th to 22nd, 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.	[ [ "Lauren Iannotti", "https://www.realsimple.com/author/lauren-iannotti" ], [ "retirement", "https://www.investopedia.com/retirement-planning-4689695" ], [ "Cryptocurrency", "https://www.investopedia.com/cryptocurrency-guide-for-women-8646738" ], [ "millennials", "https://www.investopedia.com/articles/personal-finance/021914/money-habits-millennials.asp" ], [ "Illustration of a woman flying through space while surrounded by coins, pie charts, and stock tickers. ", "https://www.investopedia.com/thmb/9nkPwQohVzPLHPfQZs0Vt4AdY30=/600x450/filters:no_upscale(" ], [ "Woman sitting on a crypto coin.", "https://www.investopedia.com/thmb/LHhGNXl7ri7GgVmdqdgWh-phvmE=/400x300/filters:no_upscale(" ], [ "Illustration of three women dancing in from of clouds make of coins with a starry sky behind them and sparkles in the air.", "https://www.investopedia.com/thmb/h79AIPl6-gRHR0tsnfouPSmrpT0=/400x300/filters:no_upscale(" ], [ "Illustration of a woman admiring cards with different icons of businesses on them.", "https://www.investopedia.com/thmb/2t6icN7rCCyKeeAoWyMkZnUqTS0=/400x300/filters:no_upscale(" ], [ "401(k)", "https://www.investopedia.com/terms/1/401kplan.asp" ], [ "IRA", "https://www.investopedia.com/terms/i/ira.asp" ], [ "household incomes", "https://www.investopedia.com/terms/h/household_income.asp" ], [ "start investing", "https://www.investopedia.com/articles/basics/11/3-s-simple-investing.asp" ], [ "Caleb Silver", "https://www.investopedia.com/contributors/54471/" ], [ "financial supporter", "https://www.investopedia.com/how-to-financially-support-loved-ones-8647499" ], [ "generation z", "https://www.investopedia.com/generation-z-gen-z-definition-5218554" ], [ "Woman looking at picture frames of her family members, while holding a frame over herself.", "https://www.investopedia.com/thmb/fyccUMcWAd6K0gicCjDB1kOPCc8=/600x450/filters:no_upscale(" ], [ "Woman and partner clinking wine glasses.", "https://www.investopedia.com/thmb/GBrxIeOz3K3Y_vv504amS3dNmvI=/400x300/filters:no_upscale(" ], [ "An illustration of a person at three life stages (kid, teen, and adult), playing hopscotch with coins and stock tickers in the background.", "https://www.investopedia.com/thmb/Kn44L69tVuxETmcF5_8reObmAA4=/400x300/filters:no_upscale(" ], [ "Illustration of a woman considering her financial independence options. The woman carries multiple bags and is surrounded by coins, which orbit her like electrons, but her gaze is fixed on the starry sky above her.", "https://www.investopedia.com/thmb/c_3H_Hgq0M7un8I-SrPyd30rFCw=/400x300/filters:no_upscale(" ], [ "great wealth transfer that will put more wealth in women’s hands", "https://www.investopedia.com/financial-advisor/women-and-great-wealth-transfer/" ] ]
https://www.investopedia.com/terms/b/bar-graph.asp	What Is a Bar Graph?	<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-bar-graph"></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 Bar Graph? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A bar graph is a graphical representation of information. It uses bars that extend to different heights to depict value. </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"> Bar graphs can be created with vertical bars, horizontal bars, grouped bars (multiple bars that compare values in a category), or stacked bars (bars containing multiple types of information). </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"> Bar graphs are commonly used in business and financial analysis to display often complicated data. They can convey information quickly and effectively. In the financial industry, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volume.asp">volume</a> chart is a commonly used vertical bar graph. </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>Bar graphs can display data in visual ways.</li><li>Bar graphs have an x-axis and a y-axis and can be used to compare one or more categories of data.</li><li>Data is presented via vertical or horizontal bars.</li><li>Bars can represent one or more labeled variables.</li><li>Bars can also be grouped together for comparative purposes.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-bar-graph"></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 a Bar Graph </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The purpose of a bar graph is to convey relational information quickly in a visual manner. The bars display the value for a particular category of data. </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 vertical axis on the left or right side of the bar graph is called the y-axis. The horizontal axis at the bottom of a bar graph is called the x-axis. </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 height or length of the bars represents the value of the data. The value corresponds to levels on the y-axis. </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 values on the x-axis can be any variable, such as time, <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eps.asp">earnings per share</a> (EPS), revenue, or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp">cash flow</a>. Bar graphs are often used to depict trading volume for a security. They appear in a panel below a security's price chart. </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:49.8%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/rDLTnbGq_19r_8IBmYhMChWEF2M=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Bar_Graph_Dec_2020-01-942b790538944ce597e92ba65caaabf8.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/rDLTnbGq_19r_8IBmYhMChWEF2M=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Bar_Graph_Dec_2020-01-942b790538944ce597e92ba65caaabf8.jpg" data-srcset="https://www.investopedia.com/thmb/6YKLSd2o4xIcKs91NZE2itKSPt0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Bar_Graph_Dec_2020-01-942b790538944ce597e92ba65caaabf8.jpg 750w" data-tracking-container="true" height="3084" id="mntl-sc-block-image_1-0" width="6192"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3084" sizes="750px" src="https://www.investopedia.com/thmb/rDLTnbGq_19r_8IBmYhMChWEF2M=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Bar_Graph_Dec_2020-01-942b790538944ce597e92ba65caaabf8.jpg" srcset="https://www.investopedia.com/thmb/6YKLSd2o4xIcKs91NZE2itKSPt0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Bar_Graph_Dec_2020-01-942b790538944ce597e92ba65caaabf8.jpg 750w" width="6192"/> </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-bar-graph-properties"></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"> Bar Graph Properties </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Certain aspects of a bar graph separate them from other types of graphs and charts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <li>The bars on a bar graph have equal width and interval spacing.</li><li>Bars can run vertically or horizontally.</li><li>Bars share the same starting point or base. In other words, all bars will start at the bottom of the graph and extend upward (vertically) or they'll start at the side of the graph and extend across (horizontally).</li><li>The y-axis of a bar graph is the side or vertical axis.</li><li>The x-axis of a bar graph is the bottom or horizontal axis.</li><li>Data value is defined on the y-axis; data type is defined on the x-axis.</li><li>Bar height or extension corresponds to the value of data.</li><li>The higher or longer a bar, the greater the value.</li><li>If colors are used, a bar graph may include a legend that defines them.<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-bar-graph-types"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> Bar Graph Types </span> </h2> <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"> Vertical Bar Graph </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> A vertical bar graph contains data that's displayed vertically using rectangular bars that represent a measure of data. The rectangular bars start and extend from the bottom x-axis. The y-axis allows users to measure the height of the bars against specific levels of value inscribed on it. Usually, the higher the bar, the greater the value. </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"> Horizontal Bar Graph </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> A horizontal bar graph contains data that's displayed horizontally using rectangular bars that represent a measure of data. The rectangular bars start and extend from the side y-axis, In this case, the x-axis allows users to measure the length of the bars against specific levels of value inscribed on it. Usually, the longer the bar, the greater the value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-subheading__text"> Grouped Bar Graph </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Grouped bar graphs, also called clustered bar graphs, represent discrete values for more than one item in the same category. The separate, rectangular bars are grouped together. Essentially, they break down the overall value (or items) for (or within) the category. A grouped bar graph could display more than one category, each with its separate rectangular bars. The information can be depicted vertically or horizontally. </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"> Stacked Bar Graph </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Stacked bar graphs, also known as composite bar graphs, divide a total into parts. These parts are typically identified using different colors within the same rectangular bar. So, a single rectangular bar that represents a total will display several parts and colors. The parts need to be labeled for identification. The information can be depicted vertically or horizontally. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-bar-graph-uses"></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"> Bar Graph Uses </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <li>A bar graph is used to present data visually</li><li>It can be used by industries to convey complicated information easily</li><li>It can compare different variables and values</li><li>It can reveal and facilitate the study of patterns over time</li><li>It can compare various sets of data</li><li>It can display categories and sub-categories</li><li>It can display results of surveys</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"> In <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalanalysis.asp">technical analysis</a>, a volume bar chart shows how much trading <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/technical/02/010702.asp">volume</a> there was on a particular day. The x-axis displays days, while a bar extending up from any day depicts the amount of volume, as measured by the y-axis. </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"> When a bar graph has a well-defined zero point and the data set has both positive and negative values in relation to this point, both ranges of values can be displayed. Bars above the zero line typically represent positive values, while bars below the zero line typically show negative values. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <span class="heading-toc" id="toc-example-of-a-bar-graph"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-heading__text"> Example of a Bar Graph </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Many traders employ a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/macd.asp">moving average convergence divergence</a> (MACD) histogram, which is a popular technical indicator that illustrates the difference between the MACD line and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/signal_line.asp">signal line</a>. </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 following daily price chart for Apple stock shows three types of bar graphs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <figure class="comp mntl-sc-block finance-sc-block-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_50-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:49.8%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/bDKDZS00DULcMOZL0oDVRy0_ooE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Bar_Graph_Dec_2020-02-baa78597b8df470996f42f5cab24281c.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/bDKDZS00DULcMOZL0oDVRy0_ooE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Bar_Graph_Dec_2020-02-baa78597b8df470996f42f5cab24281c.jpg" data-srcset="https://www.investopedia.com/thmb/inYSxAAvj-I9_LHJaVp_zE7-Wbk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Bar_Graph_Dec_2020-02-baa78597b8df470996f42f5cab24281c.jpg 750w" data-tracking-container="true" height="3085" id="mntl-sc-block-image_2-0" width="6192"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3085" sizes="750px" src="https://www.investopedia.com/thmb/bDKDZS00DULcMOZL0oDVRy0_ooE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Bar_Graph_Dec_2020-02-baa78597b8df470996f42f5cab24281c.jpg" srcset="https://www.investopedia.com/thmb/inYSxAAvj-I9_LHJaVp_zE7-Wbk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Bar_Graph_Dec_2020-02-baa78597b8df470996f42f5cab24281c.jpg 750w" width="6192"/> </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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Extending from the right is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pricebyvolume.asp">price by volume</a>, a type of horizontal bar graph which shows volume dispersion based on price. </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"> Along the bottom of the chart, volume is shown using a vertical bar graph. It displays bars representing the number of shares traded per day. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Finally, the MACD histogram at the very bottom shows the separation between the MACD and the signal line. When the histogram crosses the zero line it means the MACD and signal line have crossed, which some traders use as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trade-signal.asp">trade signal</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <span class="heading-toc" id="toc-bar-graph-vs-bar-chart"></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"> Bar Graph vs. Bar Chart </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> A bar graph shows data in columns, while a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/barchart.asp">bar chart</a> is a technical analysis tool that displays the open, high, low, and close prices for a particular <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp">security</a> during a specific time period (such as a day or week) using a vertical bar. Small horizontal lines extend to the left and right of the vertical bar to show the open and close prices. The top and bottom of each bar represent the high and low prices for the period. </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"> Unlike the bar graph, the price bar chart only covers relevant prices and does not extend all the way up from the x-axis. </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-bar-graph-vs-histogram"></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"> Bar Graph vs. Histogram </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> The most immediately noticeable difference between a bar graph and a histogram is that the bars in a bar graph typically don't touch each other (other than in a grouped bar graph). A histogram is a type of bar graph where the bars have no gaps between them. </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 histogram is used to depict the frequency distribution of variables in a data set. A bar graph depicts a comparison of discrete or categorical variables. Furthermore, a histogram displays distribution frequency as a two-dimensional figure: the height and width of rectangles have specific meanings. Both can vary. A bar graph is one-dimensional. The height of the rectangular bars represents something specific while the width is meaningless. </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-bar-graph-limitations"></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"> Bar Graph Limitations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> A bar graph is a way to display information. How the data is chosen to be displayed could affect its interpretation. For example, if too large of a scale is chosen, then the data may appear insignificant when in actuality, it's not. The scale doesn't allow for an appropriate comparison. </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"> In addition, bar graphs may make data look compelling when it actually lacks substance. For example, looking at only a few days worth of volume data in a stock doesn't provide much relevant information. Yet comparing recent volume to volume over the last year can provide a technical trader with useful information for trading decisions. </p> <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-what-are-some-benefits-of-a-bar-graph"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Some Benefits of a Bar Graph?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A bar graph can be of great use when you have to explain the meaning of complex data. It allows you to compare different sets of data among different groups easily. It instantly demonstrates this relationship using two axes, where the categories are on one axis and the various values are on the other. A bar graph can also illustrate important changes in data throughout a period of time.<br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_74-0"><span class="heading-toc" id="toc-why-are-bar-graphs-used"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Are Bar Graphs Used?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>They're used to present data, or a concept involving data, in a visual way. This can make it easier for people to quickly understand the meaning of the data. In addition, presenting data graphically rather than through text or the spoken word can be an efficient and faster way to communicate.</p></div> </div> <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-what-are-the-types-of-bar-graphs"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Types of Bar Graphs?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are horizontal and vertical bar graphs. There are also stacked and grouped bar graphs. While histograms are similar in appearance to bar graphs, they represent data in a different way.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_78-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> A bar graph can be a very useful business tool that helps deliver complicated data and concepts in a way that's easy to understand. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> The overall relationship of the data (and, thus, the main point that a company is making with its presentation) is illustrated using the y-axis (values) and the x-axis (categories). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> Traders use volume bar graphs every day. These can measure, for example, the number of trades executed over a certain time period (such as a day) for different securities. Or, they can indicate the volume of trades at particular prices for a security. </p></div>	## What Is a Bar Graph? A bar graph is a graphical representation of information. It uses bars that extend to different heights to depict value. Bar graphs can be created with vertical bars, horizontal bars, grouped bars (multiple bars that compare values in a category), or stacked bars (bars containing multiple types of information). Bar graphs are commonly used in business and financial analysis to display often complicated data. They can convey information quickly and effectively. In the financial industry, a [volume](https://www.investopedia.com/terms/v/volume.asp) chart is a commonly used vertical bar graph. ### Key Takeaways * Bar graphs can display data in visual ways. * Bar graphs have an x-axis and a y-axis and can be used to compare one or more categories of data. * Data is presented via vertical or horizontal bars. * Bars can represent one or more labeled variables. * Bars can also be grouped together for comparative purposes. ## Understanding a Bar Graph The purpose of a bar graph is to convey relational information quickly in a visual manner. The bars display the value for a particular category of data. The vertical axis on the left or right side of the bar graph is called the y-axis. The horizontal axis at the bottom of a bar graph is called the x-axis. The height or length of the bars represents the value of the data. The value corresponds to levels on the y-axis. The values on the x-axis can be any variable, such as time, [earnings per share](https://www.investopedia.com/terms/e/eps.asp) (EPS), revenue, or [cash flow](https://www.investopedia.com/terms/c/cashflow.asp). Bar graphs are often used to depict trading volume for a security. They appear in a panel below a security's price chart. ![Image]() ![Image](https://www.investopedia.com/thmb/rDLTnbGq_19r_8IBmYhMChWEF2M=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Bar_Graph_Dec_2020-01-942b790538944ce597e92ba65caaabf8.jpg) Image by Sabrina Jiang © Investopedia 2021 ## Bar Graph Properties Certain aspects of a bar graph separate them from other types of graphs and charts. * The bars on a bar graph have equal width and interval spacing. * Bars can run vertically or horizontally. * Bars share the same starting point or base. In other words, all bars will start at the bottom of the graph and extend upward (vertically) or they'll start at the side of the graph and extend across (horizontally). * The y-axis of a bar graph is the side or vertical axis. * The x-axis of a bar graph is the bottom or horizontal axis. * Data value is defined on the y-axis; data type is defined on the x-axis. * Bar height or extension corresponds to the value of data. * The higher or longer a bar, the greater the value. * If colors are used, a bar graph may include a legend that defines them. ## Bar Graph Types ### Vertical Bar Graph A vertical bar graph contains data that's displayed vertically using rectangular bars that represent a measure of data. The rectangular bars start and extend from the bottom x-axis. The y-axis allows users to measure the height of the bars against specific levels of value inscribed on it. Usually, the higher the bar, the greater the value. ### Horizontal Bar Graph A horizontal bar graph contains data that's displayed horizontally using rectangular bars that represent a measure of data. The rectangular bars start and extend from the side y-axis, In this case, the x-axis allows users to measure the length of the bars against specific levels of value inscribed on it. Usually, the longer the bar, the greater the value. ### Grouped Bar Graph Grouped bar graphs, also called clustered bar graphs, represent discrete values for more than one item in the same category. The separate, rectangular bars are grouped together. Essentially, they break down the overall value (or items) for (or within) the category. A grouped bar graph could display more than one category, each with its separate rectangular bars. The information can be depicted vertically or horizontally. ### Stacked Bar Graph Stacked bar graphs, also known as composite bar graphs, divide a total into parts. These parts are typically identified using different colors within the same rectangular bar. So, a single rectangular bar that represents a total will display several parts and colors. The parts need to be labeled for identification. The information can be depicted vertically or horizontally. ## Bar Graph Uses * A bar graph is used to present data visually * It can be used by industries to convey complicated information easily * It can compare different variables and values * It can reveal and facilitate the study of patterns over time * It can compare various sets of data * It can display categories and sub-categories * It can display results of surveys In [technical analysis](https://www.investopedia.com/terms/t/technicalanalysis.asp), a volume bar chart shows how much trading [volume](https://www.investopedia.com/articles/technical/02/010702.asp) there was on a particular day. The x-axis displays days, while a bar extending up from any day depicts the amount of volume, as measured by the y-axis. When a bar graph has a well-defined zero point and the data set has both positive and negative values in relation to this point, both ranges of values can be displayed. Bars above the zero line typically represent positive values, while bars below the zero line typically show negative values. ## Example of a Bar Graph Many traders employ a [moving average convergence divergence](https://www.investopedia.com/terms/m/macd.asp) (MACD) histogram, which is a popular technical indicator that illustrates the difference between the MACD line and the [signal line](https://www.investopedia.com/terms/s/signal_line.asp). The following daily price chart for Apple stock shows three types of bar graphs. ![Image]() ![Image](https://www.investopedia.com/thmb/bDKDZS00DULcMOZL0oDVRy0_ooE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Bar_Graph_Dec_2020-02-baa78597b8df470996f42f5cab24281c.jpg) Image by Sabrina Jiang © Investopedia 2021 Extending from the right is [price by volume](https://www.investopedia.com/terms/p/pricebyvolume.asp), a type of horizontal bar graph which shows volume dispersion based on price. Along the bottom of the chart, volume is shown using a vertical bar graph. It displays bars representing the number of shares traded per day. Finally, the MACD histogram at the very bottom shows the separation between the MACD and the signal line. When the histogram crosses the zero line it means the MACD and signal line have crossed, which some traders use as a [trade signal](https://www.investopedia.com/terms/t/trade-signal.asp). ## Bar Graph vs. Bar Chart A bar graph shows data in columns, while a [bar chart](https://www.investopedia.com/terms/b/barchart.asp) is a technical analysis tool that displays the open, high, low, and close prices for a particular [security](https://www.investopedia.com/terms/s/security.asp) during a specific time period (such as a day or week) using a vertical bar. Small horizontal lines extend to the left and right of the vertical bar to show the open and close prices. The top and bottom of each bar represent the high and low prices for the period. Unlike the bar graph, the price bar chart only covers relevant prices and does not extend all the way up from the x-axis. ## Bar Graph vs. Histogram The most immediately noticeable difference between a bar graph and a histogram is that the bars in a bar graph typically don't touch each other (other than in a grouped bar graph). A histogram is a type of bar graph where the bars have no gaps between them. A histogram is used to depict the frequency distribution of variables in a data set. A bar graph depicts a comparison of discrete or categorical variables. Furthermore, a histogram displays distribution frequency as a two-dimensional figure: the height and width of rectangles have specific meanings. Both can vary. A bar graph is one-dimensional. The height of the rectangular bars represents something specific while the width is meaningless. ## Bar Graph Limitations A bar graph is a way to display information. How the data is chosen to be displayed could affect its interpretation. For example, if too large of a scale is chosen, then the data may appear insignificant when in actuality, it's not. The scale doesn't allow for an appropriate comparison. In addition, bar graphs may make data look compelling when it actually lacks substance. For example, looking at only a few days worth of volume data in a stock doesn't provide much relevant information. Yet comparing recent volume to volume over the last year can provide a technical trader with useful information for trading decisions. ## What Are Some Benefits of a Bar Graph? A bar graph can be of great use when you have to explain the meaning of complex data. It allows you to compare different sets of data among different groups easily. It instantly demonstrates this relationship using two axes, where the categories are on one axis and the various values are on the other. A bar graph can also illustrate important changes in data throughout a period of time. ## Why Are Bar Graphs Used? They're used to present data, or a concept involving data, in a visual way. This can make it easier for people to quickly understand the meaning of the data. In addition, presenting data graphically rather than through text or the spoken word can be an efficient and faster way to communicate. ## What Are the Types of Bar Graphs? There are horizontal and vertical bar graphs. There are also stacked and grouped bar graphs. While histograms are similar in appearance to bar graphs, they represent data in a different way. ## The Bottom Line A bar graph can be a very useful business tool that helps deliver complicated data and concepts in a way that's easy to understand. The overall relationship of the data (and, thus, the main point that a company is making with its presentation) is illustrated using the y-axis (values) and the x-axis (categories). Traders use volume bar graphs every day. These can measure, for example, the number of trades executed over a certain time period (such as a day) for different securities. Or, they can indicate the volume of trades at particular prices for a security.	What Is a Bar Graph? A bar graph is a graphical representation of information. It uses bars that extend to different heights to depict value. Bar graphs can be created with vertical bars, horizontal bars, grouped bars (multiple bars that compare values in a category), or stacked bars (bars containing multiple types of information). Bar graphs are commonly used in business and financial analysis to display often complicated data. They can convey information quickly and effectively. In the financial industry, a volume chart is a commonly used vertical bar graph. Key Takeaways Bar graphs can display data in visual ways.Bar graphs have an x-axis and a y-axis and can be used to compare one or more categories of data.Data is presented via vertical or horizontal bars.Bars can represent one or more labeled variables.Bars can also be grouped together for comparative purposes. Understanding a Bar Graph The purpose of a bar graph is to convey relational information quickly in a visual manner. The bars display the value for a particular category of data. The vertical axis on the left or right side of the bar graph is called the y-axis. The horizontal axis at the bottom of a bar graph is called the x-axis. The height or length of the bars represents the value of the data. The value corresponds to levels on the y-axis. The values on the x-axis can be any variable, such as time, earnings per share (EPS), revenue, or cash flow. Bar graphs are often used to depict trading volume for a security. They appear in a panel below a security's price chart. Image by Sabrina Jiang © Investopedia 2021 Bar Graph Properties Certain aspects of a bar graph separate them from other types of graphs and charts. The bars on a bar graph have equal width and interval spacing.Bars can run vertically or horizontally.Bars share the same starting point or base. In other words, all bars will start at the bottom of the graph and extend upward (vertically) or they'll start at the side of the graph and extend across (horizontally).The y-axis of a bar graph is the side or vertical axis.The x-axis of a bar graph is the bottom or horizontal axis.Data value is defined on the y-axis; data type is defined on the x-axis.Bar height or extension corresponds to the value of data.The higher or longer a bar, the greater the value.If colors are used, a bar graph may include a legend that defines them. Bar Graph Types Vertical Bar Graph A vertical bar graph contains data that's displayed vertically using rectangular bars that represent a measure of data. The rectangular bars start and extend from the bottom x-axis. The y-axis allows users to measure the height of the bars against specific levels of value inscribed on it. Usually, the higher the bar, the greater the value. Horizontal Bar Graph A horizontal bar graph contains data that's displayed horizontally using rectangular bars that represent a measure of data. The rectangular bars start and extend from the side y-axis, In this case, the x-axis allows users to measure the length of the bars against specific levels of value inscribed on it. Usually, the longer the bar, the greater the value. Grouped Bar Graph Grouped bar graphs, also called clustered bar graphs, represent discrete values for more than one item in the same category. The separate, rectangular bars are grouped together. Essentially, they break down the overall value (or items) for (or within) the category. A grouped bar graph could display more than one category, each with its separate rectangular bars. The information can be depicted vertically or horizontally. Stacked Bar Graph Stacked bar graphs, also known as composite bar graphs, divide a total into parts. These parts are typically identified using different colors within the same rectangular bar. So, a single rectangular bar that represents a total will display several parts and colors. The parts need to be labeled for identification. The information can be depicted vertically or horizontally. Bar Graph Uses A bar graph is used to present data visuallyIt can be used by industries to convey complicated information easilyIt can compare different variables and valuesIt can reveal and facilitate the study of patterns over timeIt can compare various sets of dataIt can display categories and sub-categoriesIt can display results of surveys In technical analysis, a volume bar chart shows how much trading volume there was on a particular day. The x-axis displays days, while a bar extending up from any day depicts the amount of volume, as measured by the y-axis. When a bar graph has a well-defined zero point and the data set has both positive and negative values in relation to this point, both ranges of values can be displayed. Bars above the zero line typically represent positive values, while bars below the zero line typically show negative values. Example of a Bar Graph Many traders employ a moving average convergence divergence (MACD) histogram, which is a popular technical indicator that illustrates the difference between the MACD line and the signal line. The following daily price chart for Apple stock shows three types of bar graphs. Image by Sabrina Jiang © Investopedia 2021 Extending from the right is price by volume, a type of horizontal bar graph which shows volume dispersion based on price. Along the bottom of the chart, volume is shown using a vertical bar graph. It displays bars representing the number of shares traded per day. Finally, the MACD histogram at the very bottom shows the separation between the MACD and the signal line. When the histogram crosses the zero line it means the MACD and signal line have crossed, which some traders use as a trade signal. Bar Graph vs. Bar Chart A bar graph shows data in columns, while a bar chart is a technical analysis tool that displays the open, high, low, and close prices for a particular security during a specific time period (such as a day or week) using a vertical bar. Small horizontal lines extend to the left and right of the vertical bar to show the open and close prices. The top and bottom of each bar represent the high and low prices for the period. Unlike the bar graph, the price bar chart only covers relevant prices and does not extend all the way up from the x-axis. Bar Graph vs. Histogram The most immediately noticeable difference between a bar graph and a histogram is that the bars in a bar graph typically don't touch each other (other than in a grouped bar graph). A histogram is a type of bar graph where the bars have no gaps between them. A histogram is used to depict the frequency distribution of variables in a data set. A bar graph depicts a comparison of discrete or categorical variables. Furthermore, a histogram displays distribution frequency as a two-dimensional figure: the height and width of rectangles have specific meanings. Both can vary. A bar graph is one-dimensional. The height of the rectangular bars represents something specific while the width is meaningless. Bar Graph Limitations A bar graph is a way to display information. How the data is chosen to be displayed could affect its interpretation. For example, if too large of a scale is chosen, then the data may appear insignificant when in actuality, it's not. The scale doesn't allow for an appropriate comparison. In addition, bar graphs may make data look compelling when it actually lacks substance. For example, looking at only a few days worth of volume data in a stock doesn't provide much relevant information. Yet comparing recent volume to volume over the last year can provide a technical trader with useful information for trading decisions. What Are Some Benefits of a Bar Graph? A bar graph can be of great use when you have to explain the meaning of complex data. It allows you to compare different sets of data among different groups easily. It instantly demonstrates this relationship using two axes, where the categories are on one axis and the various values are on the other. A bar graph can also illustrate important changes in data throughout a period of time. Why Are Bar Graphs Used? They're used to present data, or a concept involving data, in a visual way. This can make it easier for people to quickly understand the meaning of the data. In addition, presenting data graphically rather than through text or the spoken word can be an efficient and faster way to communicate. What Are the Types of Bar Graphs? There are horizontal and vertical bar graphs. There are also stacked and grouped bar graphs. While histograms are similar in appearance to bar graphs, they represent data in a different way. The Bottom Line A bar graph can be a very useful business tool that helps deliver complicated data and concepts in a way that's easy to understand. The overall relationship of the data (and, thus, the main point that a company is making with its presentation) is illustrated using the y-axis (values) and the x-axis (categories). Traders use volume bar graphs every day. These can measure, for example, the number of trades executed over a certain time period (such as a day) for different securities. Or, they can indicate the volume of trades at particular prices for a security.	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https://www.investopedia.com/why-you-might-want-to-wait-until-march-to-file-your-taxes-this-year-8550257	Why You Might Want To Wait Until March To File Your Taxes This Year	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><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>For the first time, taxpayers will be able to file their federal income taxes directly with the IRS, starting in March.<br/></li><li>The pilot Direct File pilot program will be available in 12 states, and will only work for relatively simple tax situations this year.<br/></li><li>Free online tax preparation is also available through private companies via the IRS Free File program, but the IRS admits the program is confusing and little used.<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"> Procrastination might save you some money this tax season, at least if you live in New York, California, or one of 10 other states.<br/><br/>The IRS is rolling out a new, free way to file taxes online but it won’t be widely available until March—and even then, the pilot program is only being debuted in participating states.<span class="ql-inline-citation" data-cite="1"></span> If you do live in one of them though, filing your federal taxes could cost you nothing, compared to a bill of up to $169 from online tax preparers like TurboTax and H&R Block.<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_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_5-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/h66tW/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Where You Can File Your Taxes Online For Free This Year"></iframe></div> <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 IRS has already begun testing the program but has yet to offer it to members of the general public, IRS officials said. It’s a historic occasion: until now, taxpayers had to use a third-party service if they wanted to file their taxes online, often for a fee.<br/><br/>You can use the direct file program if you have relatively common income sources and tax credits to claim. You’re out of luck though, if you have to itemize your deductions, earn money from a freelance or gig job, or claim relatively uncommon credits including the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/childanddependentcarecredit.asp">Child and Dependent Care Credit</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/saverstaxcredit.asp">Saver's Credit</a> or the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/premium-tax-credit-2021-definition-5115090">Premium Tax Credit</a>.<br/><br/>You’ll still have to find another way to file your state tax returns in Arizona, California, Massachusetts and New York. The site will direct you to a state-run service where you can also file your state tax returns for free.<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 IRS will use data and feedback it gathers during the limited Direct File rollout this tax season to decide whether to continue to develop it, potentially covering taxpayers in more situations, IRS officials said.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-free-tax-prep-has-been-clouded-in-confusion"></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"> ‘Free’ Tax Prep Has Been Clouded In Confusion </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Although free online tax filing is already available through private companies via the IRS’s “free file” program, the program is little known and not well used: only 3% of taxpayers used it in 2020, despite 71% being eligible for it, the Government Accountability Office found in a 2022 report<span class="ql-inline-citation" data-cite="3"></span>. To use the free file program, taxpayers must visit the IRS website and select an option from a private company, subject to various income requirements and qualifications.<span class="ql-inline-citation" data-cite="4"></span><br/><br/>To make tax time even more baffling, various private companies, including TurboTax, offer their own free federal tax prep service. This week, the Federal Trade Commission ordered the company to change the way it advertises the service, however, since most people who try to use it will end up having to pay. As of Thursday, TurboTax’s “free edition” website had a prominent notice saying that about 37% of tax filers qualify to use it.<span class="ql-inline-citation" data-cite="5"></span><br/><br/>Many people lured by the promise of “free” tax filing begin to file their taxes using the website, only to find out midway through the process that they don’t qualify and will have to pay, the FTC said in a complaint in 2022.<span class="ql-inline-citation" data-cite="6"></span><br/><br/>Intuit (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=INTU">INTU</a>), the maker of Turbotax, said it would challenge the FTC’s decision in court.<span class="ql-inline-citation" data-cite="7"></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:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	### Key Takeaways * For the first time, taxpayers will be able to file their federal income taxes directly with the IRS, starting in March. * The pilot Direct File pilot program will be available in 12 states, and will only work for relatively simple tax situations this year. * Free online tax preparation is also available through private companies via the IRS Free File program, but the IRS admits the program is confusing and little used. Procrastination might save you some money this tax season, at least if you live in New York, California, or one of 10 other states. The IRS is rolling out a new, free way to file taxes online but it won’t be widely available until March—and even then, the pilot program is only being debuted in participating states. If you do live in one of them though, filing your federal taxes could cost you nothing, compared to a bill of up to $169 from online tax preparers like TurboTax and H&R Block. The IRS has already begun testing the program but has yet to offer it to members of the general public, IRS officials said. It’s a historic occasion: until now, taxpayers had to use a third-party service if they wanted to file their taxes online, often for a fee. You can use the direct file program if you have relatively common income sources and tax credits to claim. You’re out of luck though, if you have to itemize your deductions, earn money from a freelance or gig job, or claim relatively uncommon credits including the [Child and Dependent Care Credit](https://www.investopedia.com/terms/c/childanddependentcarecredit.asp), [Saver's Credit](https://www.investopedia.com/terms/s/saverstaxcredit.asp) or the [Premium Tax Credit](https://www.investopedia.com/premium-tax-credit-2021-definition-5115090). You’ll still have to find another way to file your state tax returns in Arizona, California, Massachusetts and New York. The site will direct you to a state-run service where you can also file your state tax returns for free. The IRS will use data and feedback it gathers during the limited Direct File rollout this tax season to decide whether to continue to develop it, potentially covering taxpayers in more situations, IRS officials said. ## ‘Free’ Tax Prep Has Been Clouded In Confusion Although free online tax filing is already available through private companies via the IRS’s “free file” program, the program is little known and not well used: only 3% of taxpayers used it in 2020, despite 71% being eligible for it, the Government Accountability Office found in a 2022 report. To use the free file program, taxpayers must visit the IRS website and select an option from a private company, subject to various income requirements and qualifications. To make tax time even more baffling, various private companies, including TurboTax, offer their own free federal tax prep service. This week, the Federal Trade Commission ordered the company to change the way it advertises the service, however, since most people who try to use it will end up having to pay. As of Thursday, TurboTax’s “free edition” website had a prominent notice saying that about 37% of tax filers qualify to use it. Many people lured by the promise of “free” tax filing begin to file their taxes using the website, only to find out midway through the process that they don’t qualify and will have to pay, the FTC said in a complaint in 2022. Intuit ([INTU](https://www.investopedia.com/markets/quote?tvwidgetsymbol=INTU)), the maker of Turbotax, said it would challenge the FTC’s decision in court. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	Key Takeaways For the first time, taxpayers will be able to file their federal income taxes directly with the IRS, starting in March.The pilot Direct File pilot program will be available in 12 states, and will only work for relatively simple tax situations this year.Free online tax preparation is also available through private companies via the IRS Free File program, but the IRS admits the program is confusing and little used. Procrastination might save you some money this tax season, at least if you live in New York, California, or one of 10 other states.The IRS is rolling out a new, free way to file taxes online but it won’t be widely available until March—and even then, the pilot program is only being debuted in participating states. If you do live in one of them though, filing your federal taxes could cost you nothing, compared to a bill of up to $169 from online tax preparers like TurboTax and H&R Block. The IRS has already begun testing the program but has yet to offer it to members of the general public, IRS officials said. It’s a historic occasion: until now, taxpayers had to use a third-party service if they wanted to file their taxes online, often for a fee.You can use the direct file program if you have relatively common income sources and tax credits to claim. You’re out of luck though, if you have to itemize your deductions, earn money from a freelance or gig job, or claim relatively uncommon credits including the Child and Dependent Care Credit, Saver's Credit or the Premium Tax Credit.You’ll still have to find another way to file your state tax returns in Arizona, California, Massachusetts and New York. The site will direct you to a state-run service where you can also file your state tax returns for free. The IRS will use data and feedback it gathers during the limited Direct File rollout this tax season to decide whether to continue to develop it, potentially covering taxpayers in more situations, IRS officials said. ‘Free’ Tax Prep Has Been Clouded In Confusion Although free online tax filing is already available through private companies via the IRS’s “free file” program, the program is little known and not well used: only 3% of taxpayers used it in 2020, despite 71% being eligible for it, the Government Accountability Office found in a 2022 report. To use the free file program, taxpayers must visit the IRS website and select an option from a private company, subject to various income requirements and qualifications.To make tax time even more baffling, various private companies, including TurboTax, offer their own free federal tax prep service. This week, the Federal Trade Commission ordered the company to change the way it advertises the service, however, since most people who try to use it will end up having to pay. As of Thursday, TurboTax’s “free edition” website had a prominent notice saying that about 37% of tax filers qualify to use it.Many people lured by the promise of “free” tax filing begin to file their taxes using the website, only to find out midway through the process that they don’t qualify and will have to pay, the FTC said in a complaint in 2022.Intuit (INTU), the maker of Turbotax, said it would challenge the FTC’s decision in court. Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "Child and Dependent Care Credit", "https://www.investopedia.com/terms/c/childanddependentcarecredit.asp" ], [ "Saver's Credit", "https://www.investopedia.com/terms/s/saverstaxcredit.asp" ], [ "Premium Tax Credit", "https://www.investopedia.com/premium-tax-credit-2021-definition-5115090" ], [ "INTU", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=INTU" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/articles/markets/020316/analyzing-porters-five-forces-under-armour-ua.asp	Porter's 5 Forces on Under Armour	<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/p/porter.asp">Porter's Five Forces Model</a> is a helpful tool prospective investors use to help analyze the industry in which a certain company operates. The model, developed by Harvard Business School professor, Michael E. Porter in 1979, is used to analyze and identify five competitive forces that shape every industry while determining its strengths and weaknesses.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> The model analyzes and identifies the competition in the industry, the potential of new entrants to the industry, the power of suppliers, the power of customers, and the threat of substitute products. It allows investors a chance to learn about an industry's competitive dynamics to better identify an investment opportunity in a particular stock by looking at factors outside the company's financial metrics such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-earningsratio.asp" rel="noopener noreferrer">price-to-earnings</a> (P/E) ratios. This article analyses athletic apparel manufacturer and retailer Under Armour using Porter's Five Forces. </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>Under Armour's main competitors are Nike and Adidas, both of which have historically earned much higher revenue than UA.</li><li>Although the barriers to entry in the sports apparel industry are very high, UA successfully found its place in the market by marketing primarily to American football.</li><li>UA's innovation in the materials it uses helps it avoid the disadvantage of buying the same materials at a lower volume and higher cost than its competitors.</li><li>The company has been able to establish its brand through endorsement deals and stave off the threat of substitute products. </li></ul></div></div></div> <span class="heading-toc" id="toc-under-armour-an-overview"></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"> Under Armour: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Under Armour (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ua">UA</a>) manufactures and markets clothing, sporting goods, and accessories. The company operates in the sports apparel industry—a highly competitive industry characterized by rapid growth and strong consumer demand. According to Linchpinseo, the global sports apparel market is forecasted to reach $580 billion by 2025.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Headquartered in Baltimore, Maryland, the company was founded in 1996 by Kevin Plank, who serves as executive chair. Plank began the business from his grandmother's basement. The company went public in November 2005 when it began trading on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp">Nasdaq</a> under the<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stocksymbol.asp"> ticker symbol</a> UARM.<span class="ql-inline-citation" data-cite="9"></span> Under Armour jumped to the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nyse.asp">New York Stock Exchange</a> (NYSE) in December 2006.<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_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 reported $4.5 billion in net revenues for fiscal year 2020 versus $5.3 billion in fiscal year 2019. Net income was ($549) million in 2020 versus $92 million in 2019.<span class="ql-inline-citation" data-cite="12"></span> As of Dec. 4, 2021, the company's market capitalization was $10.3 billion.<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_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_14-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>UA is a relatively young company and faces the challenge of competing against longstanding industry giants such as Nike and Adidas.</p></div></div></div> <span class="heading-toc" id="toc-under-armour-in-the-market"></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"> Under Armour in the Market </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Under Armour must rely on superior product innovation and unique marketing techniques to compete. Its product development and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketing.asp">marketing</a> techniques prove UA has been on the front line of changing competitive dynamics in its industry. </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"> UA's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/strategic-management.asp">strategic management</a> decisions prove its desire to be the industry leader in product and marketing innovation. For example, the company has spent substantial money on acquisitions—notably, mobile technology companies such as MapMyFitness, EndoMondo, and MyFitnessPal—to engage with athletes and create deeper brand affiliations more effectively. At the time of the acquisitions, Under Armour became the world's largest digital health and fitness community.<span class="ql-inline-citation" data-cite="3"></span> Its ability to innovate and provide increased <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/perceived-value.asp">perceived value</a> to its customers is necessary for future success due to the intense competition it faces. </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"> While there's no dearth of athletic apparel companies that compete with UA in certain <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market.asp">market</a> niches, only a few companies have the sheer size and established <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/distribution-channel.asp">distribution channels</a> to compete across all the product lines offered by UA. The largest of these competitors are <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/012616/adidas-vs-nike-vs-under-armour-which-2016-nkeua.asp">Nike and Adidas</a>. Both are older companies with higher total annual sales than UA. </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"> Revenue for Nike came in at $44.5 billion for the 2021 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiscalyear.asp">fiscal year</a>.<span class="ql-inline-citation" data-cite="4"></span> Adidas reported revenue of $12.2 billion (10.3 billion in euro) for six months ending June 30, 2021.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="13"></span> The <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketcapitalization.asp">market caps</a> for both as of Dec. 4, 2021, were $269.5 billion and $55.3 billion, respectively. While the disparities are enormous, UA has seen a significant degree of growth. Although it may not be as diverse in terms of products or when it comes to international market penetration, UA has been successful in nearly every industry subsection it entered. </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-potential-of-new-entrants"></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"> Potential of New Entrants </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The barriers to entry for a diversified athletic apparel company are generally very high. It takes a significant amount of financial and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/humancapital.asp">human capital</a> to develop products, manufacture them with quality and affordability, and push products into the appropriate distribution channels. </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"> It is highly possible for new companies to enter smaller niches of the industry. For example, a new entrant may find success in marketing an innovative product to one particular sport, such as golf or tennis. UA did just that by marketing primarily to American football, creating a better base-layer shirt than what was available on the market at the time. It's more likely for certain segments of the industry to be susceptible to new competitors than the entire industry, at least in the near term. </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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Achieving the size and market share of a company such as Nike takes years or even decades.</p></div></div></div> <span class="heading-toc" id="toc-competition-in-the-industry"></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"> Competition in the Industry </span> </h2> <span class="heading-toc" id="toc-power-of-suppliers"></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"> Power of Suppliers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Suppliers in the athletic apparel industry often sell materials to competing companies. Larger buyers obtain cheaper prices from these suppliers by ordering larger quantities than smaller companies. For example, Nike may be able to buy exponentially more cotton for T-shirts than UA and negotiate a substantially lower price. This may partially explain why UA, in general, tends to have higher-priced products than Nike. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> But UA has been extremely innovative in the materials it uses by creating various proprietary fabric blends it sources from third parties, creating <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/product_differentiation.asp" rel="noopener noreferrer">product differentiation</a> from the competition. This also helps the company avoid the disadvantage of buying the same materials at a lower volume and higher cost than competitors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-power-of-customers"></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"> Power of Customers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Customers certainly have a wide range of choices when it comes to buying clothing and accessories for their favorite sports. Thanks to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/buy-sell-online.asp">online shopping</a>, customers can quickly and easily shop for the lowest price for a similar product. With that in mind, it becomes critical for a company such as UA to create products for which customers are willing to pay a premium over mainstream, price-competitive goods. </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"> Research shows customers also buy based on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brand-recognition.asp">brand recognition</a> and association. This is why companies like Nike have famously paid huge amounts of money to sponsor athletes—customers perceive value based on associations. With this in mind, UA started spending huge dollars to sign some of the best athletes in the world to represent its brand. The company managed to snag NBA champion and MVP, Stephen Curry, in 2013 and quarterback Tom Brady in 2010.<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_42-0"></div> <span class="heading-toc" id="toc-the-threat-of-substitute-products"></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 Threat of Substitute Products </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Clothing is a staple item that is always in demand. As worldwide interest in sports continues to rise, the demand for athletic clothing and accessories is expected to grow. For each product, there is always the threat of a more innovative version entering as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/substitute.asp" rel="noopener noreferrer">substitute</a>. However, in UA's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/industry.asp" rel="noopener noreferrer">industry</a>, it is difficult for a company to create many such substitute products across various sports successfully. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> For example, UA's flagship stretchy base-layer shirt has mostly replaced the standard cotton T-shirts previously worn by athletes. UA was able to use that early success and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brand-recognition.asp" rel="noopener noreferrer">brand recognition</a> to create other products, but it took time and investment to expand. </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"> Style and fashion trends also play a significant role in the industry. While pure function might be the only factor a professional athlete considers, the everyday consumer cares much more about appearance and styling. This is a much more subjective area and may be more susceptible to other brands becoming popular. </p></div>	[Porter's Five Forces Model](https://www.investopedia.com/terms/p/porter.asp) is a helpful tool prospective investors use to help analyze the industry in which a certain company operates. The model, developed by Harvard Business School professor, Michael E. Porter in 1979, is used to analyze and identify five competitive forces that shape every industry while determining its strengths and weaknesses. The model analyzes and identifies the competition in the industry, the potential of new entrants to the industry, the power of suppliers, the power of customers, and the threat of substitute products. It allows investors a chance to learn about an industry's competitive dynamics to better identify an investment opportunity in a particular stock by looking at factors outside the company's financial metrics such as [price-to-earnings](https://www.investopedia.com/terms/p/price-earningsratio.asp) (P/E) ratios. This article analyses athletic apparel manufacturer and retailer Under Armour using Porter's Five Forces. ### Key Takeaways * Under Armour's main competitors are Nike and Adidas, both of which have historically earned much higher revenue than UA. * Although the barriers to entry in the sports apparel industry are very high, UA successfully found its place in the market by marketing primarily to American football. * UA's innovation in the materials it uses helps it avoid the disadvantage of buying the same materials at a lower volume and higher cost than its competitors. * The company has been able to establish its brand through endorsement deals and stave off the threat of substitute products. ## Under Armour: An Overview Under Armour ([UA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ua)) manufactures and markets clothing, sporting goods, and accessories. The company operates in the sports apparel industry—a highly competitive industry characterized by rapid growth and strong consumer demand. According to Linchpinseo, the global sports apparel market is forecasted to reach $580 billion by 2025. Headquartered in Baltimore, Maryland, the company was founded in 1996 by Kevin Plank, who serves as executive chair. Plank began the business from his grandmother's basement. The company went public in November 2005 when it began trading on the [Nasdaq](https://www.investopedia.com/terms/n/nasdaq.asp) under the [ticker symbol](https://www.investopedia.com/terms/s/stocksymbol.asp) UARM. Under Armour jumped to the [New York Stock Exchange](https://www.investopedia.com/terms/n/nyse.asp) (NYSE) in December 2006. The company reported $4.5 billion in net revenues for fiscal year 2020 versus $5.3 billion in fiscal year 2019. Net income was ($549) million in 2020 versus $92 million in 2019. As of Dec. 4, 2021, the company's market capitalization was $10.3 billion. ### UA is a relatively young company and faces the challenge of competing against longstanding industry giants such as Nike and Adidas. ## Under Armour in the Market Under Armour must rely on superior product innovation and unique marketing techniques to compete. Its product development and [marketing](https://www.investopedia.com/terms/m/marketing.asp) techniques prove UA has been on the front line of changing competitive dynamics in its industry. UA's [strategic management](https://www.investopedia.com/terms/s/strategic-management.asp) decisions prove its desire to be the industry leader in product and marketing innovation. For example, the company has spent substantial money on acquisitions—notably, mobile technology companies such as MapMyFitness, EndoMondo, and MyFitnessPal—to engage with athletes and create deeper brand affiliations more effectively. At the time of the acquisitions, Under Armour became the world's largest digital health and fitness community. Its ability to innovate and provide increased [perceived value](https://www.investopedia.com/terms/p/perceived-value.asp) to its customers is necessary for future success due to the intense competition it faces. While there's no dearth of athletic apparel companies that compete with UA in certain [market](https://www.investopedia.com/terms/m/market.asp) niches, only a few companies have the sheer size and established [distribution channels](https://www.investopedia.com/terms/d/distribution-channel.asp) to compete across all the product lines offered by UA. The largest of these competitors are [Nike and Adidas](https://www.investopedia.com/articles/markets/012616/adidas-vs-nike-vs-under-armour-which-2016-nkeua.asp). Both are older companies with higher total annual sales than UA. Revenue for Nike came in at $44.5 billion for the 2021 [fiscal year](https://www.investopedia.com/terms/f/fiscalyear.asp). Adidas reported revenue of $12.2 billion (10.3 billion in euro) for six months ending June 30, 2021. The [market caps](https://www.investopedia.com/terms/m/marketcapitalization.asp) for both as of Dec. 4, 2021, were $269.5 billion and $55.3 billion, respectively. While the disparities are enormous, UA has seen a significant degree of growth. Although it may not be as diverse in terms of products or when it comes to international market penetration, UA has been successful in nearly every industry subsection it entered. ## Potential of New Entrants The barriers to entry for a diversified athletic apparel company are generally very high. It takes a significant amount of financial and [human capital](https://www.investopedia.com/terms/h/humancapital.asp) to develop products, manufacture them with quality and affordability, and push products into the appropriate distribution channels. It is highly possible for new companies to enter smaller niches of the industry. For example, a new entrant may find success in marketing an innovative product to one particular sport, such as golf or tennis. UA did just that by marketing primarily to American football, creating a better base-layer shirt than what was available on the market at the time. It's more likely for certain segments of the industry to be susceptible to new competitors than the entire industry, at least in the near term. ### Achieving the size and market share of a company such as Nike takes years or even decades. ## Competition in the Industry ## Power of Suppliers Suppliers in the athletic apparel industry often sell materials to competing companies. Larger buyers obtain cheaper prices from these suppliers by ordering larger quantities than smaller companies. For example, Nike may be able to buy exponentially more cotton for T-shirts than UA and negotiate a substantially lower price. This may partially explain why UA, in general, tends to have higher-priced products than Nike. But UA has been extremely innovative in the materials it uses by creating various proprietary fabric blends it sources from third parties, creating [product differentiation](https://www.investopedia.com/terms/p/product_differentiation.asp) from the competition. This also helps the company avoid the disadvantage of buying the same materials at a lower volume and higher cost than competitors. ## Power of Customers Customers certainly have a wide range of choices when it comes to buying clothing and accessories for their favorite sports. Thanks to [online shopping](https://www.investopedia.com/articles/pf/08/buy-sell-online.asp), customers can quickly and easily shop for the lowest price for a similar product. With that in mind, it becomes critical for a company such as UA to create products for which customers are willing to pay a premium over mainstream, price-competitive goods. Research shows customers also buy based on [brand recognition](https://www.investopedia.com/terms/b/brand-recognition.asp) and association. This is why companies like Nike have famously paid huge amounts of money to sponsor athletes—customers perceive value based on associations. With this in mind, UA started spending huge dollars to sign some of the best athletes in the world to represent its brand. The company managed to snag NBA champion and MVP, Stephen Curry, in 2013 and quarterback Tom Brady in 2010. ## The Threat of Substitute Products Clothing is a staple item that is always in demand. As worldwide interest in sports continues to rise, the demand for athletic clothing and accessories is expected to grow. For each product, there is always the threat of a more innovative version entering as a [substitute](https://www.investopedia.com/terms/s/substitute.asp). However, in UA's [industry](https://www.investopedia.com/terms/i/industry.asp), it is difficult for a company to create many such substitute products across various sports successfully. For example, UA's flagship stretchy base-layer shirt has mostly replaced the standard cotton T-shirts previously worn by athletes. UA was able to use that early success and [brand recognition](https://www.investopedia.com/terms/b/brand-recognition.asp) to create other products, but it took time and investment to expand. Style and fashion trends also play a significant role in the industry. While pure function might be the only factor a professional athlete considers, the everyday consumer cares much more about appearance and styling. This is a much more subjective area and may be more susceptible to other brands becoming popular.	Porter's Five Forces Model is a helpful tool prospective investors use to help analyze the industry in which a certain company operates. The model, developed by Harvard Business School professor, Michael E. Porter in 1979, is used to analyze and identify five competitive forces that shape every industry while determining its strengths and weaknesses. The model analyzes and identifies the competition in the industry, the potential of new entrants to the industry, the power of suppliers, the power of customers, and the threat of substitute products. It allows investors a chance to learn about an industry's competitive dynamics to better identify an investment opportunity in a particular stock by looking at factors outside the company's financial metrics such as price-to-earnings (P/E) ratios. This article analyses athletic apparel manufacturer and retailer Under Armour using Porter's Five Forces. Key Takeaways Under Armour's main competitors are Nike and Adidas, both of which have historically earned much higher revenue than UA.Although the barriers to entry in the sports apparel industry are very high, UA successfully found its place in the market by marketing primarily to American football.UA's innovation in the materials it uses helps it avoid the disadvantage of buying the same materials at a lower volume and higher cost than its competitors.The company has been able to establish its brand through endorsement deals and stave off the threat of substitute products. Under Armour: An Overview Under Armour (UA) manufactures and markets clothing, sporting goods, and accessories. The company operates in the sports apparel industry—a highly competitive industry characterized by rapid growth and strong consumer demand. According to Linchpinseo, the global sports apparel market is forecasted to reach $580 billion by 2025. Headquartered in Baltimore, Maryland, the company was founded in 1996 by Kevin Plank, who serves as executive chair. Plank began the business from his grandmother's basement. The company went public in November 2005 when it began trading on the Nasdaq under the ticker symbol UARM. Under Armour jumped to the New York Stock Exchange (NYSE) in December 2006. The company reported $4.5 billion in net revenues for fiscal year 2020 versus $5.3 billion in fiscal year 2019. Net income was ($549) million in 2020 versus $92 million in 2019. As of Dec. 4, 2021, the company's market capitalization was $10.3 billion. UA is a relatively young company and faces the challenge of competing against longstanding industry giants such as Nike and Adidas. Under Armour in the Market Under Armour must rely on superior product innovation and unique marketing techniques to compete. Its product development and marketing techniques prove UA has been on the front line of changing competitive dynamics in its industry. UA's strategic management decisions prove its desire to be the industry leader in product and marketing innovation. For example, the company has spent substantial money on acquisitions—notably, mobile technology companies such as MapMyFitness, EndoMondo, and MyFitnessPal—to engage with athletes and create deeper brand affiliations more effectively. At the time of the acquisitions, Under Armour became the world's largest digital health and fitness community. Its ability to innovate and provide increased perceived value to its customers is necessary for future success due to the intense competition it faces. While there's no dearth of athletic apparel companies that compete with UA in certain market niches, only a few companies have the sheer size and established distribution channels to compete across all the product lines offered by UA. The largest of these competitors are Nike and Adidas. Both are older companies with higher total annual sales than UA. Revenue for Nike came in at $44.5 billion for the 2021 fiscal year. Adidas reported revenue of $12.2 billion (10.3 billion in euro) for six months ending June 30, 2021. The market caps for both as of Dec. 4, 2021, were $269.5 billion and $55.3 billion, respectively. While the disparities are enormous, UA has seen a significant degree of growth. Although it may not be as diverse in terms of products or when it comes to international market penetration, UA has been successful in nearly every industry subsection it entered. Potential of New Entrants The barriers to entry for a diversified athletic apparel company are generally very high. It takes a significant amount of financial and human capital to develop products, manufacture them with quality and affordability, and push products into the appropriate distribution channels. It is highly possible for new companies to enter smaller niches of the industry. For example, a new entrant may find success in marketing an innovative product to one particular sport, such as golf or tennis. UA did just that by marketing primarily to American football, creating a better base-layer shirt than what was available on the market at the time. It's more likely for certain segments of the industry to be susceptible to new competitors than the entire industry, at least in the near term. Achieving the size and market share of a company such as Nike takes years or even decades. Competition in the Industry Power of Suppliers Suppliers in the athletic apparel industry often sell materials to competing companies. Larger buyers obtain cheaper prices from these suppliers by ordering larger quantities than smaller companies. For example, Nike may be able to buy exponentially more cotton for T-shirts than UA and negotiate a substantially lower price. This may partially explain why UA, in general, tends to have higher-priced products than Nike. But UA has been extremely innovative in the materials it uses by creating various proprietary fabric blends it sources from third parties, creating product differentiation from the competition. This also helps the company avoid the disadvantage of buying the same materials at a lower volume and higher cost than competitors. Power of Customers Customers certainly have a wide range of choices when it comes to buying clothing and accessories for their favorite sports. Thanks to online shopping, customers can quickly and easily shop for the lowest price for a similar product. With that in mind, it becomes critical for a company such as UA to create products for which customers are willing to pay a premium over mainstream, price-competitive goods. Research shows customers also buy based on brand recognition and association. This is why companies like Nike have famously paid huge amounts of money to sponsor athletes—customers perceive value based on associations. With this in mind, UA started spending huge dollars to sign some of the best athletes in the world to represent its brand. The company managed to snag NBA champion and MVP, Stephen Curry, in 2013 and quarterback Tom Brady in 2010. The Threat of Substitute Products Clothing is a staple item that is always in demand. As worldwide interest in sports continues to rise, the demand for athletic clothing and accessories is expected to grow. For each product, there is always the threat of a more innovative version entering as a substitute. However, in UA's industry, it is difficult for a company to create many such substitute products across various sports successfully. For example, UA's flagship stretchy base-layer shirt has mostly replaced the standard cotton T-shirts previously worn by athletes. UA was able to use that early success and brand recognition to create other products, but it took time and investment to expand. Style and fashion trends also play a significant role in the industry. While pure function might be the only factor a professional athlete considers, the everyday consumer cares much more about appearance and styling. This is a much more subjective area and may be more susceptible to other brands becoming popular.	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https://www.investopedia.com/articles/fundamental-analysis/10/qualitative-analysis-intangibles-affect-stock-price.asp	Qualitative Analysis: What Makes A Company Great?	<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"> Evaluating stocks involves two types of analysis: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundamentalanalysis.asp">fundamental</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalanalysis.asp">technical</a>, but there is also <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/qualitativeanalysis.asp">qualitative analysis</a>, a subjective area that is sometimes referred to as <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/softmetrics.asp">soft metrics</a>. This refers to aspects of a public company that aren't quantifiable or easily explained by numbers. </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 general, it's an underappreciated and underutilized side of fundamental analysis. </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"> <strong>TUTORIAL: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valueinvesting.asp">Stock-Picking Strategies</a></strong> </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-the-usual-suspects"></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"> The Usual Suspects </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> When conducting qualitative analysis of a company, most investment professionals look at the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/businessmodel.asp">business model</a>, competitive advantage in the industry, management and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporategovernance.asp">corporate governance</a>. This helps to determine how a company makes money, its uniqueness versus the competition, which people are making the decisions and how they treat ordinary shareholders. Gathering all of this data can provide a better idea of how a company intends to grow its business while rewarding shareholders. </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"> However, it isn't the entire picture. Touchy-feely subjects like satisfying the customer, rewarding employees and maintaining excellent supplier relationships matters as well. </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-unheralded"></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 Unheralded </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Understanding the qualities that make a company great involve more than a simple <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/swot.asp">SWOT analysis</a> (strengths, weaknesses, opportunities and threats) - that's business school 101 stuff. To evaluate a company's intangibles, one must dig below the surface and beyond the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/10-k.asp">10-K</a>. Satisfaction is the key here and successful businesses have it in abundance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> If a company fails to satisfy employees, suppliers and customers, in this order, it's only a matter of time before its stock price implodes. Arguments exist for both sides of the discussion. Some academics believe that customer satisfaction and employee satisfaction aren't mutually exclusive. Just because employees are happy doesn't guarantee customer loyalty. </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"> But Tony Hsieh, CEO of Zappos.com, the world's biggest online shoe retailer, and winner of countless customer service awards, said in a May 2010 article in <em>SUCCESS</em> magazine that "... Customer service is about making customers happy, and the culture is about making employees happy. So, really, we're about trying to deliver happiness, whether it's to customers or employees, and we apply that same philosophy to vendors 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"> This winning attitude may have contributed to Amazon.com's (Nasdaq:<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn">AMZN</a>) acquisition of the business for $1.2 billion in 2009. (For more on the online sector, check out <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/12/good-intentions-bad-outcomes.asp"><em>Choosing The Winners In The Click-And-Mortar Game</em></a>.) </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-employee-satisfaction"></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"> Employee Satisfaction </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Any company that's truly interested in customer satisfaction must first meet the needs of its employees; otherwise, it's putting the cart before the horse. JetBlue (Nasdaq:<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=jblu">JBLU</a>) came to realize, in 2007, that it wasn't doing a good job satisfying employees when it stranded thousands of its passengers because of a New York City ice storm. Employee morale dropped, and with it, customer satisfaction. Up to that point, the company surveyed employees once a year looking for feedback. </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"> It needed to do more, so it implemented "Net Promoter," a scoring system that calculates how many employees are actively promoting the company, both as a place to work and as a place to do business. Once it began to look at employee satisfaction department by department, it was able to deliver programs that put everyone on the same page and results followed. </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"> Employees are the face of any brand. The quickest way to destroy <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brandequity.asp">brand equity</a> is to disrespect them. Once you've lost trust, it's only a matter of time before you lose the customer. Without customers, you have no business! It's a slippery slope that, privately owned software firm, SAS knows well. </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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/ceo.asp#axzz1cMtnP0CG">CEO</a> and co-founder Jim Goodnight has been in charge for all 40 years SAS has been in business, and from the beginning he's emphasized employee benefits, leading to 13 straight years in the Top 50 on <em>Fortune</em>'s "100 Best Companies To Work For" <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="http://fortune.com/best-companies/">list as of 2016</a>. In its 2008 corporate social responsibility report, the company states, "If you treat employees as if they make a difference to the company, they will make a difference to the company ... At the heart of this unique business model is a simple idea: Satisfied employees create satisfied customers." <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/publiccompany.asp">Public companies</a> are no different. </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-supplier-satisfaction"></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"> Supplier Satisfaction </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> No matter how <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/verticalintegration.asp">vertically integrated</a> your company is, you will always have suppliers of one kind or another, and those relationships can positively or negatively impact the quality of your final product or service. One of Whole Foods' (Nasdaq:<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn">WFM</a>) seven core values is its commitment to its suppliers. By creating a true partnership with the companies it buys from, it is able to provide its customers with a fabulous shopping experience. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> It's not enough, however, to have great customer service - the food has to match. Whole Foods tends to score high on this front as well, and by doing so is able to maintain price points that are higher than in most regular grocery stores, delivering greater profits. (Learn more in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/measuring-company-efficiency/"><em>Measuring Company Efficiency</em></a>.) </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-customer-satisfaction"></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"> Customer Satisfaction </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The marketing profession has tried for years to quantify customer satisfaction in a way that lends itself to clarifying a brand's equity, or worth. Annual studies like the American Customer Satisfaction Index, Prophet's Reputation Management Index and Forrester Research's Customer Experience Index are just three examples. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> For instance, the American Customer Satisfaction Index has shown that the stock prices of companies ranking higher in the index tend to do better than those lower down. In fact, between 1994 and 2007, companies ranking in the top 25% of the index created $420 billion in wealth for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shareholder.asp">shareholders</a>, versus $111 billion for those in the bottom 25% -in other words, companies that please their customers are shown to create about four times the wealth. </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"> Most analysts would agree that <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> is greatly influenced by brand power. In a study by marketing gurus David Aaker and Robert Jacobson, 34 companies examined between 1989 and 1992 demonstrated that those with the largest increase in brand equity averaged stock returns of 30% while the ones losing the most brand equity dropped 10% on average. </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"> If you're not quite sold on the idea of customer satisfaction affecting stock prices, Forrester Research's annual Customer Experience Index ranks the best and worst in customer service. Companies in the top 10 routinely outperform the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&P 500</a>. If the findings are altered slightly to consider <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/operating_profit.asp">operating profits</a>, the results are even more pronounced. (For more, see <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading-4427765"><em>Competitive Advantage Counts</em></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-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"> Investors tend to spend most of their time worrying about quantitative analysis. Ratios like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-earningsratio.asp">price-to-earnings</a> and <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</a> get all the attention while numberless intangibles, like customer satisfaction, are left to annual surveys that are quickly swept under the carpet, never to be seen again. </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"> Let's face it: we live in a quantitative world. Everything we do revolves around top 10 lists of one kind or another. We want a shortcut and lists meet this need. Qualitative analysis, on the other hand, is tricky stuff, and most Warren Buffett wannabes find it too subjective. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> However, any business whose stock price has risen consistently over time has surely satisfied all its stakeholders. As Warren Buffett has been quoted saying many times in the past: "Beware of geeks bearing formulas." (For more lessons from the mavens, check out our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/071801.asp"><em>Greatest Investors Tutorial</em></a>.) </p></div>	Evaluating stocks involves two types of analysis: [fundamental](https://www.investopedia.com/terms/f/fundamentalanalysis.asp) and [technical](https://www.investopedia.com/terms/t/technicalanalysis.asp), but there is also [qualitative analysis](https://www.investopedia.com/terms/q/qualitativeanalysis.asp), a subjective area that is sometimes referred to as [soft metrics](https://www.investopedia.com/terms/s/softmetrics.asp). This refers to aspects of a public company that aren't quantifiable or easily explained by numbers. In general, it's an underappreciated and underutilized side of fundamental analysis. TUTORIAL: [Stock-Picking Strategies](https://www.investopedia.com/terms/v/valueinvesting.asp) ## The Usual Suspects When conducting qualitative analysis of a company, most investment professionals look at the [business model](https://www.investopedia.com/terms/b/businessmodel.asp), competitive advantage in the industry, management and [corporate governance](https://www.investopedia.com/terms/c/corporategovernance.asp). This helps to determine how a company makes money, its uniqueness versus the competition, which people are making the decisions and how they treat ordinary shareholders. Gathering all of this data can provide a better idea of how a company intends to grow its business while rewarding shareholders. However, it isn't the entire picture. Touchy-feely subjects like satisfying the customer, rewarding employees and maintaining excellent supplier relationships matters as well. ## The Unheralded Understanding the qualities that make a company great involve more than a simple [SWOT analysis](https://www.investopedia.com/terms/s/swot.asp) (strengths, weaknesses, opportunities and threats) - that's business school 101 stuff. To evaluate a company's intangibles, one must dig below the surface and beyond the [10-K](https://www.investopedia.com/terms/1/10-k.asp). Satisfaction is the key here and successful businesses have it in abundance. If a company fails to satisfy employees, suppliers and customers, in this order, it's only a matter of time before its stock price implodes. Arguments exist for both sides of the discussion. Some academics believe that customer satisfaction and employee satisfaction aren't mutually exclusive. Just because employees are happy doesn't guarantee customer loyalty. But Tony Hsieh, CEO of Zappos.com, the world's biggest online shoe retailer, and winner of countless customer service awards, said in a May 2010 article in SUCCESS magazine that "... Customer service is about making customers happy, and the culture is about making employees happy. So, really, we're about trying to deliver happiness, whether it's to customers or employees, and we apply that same philosophy to vendors as well." This winning attitude may have contributed to Amazon.com's (Nasdaq:[AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn)) acquisition of the business for $1.2 billion in 2009. (For more on the online sector, check out [Choosing The Winners In The Click-And-Mortar Game](https://www.investopedia.com/articles/financial-theory/12/good-intentions-bad-outcomes.asp).) ## Employee Satisfaction Any company that's truly interested in customer satisfaction must first meet the needs of its employees; otherwise, it's putting the cart before the horse. JetBlue (Nasdaq:[JBLU](https://www.investopedia.com/markets/quote?tvwidgetsymbol=jblu)) came to realize, in 2007, that it wasn't doing a good job satisfying employees when it stranded thousands of its passengers because of a New York City ice storm. Employee morale dropped, and with it, customer satisfaction. Up to that point, the company surveyed employees once a year looking for feedback. It needed to do more, so it implemented "Net Promoter," a scoring system that calculates how many employees are actively promoting the company, both as a place to work and as a place to do business. Once it began to look at employee satisfaction department by department, it was able to deliver programs that put everyone on the same page and results followed. Employees are the face of any brand. The quickest way to destroy [brand equity](https://www.investopedia.com/terms/b/brandequity.asp) is to disrespect them. Once you've lost trust, it's only a matter of time before you lose the customer. Without customers, you have no business! It's a slippery slope that, privately owned software firm, SAS knows well. [CEO](https://www.investopedia.com/terms/c/ceo.asp#axzz1cMtnP0CG) and co-founder Jim Goodnight has been in charge for all 40 years SAS has been in business, and from the beginning he's emphasized employee benefits, leading to 13 straight years in the Top 50 on Fortune's "100 Best Companies To Work For" [list as of 2016](http://fortune.com/best-companies/). In its 2008 corporate social responsibility report, the company states, "If you treat employees as if they make a difference to the company, they will make a difference to the company ... At the heart of this unique business model is a simple idea: Satisfied employees create satisfied customers." [Public companies](https://www.investopedia.com/terms/p/publiccompany.asp) are no different. ## Supplier Satisfaction No matter how [vertically integrated](https://www.investopedia.com/terms/v/verticalintegration.asp) your company is, you will always have suppliers of one kind or another, and those relationships can positively or negatively impact the quality of your final product or service. One of Whole Foods' (Nasdaq:[WFM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn)) seven core values is its commitment to its suppliers. By creating a true partnership with the companies it buys from, it is able to provide its customers with a fabulous shopping experience. It's not enough, however, to have great customer service - the food has to match. Whole Foods tends to score high on this front as well, and by doing so is able to maintain price points that are higher than in most regular grocery stores, delivering greater profits. (Learn more in [Measuring Company Efficiency](https://www.investopedia.com/investing/measuring-company-efficiency/).) ## Customer Satisfaction The marketing profession has tried for years to quantify customer satisfaction in a way that lends itself to clarifying a brand's equity, or worth. Annual studies like the American Customer Satisfaction Index, Prophet's Reputation Management Index and Forrester Research's Customer Experience Index are just three examples. For instance, the American Customer Satisfaction Index has shown that the stock prices of companies ranking higher in the index tend to do better than those lower down. In fact, between 1994 and 2007, companies ranking in the top 25% of the index created $420 billion in wealth for [shareholders](https://www.investopedia.com/terms/s/shareholder.asp), versus $111 billion for those in the bottom 25% -in other words, companies that please their customers are shown to create about four times the wealth. Most analysts would agree that [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp) is greatly influenced by brand power. In a study by marketing gurus David Aaker and Robert Jacobson, 34 companies examined between 1989 and 1992 demonstrated that those with the largest increase in brand equity averaged stock returns of 30% while the ones losing the most brand equity dropped 10% on average. If you're not quite sold on the idea of customer satisfaction affecting stock prices, Forrester Research's annual Customer Experience Index ranks the best and worst in customer service. Companies in the top 10 routinely outperform the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp). If the findings are altered slightly to consider [operating profits](https://www.investopedia.com/terms/o/operating_profit.asp), the results are even more pronounced. (For more, see [Competitive Advantage Counts](https://www.investopedia.com/trading-4427765).) ## The Bottom Line Investors tend to spend most of their time worrying about quantitative analysis. Ratios like [price-to-earnings](https://www.investopedia.com/terms/p/price-earningsratio.asp) and [price-to-book](https://www.investopedia.com/terms/p/price-to-bookratio.asp) get all the attention while numberless intangibles, like customer satisfaction, are left to annual surveys that are quickly swept under the carpet, never to be seen again. Let's face it: we live in a quantitative world. Everything we do revolves around top 10 lists of one kind or another. We want a shortcut and lists meet this need. Qualitative analysis, on the other hand, is tricky stuff, and most Warren Buffett wannabes find it too subjective. However, any business whose stock price has risen consistently over time has surely satisfied all its stakeholders. As Warren Buffett has been quoted saying many times in the past: "Beware of geeks bearing formulas." (For more lessons from the mavens, check out our [Greatest Investors Tutorial](https://www.investopedia.com/articles/01/071801.asp).)	Evaluating stocks involves two types of analysis: fundamental and technical, but there is also qualitative analysis, a subjective area that is sometimes referred to as soft metrics. This refers to aspects of a public company that aren't quantifiable or easily explained by numbers. In general, it's an underappreciated and underutilized side of fundamental analysis. TUTORIAL: Stock-Picking Strategies The Usual Suspects When conducting qualitative analysis of a company, most investment professionals look at the business model, competitive advantage in the industry, management and corporate governance. This helps to determine how a company makes money, its uniqueness versus the competition, which people are making the decisions and how they treat ordinary shareholders. Gathering all of this data can provide a better idea of how a company intends to grow its business while rewarding shareholders. However, it isn't the entire picture. Touchy-feely subjects like satisfying the customer, rewarding employees and maintaining excellent supplier relationships matters as well. The Unheralded Understanding the qualities that make a company great involve more than a simple SWOT analysis (strengths, weaknesses, opportunities and threats) - that's business school 101 stuff. To evaluate a company's intangibles, one must dig below the surface and beyond the 10-K. Satisfaction is the key here and successful businesses have it in abundance. If a company fails to satisfy employees, suppliers and customers, in this order, it's only a matter of time before its stock price implodes. Arguments exist for both sides of the discussion. Some academics believe that customer satisfaction and employee satisfaction aren't mutually exclusive. Just because employees are happy doesn't guarantee customer loyalty. But Tony Hsieh, CEO of Zappos.com, the world's biggest online shoe retailer, and winner of countless customer service awards, said in a May 2010 article in SUCCESS magazine that "... Customer service is about making customers happy, and the culture is about making employees happy. So, really, we're about trying to deliver happiness, whether it's to customers or employees, and we apply that same philosophy to vendors as well." This winning attitude may have contributed to Amazon.com's (Nasdaq:AMZN) acquisition of the business for $1.2 billion in 2009. (For more on the online sector, check out Choosing The Winners In The Click-And-Mortar Game.) Employee Satisfaction Any company that's truly interested in customer satisfaction must first meet the needs of its employees; otherwise, it's putting the cart before the horse. JetBlue (Nasdaq:JBLU) came to realize, in 2007, that it wasn't doing a good job satisfying employees when it stranded thousands of its passengers because of a New York City ice storm. Employee morale dropped, and with it, customer satisfaction. Up to that point, the company surveyed employees once a year looking for feedback. It needed to do more, so it implemented "Net Promoter," a scoring system that calculates how many employees are actively promoting the company, both as a place to work and as a place to do business. Once it began to look at employee satisfaction department by department, it was able to deliver programs that put everyone on the same page and results followed. Employees are the face of any brand. The quickest way to destroy brand equity is to disrespect them. Once you've lost trust, it's only a matter of time before you lose the customer. Without customers, you have no business! It's a slippery slope that, privately owned software firm, SAS knows well. CEO and co-founder Jim Goodnight has been in charge for all 40 years SAS has been in business, and from the beginning he's emphasized employee benefits, leading to 13 straight years in the Top 50 on Fortune's "100 Best Companies To Work For" list as of 2016. In its 2008 corporate social responsibility report, the company states, "If you treat employees as if they make a difference to the company, they will make a difference to the company ... At the heart of this unique business model is a simple idea: Satisfied employees create satisfied customers." Public companies are no different. Supplier Satisfaction No matter how vertically integrated your company is, you will always have suppliers of one kind or another, and those relationships can positively or negatively impact the quality of your final product or service. One of Whole Foods' (Nasdaq:WFM) seven core values is its commitment to its suppliers. By creating a true partnership with the companies it buys from, it is able to provide its customers with a fabulous shopping experience. It's not enough, however, to have great customer service - the food has to match. Whole Foods tends to score high on this front as well, and by doing so is able to maintain price points that are higher than in most regular grocery stores, delivering greater profits. (Learn more in Measuring Company Efficiency.) Customer Satisfaction The marketing profession has tried for years to quantify customer satisfaction in a way that lends itself to clarifying a brand's equity, or worth. Annual studies like the American Customer Satisfaction Index, Prophet's Reputation Management Index and Forrester Research's Customer Experience Index are just three examples. For instance, the American Customer Satisfaction Index has shown that the stock prices of companies ranking higher in the index tend to do better than those lower down. In fact, between 1994 and 2007, companies ranking in the top 25% of the index created $420 billion in wealth for shareholders, versus $111 billion for those in the bottom 25% -in other words, companies that please their customers are shown to create about four times the wealth. Most analysts would agree that market capitalization is greatly influenced by brand power. In a study by marketing gurus David Aaker and Robert Jacobson, 34 companies examined between 1989 and 1992 demonstrated that those with the largest increase in brand equity averaged stock returns of 30% while the ones losing the most brand equity dropped 10% on average. If you're not quite sold on the idea of customer satisfaction affecting stock prices, Forrester Research's annual Customer Experience Index ranks the best and worst in customer service. Companies in the top 10 routinely outperform the S&P 500. If the findings are altered slightly to consider operating profits, the results are even more pronounced. (For more, see Competitive Advantage Counts.) The Bottom Line Investors tend to spend most of their time worrying about quantitative analysis. Ratios like price-to-earnings and price-to-book get all the attention while numberless intangibles, like customer satisfaction, are left to annual surveys that are quickly swept under the carpet, never to be seen again. Let's face it: we live in a quantitative world. Everything we do revolves around top 10 lists of one kind or another. We want a shortcut and lists meet this need. Qualitative analysis, on the other hand, is tricky stuff, and most Warren Buffett wannabes find it too subjective. However, any business whose stock price has risen consistently over time has surely satisfied all its stakeholders. As Warren Buffett has been quoted saying many times in the past: "Beware of geeks bearing formulas." (For more lessons from the mavens, check out our Greatest Investors Tutorial.)	[ [ "fundamental", "https://www.investopedia.com/terms/f/fundamentalanalysis.asp" ], [ "technical", "https://www.investopedia.com/terms/t/technicalanalysis.asp" ], [ "qualitative analysis", "https://www.investopedia.com/terms/q/qualitativeanalysis.asp" ], [ "soft metrics", "https://www.investopedia.com/terms/s/softmetrics.asp" ], [ "Stock-Picking Strategies", "https://www.investopedia.com/terms/v/valueinvesting.asp" ], [ "business model", "https://www.investopedia.com/terms/b/businessmodel.asp" ], [ "corporate governance", "https://www.investopedia.com/terms/c/corporategovernance.asp" ], [ "SWOT analysis", "https://www.investopedia.com/terms/s/swot.asp" ], [ "10-K", "https://www.investopedia.com/terms/1/10-k.asp" ], [ "AMZN", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn" ], [ "Choosing The Winners In The Click-And-Mortar Game", "https://www.investopedia.com/articles/financial-theory/12/good-intentions-bad-outcomes.asp" ], [ "JBLU", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=jblu" ], [ "brand equity", "https://www.investopedia.com/terms/b/brandequity.asp" ], [ "CEO", "https://www.investopedia.com/terms/c/ceo.asp#axzz1cMtnP0CG" ], [ "list as of 2016", "http://fortune.com/best-companies/" ], [ "Public companies", "https://www.investopedia.com/terms/p/publiccompany.asp" ], [ "vertically integrated", "https://www.investopedia.com/terms/v/verticalintegration.asp" ], [ "WFM", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn" ], [ "Measuring Company Efficiency", "https://www.investopedia.com/investing/measuring-company-efficiency/" ], [ "shareholders", "https://www.investopedia.com/terms/s/shareholder.asp" ], [ "market capitalization", "https://www.investopedia.com/terms/m/marketcapitalization.asp" ], [ "S&P 500", "https://www.investopedia.com/terms/s/sp500.asp" ], [ "operating profits", "https://www.investopedia.com/terms/o/operating_profit.asp" ], [ "Competitive Advantage Counts", "https://www.investopedia.com/trading-4427765" ], [ "price-to-earnings", "https://www.investopedia.com/terms/p/price-earningsratio.asp" ], [ "price-to-book", "https://www.investopedia.com/terms/p/price-to-bookratio.asp" ], [ "Greatest Investors Tutorial", "https://www.investopedia.com/articles/01/071801.asp" ] ]
https://www.investopedia.com/terms/t/trustdeed.asp	Trust Deed: What It Is, How It Works, Example Form	<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-trust-deed"></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 Trust Deed? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A trust deed —also known as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/deed-of-trust-definition-5221503">deed of trust</a>—is a document sometimes used in real estate transactions in the U.S. It is a document that comes into play when one party has taken out a loan from another party to purchase a property. The trust deed represents an agreement between the borrower and a lender to have the property held in trust by a neutral and independent third party until the loan is paid off. </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"> Although trust deeds are less common than they once were, some 20 states still mandate the use of one, rather than a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage.asp">mortgage</a>, when <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-mortgage-lenders-5076852">financing</a> is involved in the purchase of real estate. Trust deeds are common in Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Tennessee, Texas, Virginia, and West Virginia. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A few states—such as Kentucky, Maryland, and South Dakota—allow the use of both trust deeds and mortgages.<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> <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>In financed real estate transactions, trust deeds transfer the legal title of a property to a third party—such as a bank, escrow company, or title company—to hold until the borrower repays their debt to the lender.</li><li>Trust deeds are used in place of mortgages in several states.<span class="ql-inline-citation" data-cite="1"></span></li><li>Investing in trust deeds can provide a high-yielding income stream.</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="Trust Deed" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/2qCXi5igb17--od9-bIasyazG9Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/trustdeed.asp-Final-7ef73ca0840a451ba86f6f7fef7b7cfd.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/2qCXi5igb17--od9-bIasyazG9Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/trustdeed.asp-Final-7ef73ca0840a451ba86f6f7fef7b7cfd.jpg" data-srcset="https://www.investopedia.com/thmb/WhhX0jFBMXZ7GjO8mOto9sv6Hns=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/trustdeed.asp-Final-7ef73ca0840a451ba86f6f7fef7b7cfd.jpg 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Trust Deed" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/2qCXi5igb17--od9-bIasyazG9Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/trustdeed.asp-Final-7ef73ca0840a451ba86f6f7fef7b7cfd.jpg" srcset="https://www.investopedia.com/thmb/WhhX0jFBMXZ7GjO8mOto9sv6Hns=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/trustdeed.asp-Final-7ef73ca0840a451ba86f6f7fef7b7cfd.jpg 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Danie Drankwalter</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-trust-deeds"></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 Trust Deeds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> A trust deed is a transaction between three parties: </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>Lenders</strong>, officially known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beneficiary.asp">beneficiaries</a>. These are the interests a trust is supposed to protect.</li> <li><strong>A borrower</strong>, otherwise known as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trustor.asp">trustor</a>. This is the person who establishes a trust.<br/></li> <li><strong>A <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trustee.asp">trustee</a></strong>, a third party charged with holding the entrusted property until a loan or debt is paid for in full.</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"> In a real estate transaction—the purchase of a home, say—a lender gives the borrower money in exchange for one or more promissory notes linked to a trust deed. This deed transfers legal title to the real property to an impartial <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trustee.asp">trustee</a>, typically a title company, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/escrow.asp">escrow</a> company, or bank, which holds it as collateral for the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/promissorynote.asp">promissory notes</a>. The equitable title—the right to obtain full ownership—remains with the borrower, as does full use of and responsibility for the property. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> This state of affairs continues throughout the repayment period of the loan. The trustee holds the legal title until the borrower pays the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt.asp">debt</a> in full, at which point the title to the property transfers to the borrower. If the borrower defaults on the loan, the trustee takes full control of the property. </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-trust-deed-vs-mortgage"></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"> Trust Deed vs. Mortgage </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Trust deeds and mortgages are both used in bank and private loans for creating <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lien.asp">liens</a> on real estate, and both are typically recorded as debt in the county where the property is located. However, there are some differences. </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"> Number of Parties </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> A mortgage involves two parties: a borrower (or mortgagor) and a lender (or mortgagee). When a borrower signs a mortgage, they pledge the property as security to the lender to ensure repayment. </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"> In contrast, a trust deed involves three parties: a borrower (or trustor), a lender (or beneficiary), and the trustee. The trustee holds title to the lien for the lender's benefit; if the borrower defaults, the trustee will initiate and complete the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreclosure.asp">foreclosure</a> process at the lender's request. </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"> Type of Foreclosure </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> In the event of default, a deed of trust will result in different foreclosure procedures than a mortgage. A defaulted mortgage will result in a judicial foreclosure, meaning that the lender will have to secure a court order. Trust deeds go through a non-judicial foreclosure, provided that they include a power-of-sale clause.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Judicial foreclosures are more expensive and time-consuming than non-judicial foreclosures. This means that in states that allow them, a deed of trust is preferable to a mortgage from the lender's point of view.<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-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_34-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Contrary to popular usage, a mortgage is not technically a loan to buy a property; it's an agreement that pledges the property as collateral for the loan.</p></div></div></div> <span class="heading-toc" id="toc-what-is-included-in-a-trust-deed"></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"> What Is Included in a Trust Deed? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> A deed of trust will include the same type of information stated in a mortgage document, such as: </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>The identities of the borrower, lender, and trustee</li><li>A full description of the property to be placed in trust</li><li>Any restrictions or requirements on the use of the property while it is in trust</li><li>The terms of the loan, including principal, monthly payments, and interest rate</li><li>The terms of any late fees and penalties in the event of repayment</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"> In addition, a trust deed will also include a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/power-of-sale.asp">power of sale clause</a> that gives the trustee the right to sell the property if the borrower defaults.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <span class="heading-toc" id="toc-foreclosures-and-trust-deeds"></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"> Foreclosures and Trust Deeds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Mortgages and trust deeds have different foreclosure processes. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/judicial_foreclosure.asp">judicial foreclosure</a> is a court-supervised process enforced when the lender files a lawsuit against the borrower for defaulting on a mortgage. The process is time-consuming and expensive. </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"> Also, if the foreclosed property auction doesn't bring in enough money to pay off the promissory note, the lender may file a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deficiency-judgment.asp">deficiency judgment</a> against the borrower, suing for the balance. However, even after the property is sold, the borrower has the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/right-of-redemption.asp">right of redemption</a>: they may repay the lender within a set amount of time and acquire the property title. </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"> In contrast, a trust deed lets the lender commence a faster and less expensive non-judicial foreclosure, bypassing the court system and adhering to the procedures outlined in the trust deed and state law. If the borrower does not make the loan current, the property is put up for auction through a trustee's sale. </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 title transfers from the trustee to the new owner through the trustee's deed after the sale. When there are no bidders at the trustee sale, the property reverts to the lender through a trustee's deed. Once the property is sold, the borrower has no right of redemption. </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"> Furthermore, a trustee has the responsibility of paying the proceeds from the sale to the borrower and lender after the sale is finalized. The trustee will pay the lender the amount left over on the debt and pay the borrower anything that surpasses that amount, thereby allowing the lender to purchase the property. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <span class="heading-toc" id="toc-pros-and-cons-of-investing-in-trust-deeds"></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"> Pros and Cons of Investing in Trust Deeds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Investors who are searching for juicy yields sometimes turn to the real estate sector—in particular, trust deeds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> In trust deed investing, the investor lends money to a developer working on a real estate project. The investor's name goes on the deed of trust as the lender. The investor collects interest on the loan; when the project is finished, the principal is returned to the investor in full. A trust deed broker usually facilitates the deal. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_58-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_59-0"> <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>High-yielding income stream</p></li> <li><p>Portfolio diversification</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>Illiquidity</p></li> <li><p>No capital appreciation</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> What sort of developer enters this arrangement? Banks are often reluctant to lend to certain types of developments, such as mid-size commercial projects—too small for the big lenders, too big for the small ones—or developers with poor track records or too many loans. Cautious lenders may also move too slowly for developers up against a tight deadline for commencing or completing a project. </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"> Developers like these are often in a bit of a crunch. For these reasons, trust deed investors may often expect high interest rates on their money. They can reap the benefits of diversifying into a different asset class without having to be experts in real estate construction or management. This is a form of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/passiveinvesting.asp">passive investment</a>. </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"> Trust deed investing has certain risks and disadvantages. Unlike stocks, real estate investments are not <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidasset.asp">liquid</a>, meaning investors cannot retrieve their money on demand. Also, investors can expect only the interest the loan generates; any additional capital appreciation is unlikely. </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"> Invested parties may exploit any legal discrepancies in the trust deed, causing costly legal entanglements that may endanger the investment. The typical investor with little experience may have difficulty, as it takes specific expertise to find credible and trustworthy developers, projects, and brokers. </p> <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-real-world-example-of-a-trust-deed"></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"> Real-World Example of a Trust Deed </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> A short-form <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="http://joshblackman.com/blog/wp-content/uploads/2014/09/3044.pdf">deed of trust document used in Austin County, Texas</a>, covers the requirements for most lenders. The form begins with a definition of terms and spaces for the borrower, lender, and trustee to fill in their names. The amount being borrowed and the address of the property are also required. </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 this section, the document goes on to specify the transfer of rights in the property and uniform covenants including: </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>Details about payment of principal and interest</li><li>Escrow funds</li><li>Liens</li><li>Property insurance and structure maintenance</li><li>Structure occupancy—stipulating the borrower must take up residency within 60 days</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> The form also includes nonuniform covenants, which specify default or breach of any of the agreement terms. And it specifies that the loan the document deals with is not a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/homeequityloan.asp">home equity loan</a>—that is, something the borrower will receive cash from—but one for purchasing the property. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> The deed of trust ends with a space for the borrower's signature, which must be done in the presence of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/notary.asp">notary</a> and two witnesses, who also sign. </p> <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-is-assignment-in-a-deed-of-trust"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Assignment in a Deed of Trust?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In real estate law, "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assignment.asp">assignment</a>" is simply the transfer of a deed of trust from one party to another. This usually happens when the beneficiary of a trust deed sells their loan to another lender.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_82-0"><span class="heading-toc" id="toc-what-is-reconveyance-in-a-deed-of-trust"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Reconveyance in a Deed of Trust?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In real estate law, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deed-of-reconveyance.asp">reconveyance</a> means the transfer of a property from a lender or trustee to a borrower. This usually happens at the end of a mortgage or other loan, when the borrower has satisfied the terms of their debt.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_84-0"><span class="heading-toc" id="toc-who-can-be-a-trustee-in-a-deed-of-trust"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Can Be a Trustee in a Deed of Trust?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some states have laws limiting who can act as a trustee in a deed of trust. In these states, the trustee must be a bank, credit union, thrift, title insurance company, attorney, or other company specifically authorized to hold a trust. In other states, anyone can act as a trustee.<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_85-0"></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_86-0"> <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_87-0"> Trust deeds are an alternative to mortgages in certain states. Instead of an agreement directly between a lender and a borrower, a trust deed places the title of a property in the hands of a third party, or trustee. Only after the borrower has satisfied the terms of their debt to the lender will the property be fully transferred to the borrower.<br> </br></p></div>	## What Is a Trust Deed? A trust deed —also known as a [deed of trust](https://www.investopedia.com/deed-of-trust-definition-5221503)—is a document sometimes used in real estate transactions in the U.S. It is a document that comes into play when one party has taken out a loan from another party to purchase a property. The trust deed represents an agreement between the borrower and a lender to have the property held in trust by a neutral and independent third party until the loan is paid off. Although trust deeds are less common than they once were, some 20 states still mandate the use of one, rather than a [mortgage](https://www.investopedia.com/terms/m/mortgage.asp), when [financing](https://www.investopedia.com/best-mortgage-lenders-5076852) is involved in the purchase of real estate. Trust deeds are common in Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Tennessee, Texas, Virginia, and West Virginia. A few states—such as Kentucky, Maryland, and South Dakota—allow the use of both trust deeds and mortgages. ### Key Takeaways * In financed real estate transactions, trust deeds transfer the legal title of a property to a third party—such as a bank, escrow company, or title company—to hold until the borrower repays their debt to the lender. * Trust deeds are used in place of mortgages in several states. * Investing in trust deeds can provide a high-yielding income stream. ![Trust Deed]() ![Trust Deed](https://www.investopedia.com/thmb/2qCXi5igb17--od9-bIasyazG9Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/trustdeed.asp-Final-7ef73ca0840a451ba86f6f7fef7b7cfd.jpg) Investopedia / Danie Drankwalter ## Understanding Trust Deeds A trust deed is a transaction between three parties: * Lenders, officially known as [beneficiaries](https://www.investopedia.com/terms/b/beneficiary.asp). These are the interests a trust is supposed to protect. * A borrower, otherwise known as a [trustor](https://www.investopedia.com/terms/t/trustor.asp). This is the person who establishes a trust. * A [trustee](https://www.investopedia.com/terms/t/trustee.asp), a third party charged with holding the entrusted property until a loan or debt is paid for in full. In a real estate transaction—the purchase of a home, say—a lender gives the borrower money in exchange for one or more promissory notes linked to a trust deed. This deed transfers legal title to the real property to an impartial [trustee](https://www.investopedia.com/terms/t/trustee.asp), typically a title company, [escrow](https://www.investopedia.com/terms/e/escrow.asp) company, or bank, which holds it as collateral for the [promissory notes](https://www.investopedia.com/terms/p/promissorynote.asp). The equitable title—the right to obtain full ownership—remains with the borrower, as does full use of and responsibility for the property. This state of affairs continues throughout the repayment period of the loan. The trustee holds the legal title until the borrower pays the [debt](https://www.investopedia.com/terms/d/debt.asp) in full, at which point the title to the property transfers to the borrower. If the borrower defaults on the loan, the trustee takes full control of the property. ## Trust Deed vs. Mortgage Trust deeds and mortgages are both used in bank and private loans for creating [liens](https://www.investopedia.com/terms/l/lien.asp) on real estate, and both are typically recorded as debt in the county where the property is located. However, there are some differences. ### Number of Parties A mortgage involves two parties: a borrower (or mortgagor) and a lender (or mortgagee). When a borrower signs a mortgage, they pledge the property as security to the lender to ensure repayment. In contrast, a trust deed involves three parties: a borrower (or trustor), a lender (or beneficiary), and the trustee. The trustee holds title to the lien for the lender's benefit; if the borrower defaults, the trustee will initiate and complete the [foreclosure](https://www.investopedia.com/terms/f/foreclosure.asp) process at the lender's request. ### Type of Foreclosure In the event of default, a deed of trust will result in different foreclosure procedures than a mortgage. A defaulted mortgage will result in a judicial foreclosure, meaning that the lender will have to secure a court order. Trust deeds go through a non-judicial foreclosure, provided that they include a power-of-sale clause. Judicial foreclosures are more expensive and time-consuming than non-judicial foreclosures. This means that in states that allow them, a deed of trust is preferable to a mortgage from the lender's point of view. ### Contrary to popular usage, a mortgage is not technically a loan to buy a property; it's an agreement that pledges the property as collateral for the loan. ## What Is Included in a Trust Deed? A deed of trust will include the same type of information stated in a mortgage document, such as: * The identities of the borrower, lender, and trustee * A full description of the property to be placed in trust * Any restrictions or requirements on the use of the property while it is in trust * The terms of the loan, including principal, monthly payments, and interest rate * The terms of any late fees and penalties in the event of repayment In addition, a trust deed will also include a [power of sale clause](https://www.investopedia.com/terms/p/power-of-sale.asp) that gives the trustee the right to sell the property if the borrower defaults. ## Foreclosures and Trust Deeds Mortgages and trust deeds have different foreclosure processes. A [judicial foreclosure](https://www.investopedia.com/terms/j/judicial_foreclosure.asp) is a court-supervised process enforced when the lender files a lawsuit against the borrower for defaulting on a mortgage. The process is time-consuming and expensive. Also, if the foreclosed property auction doesn't bring in enough money to pay off the promissory note, the lender may file a [deficiency judgment](https://www.investopedia.com/terms/d/deficiency-judgment.asp) against the borrower, suing for the balance. However, even after the property is sold, the borrower has the [right of redemption](https://www.investopedia.com/terms/r/right-of-redemption.asp): they may repay the lender within a set amount of time and acquire the property title. In contrast, a trust deed lets the lender commence a faster and less expensive non-judicial foreclosure, bypassing the court system and adhering to the procedures outlined in the trust deed and state law. If the borrower does not make the loan current, the property is put up for auction through a trustee's sale. The title transfers from the trustee to the new owner through the trustee's deed after the sale. When there are no bidders at the trustee sale, the property reverts to the lender through a trustee's deed. Once the property is sold, the borrower has no right of redemption. Furthermore, a trustee has the responsibility of paying the proceeds from the sale to the borrower and lender after the sale is finalized. The trustee will pay the lender the amount left over on the debt and pay the borrower anything that surpasses that amount, thereby allowing the lender to purchase the property. ## Pros and Cons of Investing in Trust Deeds Investors who are searching for juicy yields sometimes turn to the real estate sector—in particular, trust deeds. In trust deed investing, the investor lends money to a developer working on a real estate project. The investor's name goes on the deed of trust as the lender. The investor collects interest on the loan; when the project is finished, the principal is returned to the investor in full. A trust deed broker usually facilitates the deal. Pros * High-yielding income stream * Portfolio diversification Cons * Illiquidity * No capital appreciation What sort of developer enters this arrangement? Banks are often reluctant to lend to certain types of developments, such as mid-size commercial projects—too small for the big lenders, too big for the small ones—or developers with poor track records or too many loans. Cautious lenders may also move too slowly for developers up against a tight deadline for commencing or completing a project. Developers like these are often in a bit of a crunch. For these reasons, trust deed investors may often expect high interest rates on their money. They can reap the benefits of diversifying into a different asset class without having to be experts in real estate construction or management. This is a form of [passive investment](https://www.investopedia.com/terms/p/passiveinvesting.asp). Trust deed investing has certain risks and disadvantages. Unlike stocks, real estate investments are not [liquid](https://www.investopedia.com/terms/l/liquidasset.asp), meaning investors cannot retrieve their money on demand. Also, investors can expect only the interest the loan generates; any additional capital appreciation is unlikely. Invested parties may exploit any legal discrepancies in the trust deed, causing costly legal entanglements that may endanger the investment. The typical investor with little experience may have difficulty, as it takes specific expertise to find credible and trustworthy developers, projects, and brokers. ## Real-World Example of a Trust Deed A short-form [deed of trust document used in Austin County, Texas](http://joshblackman.com/blog/wp-content/uploads/2014/09/3044.pdf), covers the requirements for most lenders. The form begins with a definition of terms and spaces for the borrower, lender, and trustee to fill in their names. The amount being borrowed and the address of the property are also required. After this section, the document goes on to specify the transfer of rights in the property and uniform covenants including: * Details about payment of principal and interest * Escrow funds * Liens * Property insurance and structure maintenance * Structure occupancy—stipulating the borrower must take up residency within 60 days The form also includes nonuniform covenants, which specify default or breach of any of the agreement terms. And it specifies that the loan the document deals with is not a [home equity loan](https://www.investopedia.com/terms/h/homeequityloan.asp)—that is, something the borrower will receive cash from—but one for purchasing the property. The deed of trust ends with a space for the borrower's signature, which must be done in the presence of a [notary](https://www.investopedia.com/terms/n/notary.asp) and two witnesses, who also sign. ## What Is Assignment in a Deed of Trust? In real estate law, "[assignment](https://www.investopedia.com/terms/a/assignment.asp)" is simply the transfer of a deed of trust from one party to another. This usually happens when the beneficiary of a trust deed sells their loan to another lender. ## What Is Reconveyance in a Deed of Trust? In real estate law, [reconveyance](https://www.investopedia.com/terms/d/deed-of-reconveyance.asp) means the transfer of a property from a lender or trustee to a borrower. This usually happens at the end of a mortgage or other loan, when the borrower has satisfied the terms of their debt. ## Who Can Be a Trustee in a Deed of Trust? Some states have laws limiting who can act as a trustee in a deed of trust. In these states, the trustee must be a bank, credit union, thrift, title insurance company, attorney, or other company specifically authorized to hold a trust. In other states, anyone can act as a trustee. ## The Bottom Line Trust deeds are an alternative to mortgages in certain states. Instead of an agreement directly between a lender and a borrower, a trust deed places the title of a property in the hands of a third party, or trustee. Only after the borrower has satisfied the terms of their debt to the lender will the property be fully transferred to the borrower.	What Is a Trust Deed? A trust deed —also known as a deed of trust—is a document sometimes used in real estate transactions in the U.S. It is a document that comes into play when one party has taken out a loan from another party to purchase a property. The trust deed represents an agreement between the borrower and a lender to have the property held in trust by a neutral and independent third party until the loan is paid off. Although trust deeds are less common than they once were, some 20 states still mandate the use of one, rather than a mortgage, when financing is involved in the purchase of real estate. Trust deeds are common in Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Tennessee, Texas, Virginia, and West Virginia. A few states—such as Kentucky, Maryland, and South Dakota—allow the use of both trust deeds and mortgages. Key Takeaways In financed real estate transactions, trust deeds transfer the legal title of a property to a third party—such as a bank, escrow company, or title company—to hold until the borrower repays their debt to the lender.Trust deeds are used in place of mortgages in several states.Investing in trust deeds can provide a high-yielding income stream. Investopedia / Danie Drankwalter Understanding Trust Deeds A trust deed is a transaction between three parties: Lenders, officially known as beneficiaries. These are the interests a trust is supposed to protect. A borrower, otherwise known as a trustor. This is the person who establishes a trust. A trustee, a third party charged with holding the entrusted property until a loan or debt is paid for in full. In a real estate transaction—the purchase of a home, say—a lender gives the borrower money in exchange for one or more promissory notes linked to a trust deed. This deed transfers legal title to the real property to an impartial trustee, typically a title company, escrow company, or bank, which holds it as collateral for the promissory notes. The equitable title—the right to obtain full ownership—remains with the borrower, as does full use of and responsibility for the property. This state of affairs continues throughout the repayment period of the loan. The trustee holds the legal title until the borrower pays the debt in full, at which point the title to the property transfers to the borrower. If the borrower defaults on the loan, the trustee takes full control of the property. Trust Deed vs. Mortgage Trust deeds and mortgages are both used in bank and private loans for creating liens on real estate, and both are typically recorded as debt in the county where the property is located. However, there are some differences. Number of Parties A mortgage involves two parties: a borrower (or mortgagor) and a lender (or mortgagee). When a borrower signs a mortgage, they pledge the property as security to the lender to ensure repayment. In contrast, a trust deed involves three parties: a borrower (or trustor), a lender (or beneficiary), and the trustee. The trustee holds title to the lien for the lender's benefit; if the borrower defaults, the trustee will initiate and complete the foreclosure process at the lender's request. Type of Foreclosure In the event of default, a deed of trust will result in different foreclosure procedures than a mortgage. A defaulted mortgage will result in a judicial foreclosure, meaning that the lender will have to secure a court order. Trust deeds go through a non-judicial foreclosure, provided that they include a power-of-sale clause. Judicial foreclosures are more expensive and time-consuming than non-judicial foreclosures. This means that in states that allow them, a deed of trust is preferable to a mortgage from the lender's point of view. Contrary to popular usage, a mortgage is not technically a loan to buy a property; it's an agreement that pledges the property as collateral for the loan. What Is Included in a Trust Deed? A deed of trust will include the same type of information stated in a mortgage document, such as: The identities of the borrower, lender, and trusteeA full description of the property to be placed in trustAny restrictions or requirements on the use of the property while it is in trustThe terms of the loan, including principal, monthly payments, and interest rateThe terms of any late fees and penalties in the event of repayment In addition, a trust deed will also include a power of sale clause that gives the trustee the right to sell the property if the borrower defaults. Foreclosures and Trust Deeds Mortgages and trust deeds have different foreclosure processes. A judicial foreclosure is a court-supervised process enforced when the lender files a lawsuit against the borrower for defaulting on a mortgage. The process is time-consuming and expensive. Also, if the foreclosed property auction doesn't bring in enough money to pay off the promissory note, the lender may file a deficiency judgment against the borrower, suing for the balance. However, even after the property is sold, the borrower has the right of redemption: they may repay the lender within a set amount of time and acquire the property title. In contrast, a trust deed lets the lender commence a faster and less expensive non-judicial foreclosure, bypassing the court system and adhering to the procedures outlined in the trust deed and state law. If the borrower does not make the loan current, the property is put up for auction through a trustee's sale. The title transfers from the trustee to the new owner through the trustee's deed after the sale. When there are no bidders at the trustee sale, the property reverts to the lender through a trustee's deed. Once the property is sold, the borrower has no right of redemption. Furthermore, a trustee has the responsibility of paying the proceeds from the sale to the borrower and lender after the sale is finalized. The trustee will pay the lender the amount left over on the debt and pay the borrower anything that surpasses that amount, thereby allowing the lender to purchase the property. Pros and Cons of Investing in Trust Deeds Investors who are searching for juicy yields sometimes turn to the real estate sector—in particular, trust deeds. In trust deed investing, the investor lends money to a developer working on a real estate project. The investor's name goes on the deed of trust as the lender. The investor collects interest on the loan; when the project is finished, the principal is returned to the investor in full. A trust deed broker usually facilitates the deal. Pros High-yielding income stream Portfolio diversification Cons Illiquidity No capital appreciation What sort of developer enters this arrangement? Banks are often reluctant to lend to certain types of developments, such as mid-size commercial projects—too small for the big lenders, too big for the small ones—or developers with poor track records or too many loans. Cautious lenders may also move too slowly for developers up against a tight deadline for commencing or completing a project. Developers like these are often in a bit of a crunch. For these reasons, trust deed investors may often expect high interest rates on their money. They can reap the benefits of diversifying into a different asset class without having to be experts in real estate construction or management. This is a form of passive investment. Trust deed investing has certain risks and disadvantages. Unlike stocks, real estate investments are not liquid, meaning investors cannot retrieve their money on demand. Also, investors can expect only the interest the loan generates; any additional capital appreciation is unlikely. Invested parties may exploit any legal discrepancies in the trust deed, causing costly legal entanglements that may endanger the investment. The typical investor with little experience may have difficulty, as it takes specific expertise to find credible and trustworthy developers, projects, and brokers. Real-World Example of a Trust Deed A short-form deed of trust document used in Austin County, Texas, covers the requirements for most lenders. The form begins with a definition of terms and spaces for the borrower, lender, and trustee to fill in their names. The amount being borrowed and the address of the property are also required. After this section, the document goes on to specify the transfer of rights in the property and uniform covenants including: Details about payment of principal and interestEscrow fundsLiensProperty insurance and structure maintenanceStructure occupancy—stipulating the borrower must take up residency within 60 days The form also includes nonuniform covenants, which specify default or breach of any of the agreement terms. And it specifies that the loan the document deals with is not a home equity loan—that is, something the borrower will receive cash from—but one for purchasing the property. The deed of trust ends with a space for the borrower's signature, which must be done in the presence of a notary and two witnesses, who also sign. What Is Assignment in a Deed of Trust? In real estate law, "assignment" is simply the transfer of a deed of trust from one party to another. This usually happens when the beneficiary of a trust deed sells their loan to another lender. What Is Reconveyance in a Deed of Trust? In real estate law, reconveyance means the transfer of a property from a lender or trustee to a borrower. This usually happens at the end of a mortgage or other loan, when the borrower has satisfied the terms of their debt. Who Can Be a Trustee in a Deed of Trust? Some states have laws limiting who can act as a trustee in a deed of trust. In these states, the trustee must be a bank, credit union, thrift, title insurance company, attorney, or other company specifically authorized to hold a trust. In other states, anyone can act as a trustee. The Bottom Line Trust deeds are an alternative to mortgages in certain states. Instead of an agreement directly between a lender and a borrower, a trust deed places the title of a property in the hands of a third party, or trustee. Only after the borrower has satisfied the terms of their debt to the lender will the property be fully transferred to the borrower.	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https://www.investopedia.com/investopedia-top-financial-terms-of-2018-4580628	Investopedia's Top Terms of 2018	<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"> We sifted through hundreds of millions of visits from our readers to see what financial terms they searched for the most. 2018 brought us: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <li>Market volatility, the likes of which we haven’t seen in several years;</li><li>The surge of the FAANG stocks to stratospheric valuations;</li><li>A trade war between the U.S. and China that shook global markets;</li><li>An inverted yield curve in the U.S. Treasury market that warned of an economic slowdown;</li><li>A futurist CEO whose tweets about going private at $420 per share were costlier than expected;</li><li>The arrest of a rapper for racketeering (of all things); and</li><li>Scary charting patterns for stocks that tell us that the market will be bumpy for a long time.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_5-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:60.2%;"> <img class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/z5LqREanIobqQx5HE-vlB8fxmJI=/837x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2018-12-14at3.49.34PM-5c17c7c3c9e77c0001fcc8ec.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/ch1cj0KTEkCCkL9yFl4afCjzAp0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2018-12-14at3.49.34PM-5c17c7c3c9e77c0001fcc8ec.png" data-srcset="https://www.investopedia.com/thmb/FV9MGEHjemEr72w_jzXaYMHAKHE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2018-12-14at3.49.34PM-5c17c7c3c9e77c0001fcc8ec.png 750w" data-tracking-container="true" height="504" id="mntl-sc-block-image_1-0" width="837"/> <noscript> <img class="img--noscript universal-image__image" height="504" sizes="750px" src="https://www.investopedia.com/thmb/ch1cj0KTEkCCkL9yFl4afCjzAp0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2018-12-14at3.49.34PM-5c17c7c3c9e77c0001fcc8ec.png" srcset="https://www.investopedia.com/thmb/FV9MGEHjemEr72w_jzXaYMHAKHE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2018-12-14at3.49.34PM-5c17c7c3c9e77c0001fcc8ec.png 750w" width="837"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Google says, "What is Bitcoin?"’ was one of its biggest queries in 2018. But the way we see it, the real question is, "Where is Bitcoin?" The O.G. cryptocurrency fell more than 80% from the highs it claimed in January of this year, taking reader interest along with it.<span class="ql-inline-citation" data-cite="1"></span> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/top-cannabis-stocks-7495551" rel="noopener noreferrer">Marijuana stocks</a> wafted onto the scene as Canada and several U.S. states legalized cannabis and, while interest was high, the chronic was no crypto. </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"> We may still be in the early stages of both of those industries, but one thing is certain: Investors are right in the middle of a volatile time for global markets. Our readers have read more than one billion pages on Investopedia so far this year trying to make sense of the markets and take control of their financial future. </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"> We took a deep dive into which financial terms had the biggest increases in interest among our millions of readers around the world. We measured the increase in visits to those pages against a four-year average, and we measured interest in them month to month to see which terms spiked the most and sustained interest throughout the year. These were the top financial terms for 2018: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_12-0"> <a class="mntl-sc-block-subheading__link" href="https://www.investopedia.com/terms/t/trade-war.asp" rel="nocaes">Trade War </a> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> No surprise here. This term jumped 600% in March when President Trump announced increased tariffs on steel imports. China called that a "serious attack" on trade and promised to retaliate. They did and the escalating tariff battle has spooked markets from Shanghai to St. Louis. It has also revealed just how interconnected and globalized the industrial world has become. 2018 also brought the creation of a new trade agreement with the U.S., Canada and Mexico: the USMCA, which will replace NAFTA. Indeed, 2018 was a good year for our readers to brush up on global economics. </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"> <a class="mntl-sc-block-subheading__link" href="https://www.investopedia.com/terms/f/faang-stocks.asp" rel="nocaes">FAANG Stocks</a> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> This was a layup, as they say on the court. Facebook, Apple, Amazon, Netflix and Google dominated headlines and pulled market indexes to record highs and back down again. Visits to our FAANG term jumped 400% in 2018, and it was in the top 10 of most-read terms for six months of the year. Each company was a massive story in and of itself and all continue to affect the way we live, learn, shop, interact and amuse ourselves. Whether it was Apple and Amazon becoming the first trillion-dollar companies, Facebook playing dangerous games with our personal and political data, Apple dazzling us with new gadgets that don’t sell as much as they used to, Netflix competing with us for sleep and Google being, well… Google, the FAANGs have us every which way. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_18-0"> <a class="mntl-sc-block-subheading__link" href="https://www.investopedia.com/terms/g/going-private.asp" rel="nocaes">Going Private</a> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Thank you, Elon. The Tesla CEO’s infamous tweet “...<em>Am considering taking Tesla private at $420. Funding secured,” </em> on Aug. 7, lit up Twitter like a solar farm. <em>#toosoon. </em>Traffic to the term jumped 250% that month and stayed high, as Musk fanned the regulatory flames and insulted the SEC.<em> </em>It also cost Musk his chairship, $20 million in fines to the SEC and tens of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/top-cannabis-stocks-7495551">millions of dollars in market value</a>. Whether Musk was in a haze from working too hard and dreaming of Mars or actually thought his tweet would be a strong sign of corporate governance, we’ll never know. It did teach a lot of our readers what <em>Going Private </em>actually means. Thanks, Elon. </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"> <a class="mntl-sc-block-subheading__link" href="https://www.investopedia.com/terms/r/racketeering.asp" rel="nocaes">Racketeering</a> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The younger folks on our team @Investopedia knew who Tekashi69, aka 6ix9ine, was before <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.thedailybeast.com/tekashi-6ix9ine-arrested-on-racketeering-firearms-charges" rel="noopener noreferrer">his alleged criminal activities </a>drove readers to our definition of racketeering. The rapper, born Daniel Hernandez, was arrested in November for racketeering and firearms charges and could face life in prison. The charges against him have little or nothing to do with financial crimes, but since racketeering involves everything from gambling to cyber extortion to kidnapping, Tekashi69’s bad behavior helped educate hundreds of thousands of readers on our site. Our definition of racketeering generated over 300,000 visits in November alone. </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"> <a class="mntl-sc-block-subheading__link" href="https://www.investopedia.com/terms/s/sustainability.asp" rel="nocaes">Sustainability</a> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> It’s uncertain whether readers were curious about the sustainability of the record market highs or they wanted to learn about sustainable investing. We know a lot of our readers, especially the younger ones, have a lot of interest in the latter. That’s a good thing, especially in light of the devastating effects of climate change and the urgency to do something to slow it. We hope interest in this topic continues to grow, and we’ll keep feeding it. </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"> <a class="mntl-sc-block-subheading__link" href="https://www.investopedia.com/terms/d/dow-30.asp" rel="nocaes">Dow 30</a> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Record highs for the Dow Jones Industrial Average and other markets is always good for visits to this term. We forget that a lot of people don’t know that the Average is really just 30 stocks. It’s arguable as to whether those 30 are the best representations of industry in 2018, but that’s for another time. GE, a stalwart on the Dow for decades, was dropped this year while Walgreens was added. The times, they are a changin’. </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"> <a class="mntl-sc-block-subheading__link" href="https://www.investopedia.com/terms/c/capitulation.asp" rel="nocaes">Capitulation</a> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> When you just can’t take it anymore... This term always bubbles up during heavy selloffs and volatility. We’ve had a truckload of both in 2018, but we haven’t seen outright capitulation just yet. Anyone around in 1987, 2000 or 2009 knows what that looks like, and it’s not pretty. Somehow we think this term will remain popular in the new year. </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"> <a class="mntl-sc-block-subheading__link" href="https://www.investopedia.com/terms/d/deathcross.asp" rel="nocaes">Death Cross</a> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> It sounds like something out of <em>Game of Thrones</em>, and it might be. But the terrifying technical analysis pattern reared its ghastliness more than a few times this year as stocks like Facebook and Amazon fell into it, as did major indexes like the S&P 500 and the Russell 2000. The death cross appears on a chart when a stock’s short-term moving average crosses below its long-term moving average. Typically, the most averages used in this pattern are the 50-day and 200-day moving averages. For non-charters, this means a stock or index fell through its near term lows and may be heading lower... aka, “Winter is coming!” </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"> <a class="mntl-sc-block-subheading__link" href="https://www.investopedia.com/terms/i/invertedyieldcurve.asp" rel="nocaes">Inverted Yield Curve</a> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> This is not a yoga position, but it took our breath away a few times in 2018. When long-term interest rates have a lower yield than short-term interest rates, as we saw with the 5-year U.S. Treasury and the 3-year U.S. Treasury this fall, it’s a sign that the economy may be headed for a slowdown and possibly a recession. Typically it’s the inversion between the 10-year U.S. Treasury and the 2-year U.S. Treasury that makes the market squirm, but we haven’t seen that quite yet this year. We are close, which is why you’ll hear more about this in 2019. Breathe. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_39-0"> <a class="mntl-sc-block-subheading__link" href="https://www.investopedia.com/terms/1/10-yeartreasury.asp" rel="nocaes">10-year Treasury</a> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> See above. As the Federal Reserve has hiked interest rates and the U.S. economy shows signs of cooling, the yield on the benchmark U.S. Treasury has risen as its price has dropped. So many other interest rates are set off the 10-year, like home and car loans, that any rise in yield will be felt directly in our pocketbooks. On the other hand, interest rates have been so low for so long, savers and people living on a fixed income are finally earning money on their money. The 10-year Treasury is always important and popular, so expect to hear more about it in 2019. </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-honorable-mentions"></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"> Honorable Mentions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> There were some honorable mentions this year, as well. These were financial terms that saw an outsized increase in reader traffic, relative to their four-year index. Some of them took some digging to understand why people were so interested in them. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_45-0"> <a class="mntl-sc-block-subheading__link" href="https://www.investopedia.com/terms/b/bearhug.asp" rel="nocaes">Bear Hug </a> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> When a company or group of investors makes an unsolicited bid to buy the shares of another company at a higher price than where it trades, it is no warm and cuddly embrace. But as we looked back at the year, we couldn’t find too many prominent examples of this in the public markets. It turns out we can thank HBO for this one, particularly the show <em><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.hbo.com/succession/season-1" rel="noopener noreferrer">Succession.</a> </em>It tells the tale of a family-owned media business run by a King Lear-like mogul, Logan Roy, played by Brian Cox, and his son, Kendall Roy, played by Jeremy Strong, who is trying to wrest control of the company from his erratic father. Sure enough, interest in the term Bear Hug started to spike in late summer, just as episodes 9 and 10 were bringing the inaugural season to a crescendo, as Kendall makes a hostile bid for Waystar at his sister’s wedding. We won’t spoil the outcome, but we couldn’t be happier the show is coming back for season 2! </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_48-0"> <a class="mntl-sc-block-subheading__link" href="https://www.investopedia.com/terms/p/pre-foreclosure.asp" rel="nocaes">Pre-foreclosure</a> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> This surprised us, given that foreclosures in the U.S. are at multi-year lows and the housing market is in a much better place than we were a decade ago. Still, mortgage lending rates are rising and there is some fragility in the housing market across some major cities. Pre-foreclosure is when a borrower has defaulted on their mortgage payment and their bank or lender has initiated foreclosure proceedings. Some opportunistic real estate investors start circling when properties fall into this purgatory. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_51-0"> <a class="mntl-sc-block-subheading__link" href="https://www.investopedia.com/terms/g/general-data-protection-regulation-gdpr.asp" rel="nocaes">GDPR </a> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> We are sure there are many CTOs, chief security officers and developers who have battle scars from implementing the General Data Protection Regulation (GDPR) requirements in 2018, but let's hope we are all a little safer for them. GDPR is the legal framework for the collection and processing of personal information of individuals within the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/europeanunion.asp" rel="noopener noreferrer">European Union (EU)</a>. GDPR sets out the principles for data management and the rights of the individual, while also imposing heavy fines for those who do not comply. If you want to do digital business in Europe, you need to know these four letters well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <span class="heading-toc" id="toc-looking-ahead-to-2019"></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"> Looking Ahead to 2019 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> 2018 was anything but ordinary. It is our great honor and privilege to have so many visitors to our site from all over the world for 20 years now. That’s right! We celebrated our 20th birthday in 2019 and we know we wouldn’t be here without all of you. Thank you. </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"> <strong>Caleb Silver </strong>– <strong>Editor in Chief</strong> </p></div>	We sifted through hundreds of millions of visits from our readers to see what financial terms they searched for the most. 2018 brought us: * Market volatility, the likes of which we haven’t seen in several years; * The surge of the FAANG stocks to stratospheric valuations; * A trade war between the U.S. and China that shook global markets; * An inverted yield curve in the U.S. Treasury market that warned of an economic slowdown; * A futurist CEO whose tweets about going private at $420 per share were costlier than expected; * The arrest of a rapper for racketeering (of all things); and * Scary charting patterns for stocks that tell us that the market will be bumpy for a long time. ![]() ![](https://www.investopedia.com/thmb/ch1cj0KTEkCCkL9yFl4afCjzAp0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ScreenShot2018-12-14at3.49.34PM-5c17c7c3c9e77c0001fcc8ec.png) Google says, "What is Bitcoin?"’ was one of its biggest queries in 2018. But the way we see it, the real question is, "Where is Bitcoin?" The O.G. cryptocurrency fell more than 80% from the highs it claimed in January of this year, taking reader interest along with it. [Marijuana stocks](https://www.investopedia.com/top-cannabis-stocks-7495551) wafted onto the scene as Canada and several U.S. states legalized cannabis and, while interest was high, the chronic was no crypto. We may still be in the early stages of both of those industries, but one thing is certain: Investors are right in the middle of a volatile time for global markets. Our readers have read more than one billion pages on Investopedia so far this year trying to make sense of the markets and take control of their financial future. We took a deep dive into which financial terms had the biggest increases in interest among our millions of readers around the world. We measured the increase in visits to those pages against a four-year average, and we measured interest in them month to month to see which terms spiked the most and sustained interest throughout the year. These were the top financial terms for 2018: ### [Trade War](https://www.investopedia.com/terms/t/trade-war.asp) No surprise here. This term jumped 600% in March when President Trump announced increased tariffs on steel imports. China called that a "serious attack" on trade and promised to retaliate. They did and the escalating tariff battle has spooked markets from Shanghai to St. Louis. It has also revealed just how interconnected and globalized the industrial world has become. 2018 also brought the creation of a new trade agreement with the U.S., Canada and Mexico: the USMCA, which will replace NAFTA. Indeed, 2018 was a good year for our readers to brush up on global economics. ### [FAANG Stocks](https://www.investopedia.com/terms/f/faang-stocks.asp) This was a layup, as they say on the court. Facebook, Apple, Amazon, Netflix and Google dominated headlines and pulled market indexes to record highs and back down again. Visits to our FAANG term jumped 400% in 2018, and it was in the top 10 of most-read terms for six months of the year. Each company was a massive story in and of itself and all continue to affect the way we live, learn, shop, interact and amuse ourselves. Whether it was Apple and Amazon becoming the first trillion-dollar companies, Facebook playing dangerous games with our personal and political data, Apple dazzling us with new gadgets that don’t sell as much as they used to, Netflix competing with us for sleep and Google being, well… Google, the FAANGs have us every which way. ### [Going Private](https://www.investopedia.com/terms/g/going-private.asp) Thank you, Elon. The Tesla CEO’s infamous tweet “...Am considering taking Tesla private at $420. Funding secured,” on Aug. 7, lit up Twitter like a solar farm. #toosoon.Traffic to the term jumped 250% that month and stayed high, as Musk fanned the regulatory flames and insulted the SEC.It also cost Musk his chairship, $20 million in fines to the SEC and tens of [millions of dollars in market value](https://www.investopedia.com/top-cannabis-stocks-7495551). Whether Musk was in a haze from working too hard and dreaming of Mars or actually thought his tweet would be a strong sign of corporate governance, we’ll never know. It did teach a lot of our readers what Going Privateactually means. Thanks, Elon. ### [Racketeering](https://www.investopedia.com/terms/r/racketeering.asp) The younger folks on our team @Investopedia knew who Tekashi69, aka 6ix9ine, was before [his alleged criminal activities](https://www.thedailybeast.com/tekashi-6ix9ine-arrested-on-racketeering-firearms-charges)drove readers to our definition of racketeering. The rapper, born Daniel Hernandez, was arrested in November for racketeering and firearms charges and could face life in prison. The charges against him have little or nothing to do with financial crimes, but since racketeering involves everything from gambling to cyber extortion to kidnapping, Tekashi69’s bad behavior helped educate hundreds of thousands of readers on our site. Our definition of racketeering generated over 300,000 visits in November alone. ### [Sustainability](https://www.investopedia.com/terms/s/sustainability.asp) It’s uncertain whether readers were curious about the sustainability of the record market highs or they wanted to learn about sustainable investing. We know a lot of our readers, especially the younger ones, have a lot of interest in the latter. That’s a good thing, especially in light of the devastating effects of climate change and the urgency to do something to slow it. We hope interest in this topic continues to grow, and we’ll keep feeding it. ### [Dow 30](https://www.investopedia.com/terms/d/dow-30.asp) Record highs for the Dow Jones Industrial Average and other markets is always good for visits to this term. We forget that a lot of people don’t know that the Average is really just 30 stocks. It’s arguable as to whether those 30 are the best representations of industry in 2018, but that’s for another time. GE, a stalwart on the Dow for decades, was dropped this year while Walgreens was added. The times, they are a changin’. ### [Capitulation](https://www.investopedia.com/terms/c/capitulation.asp) When you just can’t take it anymore... This term always bubbles up during heavy selloffs and volatility. We’ve had a truckload of both in 2018, but we haven’t seen outright capitulation just yet. Anyone around in 1987, 2000 or 2009 knows what that looks like, and it’s not pretty. Somehow we think this term will remain popular in the new year. ### [Death Cross](https://www.investopedia.com/terms/d/deathcross.asp) It sounds like something out of Game of Thrones, and it might be. But the terrifying technical analysis pattern reared its ghastliness more than a few times this year as stocks like Facebook and Amazon fell into it, as did major indexes like the S&P 500 and the Russell 2000. The death cross appears on a chart when a stock’s short-term moving average crosses below its long-term moving average. Typically, the most averages used in this pattern are the 50-day and 200-day moving averages. For non-charters, this means a stock or index fell through its near term lows and may be heading lower... aka, “Winter is coming!” ### [Inverted Yield Curve](https://www.investopedia.com/terms/i/invertedyieldcurve.asp) This is not a yoga position, but it took our breath away a few times in 2018. When long-term interest rates have a lower yield than short-term interest rates, as we saw with the 5-year U.S. Treasury and the 3-year U.S. Treasury this fall, it’s a sign that the economy may be headed for a slowdown and possibly a recession. Typically it’s the inversion between the 10-year U.S. Treasury and the 2-year U.S. Treasury that makes the market squirm, but we haven’t seen that quite yet this year. We are close, which is why you’ll hear more about this in 2019. Breathe. ### [10-year Treasury](https://www.investopedia.com/terms/1/10-yeartreasury.asp) See above. As the Federal Reserve has hiked interest rates and the U.S. economy shows signs of cooling, the yield on the benchmark U.S. Treasury has risen as its price has dropped. So many other interest rates are set off the 10-year, like home and car loans, that any rise in yield will be felt directly in our pocketbooks. On the other hand, interest rates have been so low for so long, savers and people living on a fixed income are finally earning money on their money. The 10-year Treasury is always important and popular, so expect to hear more about it in 2019. ## Honorable Mentions There were some honorable mentions this year, as well. These were financial terms that saw an outsized increase in reader traffic, relative to their four-year index. Some of them took some digging to understand why people were so interested in them. ### [Bear Hug](https://www.investopedia.com/terms/b/bearhug.asp) When a company or group of investors makes an unsolicited bid to buy the shares of another company at a higher price than where it trades, it is no warm and cuddly embrace. But as we looked back at the year, we couldn’t find too many prominent examples of this in the public markets. It turns out we can thank HBO for this one, particularly the show [Succession.](https://www.hbo.com/succession/season-1)It tells the tale of a family-owned media business run by a King Lear-like mogul, Logan Roy, played by Brian Cox, and his son, Kendall Roy, played by Jeremy Strong, who is trying to wrest control of the company from his erratic father. Sure enough, interest in the term Bear Hug started to spike in late summer, just as episodes 9 and 10 were bringing the inaugural season to a crescendo, as Kendall makes a hostile bid for Waystar at his sister’s wedding. We won’t spoil the outcome, but we couldn’t be happier the show is coming back for season 2! ### [Pre-foreclosure](https://www.investopedia.com/terms/p/pre-foreclosure.asp) This surprised us, given that foreclosures in the U.S. are at multi-year lows and the housing market is in a much better place than we were a decade ago. Still, mortgage lending rates are rising and there is some fragility in the housing market across some major cities. Pre-foreclosure is when a borrower has defaulted on their mortgage payment and their bank or lender has initiated foreclosure proceedings. Some opportunistic real estate investors start circling when properties fall into this purgatory. ### [GDPR](https://www.investopedia.com/terms/g/general-data-protection-regulation-gdpr.asp) We are sure there are many CTOs, chief security officers and developers who have battle scars from implementing the General Data Protection Regulation (GDPR) requirements in 2018, but let's hope we are all a little safer for them. GDPR is the legal framework for the collection and processing of personal information of individuals within the [European Union (EU)](https://www.investopedia.com/terms/e/europeanunion.asp). GDPR sets out the principles for data management and the rights of the individual, while also imposing heavy fines for those who do not comply. If you want to do digital business in Europe, you need to know these four letters well. ## Looking Ahead to 2019 2018 was anything but ordinary. It is our great honor and privilege to have so many visitors to our site from all over the world for 20 years now. That’s right! We celebrated our 20th birthday in 2019 and we know we wouldn’t be here without all of you. Thank you. Caleb Silver– Editor in Chief	We sifted through hundreds of millions of visits from our readers to see what financial terms they searched for the most. 2018 brought us: Market volatility, the likes of which we haven’t seen in several years;The surge of the FAANG stocks to stratospheric valuations;A trade war between the U.S. and China that shook global markets;An inverted yield curve in the U.S. Treasury market that warned of an economic slowdown;A futurist CEO whose tweets about going private at $420 per share were costlier than expected;The arrest of a rapper for racketeering (of all things); andScary charting patterns for stocks that tell us that the market will be bumpy for a long time. Google says, "What is Bitcoin?"’ was one of its biggest queries in 2018. But the way we see it, the real question is, "Where is Bitcoin?" The O.G. cryptocurrency fell more than 80% from the highs it claimed in January of this year, taking reader interest along with it. Marijuana stocks wafted onto the scene as Canada and several U.S. states legalized cannabis and, while interest was high, the chronic was no crypto. We may still be in the early stages of both of those industries, but one thing is certain: Investors are right in the middle of a volatile time for global markets. Our readers have read more than one billion pages on Investopedia so far this year trying to make sense of the markets and take control of their financial future. We took a deep dive into which financial terms had the biggest increases in interest among our millions of readers around the world. We measured the increase in visits to those pages against a four-year average, and we measured interest in them month to month to see which terms spiked the most and sustained interest throughout the year. These were the top financial terms for 2018: Trade War No surprise here. This term jumped 600% in March when President Trump announced increased tariffs on steel imports. China called that a "serious attack" on trade and promised to retaliate. They did and the escalating tariff battle has spooked markets from Shanghai to St. Louis. It has also revealed just how interconnected and globalized the industrial world has become. 2018 also brought the creation of a new trade agreement with the U.S., Canada and Mexico: the USMCA, which will replace NAFTA. Indeed, 2018 was a good year for our readers to brush up on global economics. FAANG Stocks This was a layup, as they say on the court. Facebook, Apple, Amazon, Netflix and Google dominated headlines and pulled market indexes to record highs and back down again. Visits to our FAANG term jumped 400% in 2018, and it was in the top 10 of most-read terms for six months of the year. Each company was a massive story in and of itself and all continue to affect the way we live, learn, shop, interact and amuse ourselves. Whether it was Apple and Amazon becoming the first trillion-dollar companies, Facebook playing dangerous games with our personal and political data, Apple dazzling us with new gadgets that don’t sell as much as they used to, Netflix competing with us for sleep and Google being, well… Google, the FAANGs have us every which way. Going Private Thank you, Elon. The Tesla CEO’s infamous tweet “...Am considering taking Tesla private at $420. Funding secured,” on Aug. 7, lit up Twitter like a solar farm. #toosoon. Traffic to the term jumped 250% that month and stayed high, as Musk fanned the regulatory flames and insulted the SEC. It also cost Musk his chairship, $20 million in fines to the SEC and tens of millions of dollars in market value. Whether Musk was in a haze from working too hard and dreaming of Mars or actually thought his tweet would be a strong sign of corporate governance, we’ll never know. It did teach a lot of our readers what Going Private actually means. Thanks, Elon. Racketeering The younger folks on our team @Investopedia knew who Tekashi69, aka 6ix9ine, was before his alleged criminal activities drove readers to our definition of racketeering. The rapper, born Daniel Hernandez, was arrested in November for racketeering and firearms charges and could face life in prison. The charges against him have little or nothing to do with financial crimes, but since racketeering involves everything from gambling to cyber extortion to kidnapping, Tekashi69’s bad behavior helped educate hundreds of thousands of readers on our site. Our definition of racketeering generated over 300,000 visits in November alone. Sustainability It’s uncertain whether readers were curious about the sustainability of the record market highs or they wanted to learn about sustainable investing. We know a lot of our readers, especially the younger ones, have a lot of interest in the latter. That’s a good thing, especially in light of the devastating effects of climate change and the urgency to do something to slow it. We hope interest in this topic continues to grow, and we’ll keep feeding it. Dow 30 Record highs for the Dow Jones Industrial Average and other markets is always good for visits to this term. We forget that a lot of people don’t know that the Average is really just 30 stocks. It’s arguable as to whether those 30 are the best representations of industry in 2018, but that’s for another time. GE, a stalwart on the Dow for decades, was dropped this year while Walgreens was added. The times, they are a changin’. Capitulation When you just can’t take it anymore... This term always bubbles up during heavy selloffs and volatility. We’ve had a truckload of both in 2018, but we haven’t seen outright capitulation just yet. Anyone around in 1987, 2000 or 2009 knows what that looks like, and it’s not pretty. Somehow we think this term will remain popular in the new year. Death Cross It sounds like something out of Game of Thrones, and it might be. But the terrifying technical analysis pattern reared its ghastliness more than a few times this year as stocks like Facebook and Amazon fell into it, as did major indexes like the S&P 500 and the Russell 2000. The death cross appears on a chart when a stock’s short-term moving average crosses below its long-term moving average. Typically, the most averages used in this pattern are the 50-day and 200-day moving averages. For non-charters, this means a stock or index fell through its near term lows and may be heading lower... aka, “Winter is coming!” Inverted Yield Curve This is not a yoga position, but it took our breath away a few times in 2018. When long-term interest rates have a lower yield than short-term interest rates, as we saw with the 5-year U.S. Treasury and the 3-year U.S. Treasury this fall, it’s a sign that the economy may be headed for a slowdown and possibly a recession. Typically it’s the inversion between the 10-year U.S. Treasury and the 2-year U.S. Treasury that makes the market squirm, but we haven’t seen that quite yet this year. We are close, which is why you’ll hear more about this in 2019. Breathe. 10-year Treasury See above. As the Federal Reserve has hiked interest rates and the U.S. economy shows signs of cooling, the yield on the benchmark U.S. Treasury has risen as its price has dropped. So many other interest rates are set off the 10-year, like home and car loans, that any rise in yield will be felt directly in our pocketbooks. On the other hand, interest rates have been so low for so long, savers and people living on a fixed income are finally earning money on their money. The 10-year Treasury is always important and popular, so expect to hear more about it in 2019. Honorable Mentions There were some honorable mentions this year, as well. These were financial terms that saw an outsized increase in reader traffic, relative to their four-year index. Some of them took some digging to understand why people were so interested in them. Bear Hug When a company or group of investors makes an unsolicited bid to buy the shares of another company at a higher price than where it trades, it is no warm and cuddly embrace. But as we looked back at the year, we couldn’t find too many prominent examples of this in the public markets. It turns out we can thank HBO for this one, particularly the show Succession. It tells the tale of a family-owned media business run by a King Lear-like mogul, Logan Roy, played by Brian Cox, and his son, Kendall Roy, played by Jeremy Strong, who is trying to wrest control of the company from his erratic father. Sure enough, interest in the term Bear Hug started to spike in late summer, just as episodes 9 and 10 were bringing the inaugural season to a crescendo, as Kendall makes a hostile bid for Waystar at his sister’s wedding. We won’t spoil the outcome, but we couldn’t be happier the show is coming back for season 2! Pre-foreclosure This surprised us, given that foreclosures in the U.S. are at multi-year lows and the housing market is in a much better place than we were a decade ago. Still, mortgage lending rates are rising and there is some fragility in the housing market across some major cities. Pre-foreclosure is when a borrower has defaulted on their mortgage payment and their bank or lender has initiated foreclosure proceedings. Some opportunistic real estate investors start circling when properties fall into this purgatory. GDPR We are sure there are many CTOs, chief security officers and developers who have battle scars from implementing the General Data Protection Regulation (GDPR) requirements in 2018, but let's hope we are all a little safer for them. GDPR is the legal framework for the collection and processing of personal information of individuals within the European Union (EU). GDPR sets out the principles for data management and the rights of the individual, while also imposing heavy fines for those who do not comply. If you want to do digital business in Europe, you need to know these four letters well. Looking Ahead to 2019 2018 was anything but ordinary. It is our great honor and privilege to have so many visitors to our site from all over the world for 20 years now. That’s right! We celebrated our 20th birthday in 2019 and we know we wouldn’t be here without all of you. Thank you. Caleb Silver – Editor in Chief	[ [ "Marijuana stocks", "https://www.investopedia.com/top-cannabis-stocks-7495551" ], [ "Trade War", "https://www.investopedia.com/terms/t/trade-war.asp" ], [ "FAANG Stocks", "https://www.investopedia.com/terms/f/faang-stocks.asp" ], [ "Going Private", "https://www.investopedia.com/terms/g/going-private.asp" ], [ "millions of dollars in market value", "https://www.investopedia.com/top-cannabis-stocks-7495551" ], [ "Racketeering", "https://www.investopedia.com/terms/r/racketeering.asp" ], [ "his alleged criminal activities", "https://www.thedailybeast.com/tekashi-6ix9ine-arrested-on-racketeering-firearms-charges" ], [ "Sustainability", "https://www.investopedia.com/terms/s/sustainability.asp" ], [ "Dow 30", "https://www.investopedia.com/terms/d/dow-30.asp" ], [ "Capitulation", "https://www.investopedia.com/terms/c/capitulation.asp" ], [ "Death Cross", "https://www.investopedia.com/terms/d/deathcross.asp" ], [ "Inverted Yield Curve", "https://www.investopedia.com/terms/i/invertedyieldcurve.asp" ], [ "10-year Treasury", "https://www.investopedia.com/terms/1/10-yeartreasury.asp" ], [ "Bear Hug", "https://www.investopedia.com/terms/b/bearhug.asp" ], [ "Succession.", "https://www.hbo.com/succession/season-1" ], [ "Pre-foreclosure", "https://www.investopedia.com/terms/p/pre-foreclosure.asp" ], [ "GDPR", "https://www.investopedia.com/terms/g/general-data-protection-regulation-gdpr.asp" ], [ "European Union (EU)", "https://www.investopedia.com/terms/e/europeanunion.asp" ] ]
https://www.investopedia.com/terms/l/leadsandlags.asp	Leads and Lags: Definition, Example, 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-are-leads-and-lags"></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 Leads and Lags? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Leads and lags in international business usually refer to the deliberate acceleration or delaying of payments due in a foreign currency in order to take advantage of an expected change in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreign-exchange.asp">currency exchange</a> 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"> Corporations and governments may time payments due in a foreign currency if they anticipate a change in currency values that is in their favor. </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>Leads and lags refer to the timing of payments (delaying or advancing) on international business agreements to take advantage of a more favorable or anticipated exchange rate changes.</li><li>Businesses can use currency forward contracts and points to adjust a future exchange rate up or down.</li><li>Not all currency-rate events can be forecast, but those that can are often tied to political or financial events.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-leads-and-lags"></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 Leads and Lags </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A corporation or government can control the schedule of payments received or made, within reasonable limits. When a payment to a foreign entity is involved, the organization may opt to pay earlier or later than scheduled. These changes would be made in anticipation of capturing the benefit from a change in currency exchange rates. </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"> This consideration can affect the smallest or the largest transactions. If a company in one country were about to acquire a company in another country, and the target company's country currency was expected to decrease in value relative to the acquiring company's country, delaying the purchase would be in the interest of the acquiring 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"> A strengthening of the currency being paid out would lead to a smaller payout for the entity in question, while a weakening of the currency would lead to increased costs the longer the payment was delayed. </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-leading-and-lagging"></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 Leading and Lagging </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Because it amounts to a timing strategy, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/what-are-leading-lagging-and-coincident-indicators/">leading and lagging</a> implies risks. Currency rates can move in an unexpected direction. </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"> When a business has an expected foreign exchange transaction, it may need to buy or sell the currency that it needs to complete the transaction. Currency prices move in response to supply and demand between Forex traders, companies, and nations. On the forex market, a transaction between currencies settles on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spot-date.asp">spot date</a>—for most currency pairs this is two business days after the order was placed. Companies might also enter into a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currencyforward.asp">currency forward contract</a> which locks the rate of the exchange. </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"> If it is expected that a currency's future price will decline against the spot price, it is known as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forwarddiscount.asp">forward discount</a>. Counterparties apply <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forwardpoints.asp">forward points</a> to the future exchange creating either a forward discount or a forward permium. </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-examples-of-timing-a-foreign-payment"></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"> Examples of Timing a Foreign Payment </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Currency exchange rates are difficult to forecast, but certain financial and political events may play out according to a predictable schedule. These predicable scheduled events can provide insight into the direction of a exchange rate. Such events can include elections and budget deadlines. </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"> For example, Great Britain's decision to exit the European Union, known as Brexit, was triggered by a referendum on June 23, 2016. The British pound fell in value versus the U.S. dollar immediately after the vote. It kept falling for some weeks afterward before recovering slightly. As of May 25, 2022, it still has not recovered to its pre-Brexit 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_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> If a U.S. company has agreed to buy a Canadian asset it will need to buy Canadian dollars and sell U.S. dollars to complete the transaction. The Canadian dollar moves constantly in its value compared to the U.S. dollar. In the year ending May 25, 2022, for example, the Canadian currency ranged between about $1.20 and about $1.30 in comparison to the U.S. dollar.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> If the company believes the Canadian dollar is going to strengthen against the U.S. dollar. it will accelerate the transaction (lead) before the price of the asset increases in U.S. dollar terms. If the company believes the Canadian dollar will weaken, it will hold off payment (lag) in the hope that the bill becomes cheaper in U.S. dollar terms. </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"> What if the company guesses wrong? If, for example, the Bank of Canada unexpectedly raises interest rates the Canadian dollar will strengthen. That will make the company's decision to hold off paying detrimental. Some companies hedge their bets by making part of the payment at the time of the agreement and waiting to pay the remainder. </p></div>	## What Are Leads and Lags? Leads and lags in international business usually refer to the deliberate acceleration or delaying of payments due in a foreign currency in order to take advantage of an expected change in [currency exchange](https://www.investopedia.com/terms/f/foreign-exchange.asp) rates. Corporations and governments may time payments due in a foreign currency if they anticipate a change in currency values that is in their favor. ### Key Takeaways * Leads and lags refer to the timing of payments (delaying or advancing) on international business agreements to take advantage of a more favorable or anticipated exchange rate changes. * Businesses can use currency forward contracts and points to adjust a future exchange rate up or down. * Not all currency-rate events can be forecast, but those that can are often tied to political or financial events. ## Understanding Leads and Lags A corporation or government can control the schedule of payments received or made, within reasonable limits. When a payment to a foreign entity is involved, the organization may opt to pay earlier or later than scheduled. These changes would be made in anticipation of capturing the benefit from a change in currency exchange rates. This consideration can affect the smallest or the largest transactions. If a company in one country were about to acquire a company in another country, and the target company's country currency was expected to decrease in value relative to the acquiring company's country, delaying the purchase would be in the interest of the acquiring company. A strengthening of the currency being paid out would lead to a smaller payout for the entity in question, while a weakening of the currency would lead to increased costs the longer the payment was delayed. ## Risks of Leading and Lagging Because it amounts to a timing strategy, [leading and lagging](https://www.investopedia.com/ask/answers/what-are-leading-lagging-and-coincident-indicators/) implies risks. Currency rates can move in an unexpected direction. When a business has an expected foreign exchange transaction, it may need to buy or sell the currency that it needs to complete the transaction. Currency prices move in response to supply and demand between Forex traders, companies, and nations. On the forex market, a transaction between currencies settles on the [spot date](https://www.investopedia.com/terms/s/spot-date.asp)—for most currency pairs this is two business days after the order was placed. Companies might also enter into a [currency forward contract](https://www.investopedia.com/terms/c/currencyforward.asp) which locks the rate of the exchange. If it is expected that a currency's future price will decline against the spot price, it is known as a [forward discount](https://www.investopedia.com/terms/f/forwarddiscount.asp). Counterparties apply [forward points](https://www.investopedia.com/terms/f/forwardpoints.asp) to the future exchange creating either a forward discount or a forward permium. ## Examples of Timing a Foreign Payment Currency exchange rates are difficult to forecast, but certain financial and political events may play out according to a predictable schedule. These predicable scheduled events can provide insight into the direction of a exchange rate. Such events can include elections and budget deadlines. For example, Great Britain's decision to exit the European Union, known as Brexit, was triggered by a referendum on June 23, 2016. The British pound fell in value versus the U.S. dollar immediately after the vote. It kept falling for some weeks afterward before recovering slightly. As of May 25, 2022, it still has not recovered to its pre-Brexit levels. If a U.S. company has agreed to buy a Canadian asset it will need to buy Canadian dollars and sell U.S. dollars to complete the transaction. The Canadian dollar moves constantly in its value compared to the U.S. dollar. In the year ending May 25, 2022, for example, the Canadian currency ranged between about $1.20 and about $1.30 in comparison to the U.S. dollar. If the company believes the Canadian dollar is going to strengthen against the U.S. dollar. it will accelerate the transaction (lead) before the price of the asset increases in U.S. dollar terms. If the company believes the Canadian dollar will weaken, it will hold off payment (lag) in the hope that the bill becomes cheaper in U.S. dollar terms. What if the company guesses wrong? If, for example, the Bank of Canada unexpectedly raises interest rates the Canadian dollar will strengthen. That will make the company's decision to hold off paying detrimental. Some companies hedge their bets by making part of the payment at the time of the agreement and waiting to pay the remainder.	What Are Leads and Lags? Leads and lags in international business usually refer to the deliberate acceleration or delaying of payments due in a foreign currency in order to take advantage of an expected change in currency exchange rates. Corporations and governments may time payments due in a foreign currency if they anticipate a change in currency values that is in their favor. Key Takeaways Leads and lags refer to the timing of payments (delaying or advancing) on international business agreements to take advantage of a more favorable or anticipated exchange rate changes.Businesses can use currency forward contracts and points to adjust a future exchange rate up or down.Not all currency-rate events can be forecast, but those that can are often tied to political or financial events. Understanding Leads and Lags A corporation or government can control the schedule of payments received or made, within reasonable limits. When a payment to a foreign entity is involved, the organization may opt to pay earlier or later than scheduled. These changes would be made in anticipation of capturing the benefit from a change in currency exchange rates. This consideration can affect the smallest or the largest transactions. If a company in one country were about to acquire a company in another country, and the target company's country currency was expected to decrease in value relative to the acquiring company's country, delaying the purchase would be in the interest of the acquiring company. A strengthening of the currency being paid out would lead to a smaller payout for the entity in question, while a weakening of the currency would lead to increased costs the longer the payment was delayed. Risks of Leading and Lagging Because it amounts to a timing strategy, leading and lagging implies risks. Currency rates can move in an unexpected direction. When a business has an expected foreign exchange transaction, it may need to buy or sell the currency that it needs to complete the transaction. Currency prices move in response to supply and demand between Forex traders, companies, and nations. On the forex market, a transaction between currencies settles on the spot date—for most currency pairs this is two business days after the order was placed. Companies might also enter into a currency forward contract which locks the rate of the exchange. If it is expected that a currency's future price will decline against the spot price, it is known as a forward discount. Counterparties apply forward points to the future exchange creating either a forward discount or a forward permium. Examples of Timing a Foreign Payment Currency exchange rates are difficult to forecast, but certain financial and political events may play out according to a predictable schedule. These predicable scheduled events can provide insight into the direction of a exchange rate. Such events can include elections and budget deadlines. For example, Great Britain's decision to exit the European Union, known as Brexit, was triggered by a referendum on June 23, 2016. The British pound fell in value versus the U.S. dollar immediately after the vote. It kept falling for some weeks afterward before recovering slightly. As of May 25, 2022, it still has not recovered to its pre-Brexit levels. If a U.S. company has agreed to buy a Canadian asset it will need to buy Canadian dollars and sell U.S. dollars to complete the transaction. The Canadian dollar moves constantly in its value compared to the U.S. dollar. In the year ending May 25, 2022, for example, the Canadian currency ranged between about $1.20 and about $1.30 in comparison to the U.S. dollar. If the company believes the Canadian dollar is going to strengthen against the U.S. dollar. it will accelerate the transaction (lead) before the price of the asset increases in U.S. dollar terms. If the company believes the Canadian dollar will weaken, it will hold off payment (lag) in the hope that the bill becomes cheaper in U.S. dollar terms. What if the company guesses wrong? If, for example, the Bank of Canada unexpectedly raises interest rates the Canadian dollar will strengthen. That will make the company's decision to hold off paying detrimental. Some companies hedge their bets by making part of the payment at the time of the agreement and waiting to pay the remainder.	[ [ "currency exchange", "https://www.investopedia.com/terms/f/foreign-exchange.asp" ], [ "leading and lagging", "https://www.investopedia.com/ask/answers/what-are-leading-lagging-and-coincident-indicators/" ], [ "spot date", "https://www.investopedia.com/terms/s/spot-date.asp" ], [ "currency forward contract", "https://www.investopedia.com/terms/c/currencyforward.asp" ], [ "forward discount", "https://www.investopedia.com/terms/f/forwarddiscount.asp" ], [ "forward points", "https://www.investopedia.com/terms/f/forwardpoints.asp" ] ]
https://www.investopedia.com/demand-for-taylor-swift-and-others-concerts-lifts-live-nation-sales-to-q1-record-8643232	Demand for Taylor Swift and Others' Concerts Lifts Live Nation Sales to Q1 Record	<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>Live Nation Entertainment's sales for the first quarter soared as Taylor Swift and other performers drove a surge in demand for concert tickets.</li><li>The promoter, which owns Ticketmaster, set a first-quarter revenue record of $3.8 billion.</li><li>Shares of Live Nation jumped Friday after the earnings news and moved into positive territory for the 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"> Live Nation Entertainment (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LYV">LYV</a>) shares surged over 7% Friday as demand for tickets to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/taylor-swift-earnings-7373918">Taylor Swift’s</a> <em>Eras Tour </em>and other concert performances helped propel the company's sales to a record in the first quarter. </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-q1-sales-record"></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"> Q1 Sales Record </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The concert promoter and owner of the Ticketmaster ticket outlet reported first-quarter revenue soared 21% year-over-year to $3.8 billion, an all-time high for the first three months of the year and better than estimates. However, its loss of 53 cents per share was greater than expected.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Concert sales jumped 26% to $2.9 billion. Ticketmaster sales advanced 7% to $723.2 million, while sponsorship and advertising revenue climbed 24% to $211.3 million. </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"> First-quarter show attendance gained 21% to 23 million and the company reported selling a record 77 million fee-bearing tickets. </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-demand-is-stronger-than-ever"></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"> 'Demand Is Stronger Than Ever' </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> CEO Michael Rapino said the results indicate that “live events remain a priority for fans around the world.” He said "demand is stronger than ever," with more artists out on the road, and more venues being added for performances. </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 hasn't hurt that one of those artists is Taylor Swift, with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/swiftonomics-definition-8601178"><em>Eras Tour</em></a> reportedly becoming the first in history to surpass $1 billion in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102714/what-are-difference-between-gross-revenue-reporting-and-net-revenue-reporting.asp">gross revenue</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_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Live Nation shares also likely got a lift from comments by CFO Joe Berchtold, who told analysts it’s unlikely <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/live-nation-stock-tumbles-as-company-reportedly-facing-antitrust-lawsuit-8634011">Live Nation and Ticketmaster</a> will be broken up by regulators for violating <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/is-ticketmaster-a-monopoly-6834539">antitrust laws</a>.<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"> Shares of Live Nation Entertainment finished 7.2% higher at $94.66 Friday, bringing them into positive territory for the year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_21-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:70.8%;"> <img alt="LYV" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/5DLzHBCsoF2Qw3zzyrtlE_s_MAA=/1446x0/filters:no_upscale():max_bytes(150000):strip_icc()/LYV_2024-05-03_15-20-07-d50ecf6b5db54ff9a8762c7e904efd27.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/HihbJNW6W0ZxTK4W7YmVf8yU1rw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LYV_2024-05-03_15-20-07-d50ecf6b5db54ff9a8762c7e904efd27.png" data-srcset="https://www.investopedia.com/thmb/DhaTPCd6foeLFP07ikGWk_DHZQ4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/LYV_2024-05-03_15-20-07-d50ecf6b5db54ff9a8762c7e904efd27.png 750w" data-tracking-container="true" height="1024" id="mntl-sc-block-image_1-0" width="1446"/> <noscript> <img alt="LYV" class="img--noscript universal-image__image" height="1024" sizes="750px" src="https://www.investopedia.com/thmb/HihbJNW6W0ZxTK4W7YmVf8yU1rw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LYV_2024-05-03_15-20-07-d50ecf6b5db54ff9a8762c7e904efd27.png" srcset="https://www.investopedia.com/thmb/DhaTPCd6foeLFP07ikGWk_DHZQ4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/LYV_2024-05-03_15-20-07-d50ecf6b5db54ff9a8762c7e904efd27.png 750w" width="1446"/> </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:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	### Key Takeaways * Live Nation Entertainment's sales for the first quarter soared as Taylor Swift and other performers drove a surge in demand for concert tickets. * The promoter, which owns Ticketmaster, set a first-quarter revenue record of $3.8 billion. * Shares of Live Nation jumped Friday after the earnings news and moved into positive territory for the year. Live Nation Entertainment ([LYV](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LYV)) shares surged over 7% Friday as demand for tickets to [Taylor Swift’s](https://www.investopedia.com/taylor-swift-earnings-7373918) Eras Tour and other concert performances helped propel the company's sales to a record in the first quarter. ## Q1 Sales Record The concert promoter and owner of the Ticketmaster ticket outlet reported first-quarter revenue soared 21% year-over-year to $3.8 billion, an all-time high for the first three months of the year and better than estimates. However, its loss of 53 cents per share was greater than expected. Concert sales jumped 26% to $2.9 billion. Ticketmaster sales advanced 7% to $723.2 million, while sponsorship and advertising revenue climbed 24% to $211.3 million. First-quarter show attendance gained 21% to 23 million and the company reported selling a record 77 million fee-bearing tickets. ## 'Demand Is Stronger Than Ever' CEO Michael Rapino said the results indicate that “live events remain a priority for fans around the world.” He said "demand is stronger than ever," with more artists out on the road, and more venues being added for performances. It hasn't hurt that one of those artists is Taylor Swift, with the [Eras Tour](https://www.investopedia.com/swiftonomics-definition-8601178) reportedly becoming the first in history to surpass $1 billion in [gross revenue](https://www.investopedia.com/ask/answers/102714/what-are-difference-between-gross-revenue-reporting-and-net-revenue-reporting.asp). Live Nation shares also likely got a lift from comments by CFO Joe Berchtold, who told analysts it’s unlikely [Live Nation and Ticketmaster](https://www.investopedia.com/live-nation-stock-tumbles-as-company-reportedly-facing-antitrust-lawsuit-8634011) will be broken up by regulators for violating [antitrust laws](https://www.investopedia.com/is-ticketmaster-a-monopoly-6834539). Shares of Live Nation Entertainment finished 7.2% higher at $94.66 Friday, bringing them into positive territory for the year. ![LYV]() ![LYV](https://www.investopedia.com/thmb/HihbJNW6W0ZxTK4W7YmVf8yU1rw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LYV_2024-05-03_15-20-07-d50ecf6b5db54ff9a8762c7e904efd27.png) TradingView Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	Key Takeaways Live Nation Entertainment's sales for the first quarter soared as Taylor Swift and other performers drove a surge in demand for concert tickets.The promoter, which owns Ticketmaster, set a first-quarter revenue record of $3.8 billion.Shares of Live Nation jumped Friday after the earnings news and moved into positive territory for the year. Live Nation Entertainment (LYV) shares surged over 7% Friday as demand for tickets to Taylor Swift’s Eras Tour and other concert performances helped propel the company's sales to a record in the first quarter. Q1 Sales Record The concert promoter and owner of the Ticketmaster ticket outlet reported first-quarter revenue soared 21% year-over-year to $3.8 billion, an all-time high for the first three months of the year and better than estimates. However, its loss of 53 cents per share was greater than expected. Concert sales jumped 26% to $2.9 billion. Ticketmaster sales advanced 7% to $723.2 million, while sponsorship and advertising revenue climbed 24% to $211.3 million. First-quarter show attendance gained 21% to 23 million and the company reported selling a record 77 million fee-bearing tickets. 'Demand Is Stronger Than Ever' CEO Michael Rapino said the results indicate that “live events remain a priority for fans around the world.” He said "demand is stronger than ever," with more artists out on the road, and more venues being added for performances. It hasn't hurt that one of those artists is Taylor Swift, with the Eras Tour reportedly becoming the first in history to surpass $1 billion in gross revenue. Live Nation shares also likely got a lift from comments by CFO Joe Berchtold, who told analysts it’s unlikely Live Nation and Ticketmaster will be broken up by regulators for violating antitrust laws. Shares of Live Nation Entertainment finished 7.2% higher at $94.66 Friday, bringing them into positive territory for the year. TradingView Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "LYV", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=LYV" ], [ "Taylor Swift’s", "https://www.investopedia.com/taylor-swift-earnings-7373918" ], [ "Eras Tour", "https://www.investopedia.com/swiftonomics-definition-8601178" ], [ "gross revenue", "https://www.investopedia.com/ask/answers/102714/what-are-difference-between-gross-revenue-reporting-and-net-revenue-reporting.asp" ], [ "Live Nation and Ticketmaster", "https://www.investopedia.com/live-nation-stock-tumbles-as-company-reportedly-facing-antitrust-lawsuit-8634011" ], [ "antitrust laws", "https://www.investopedia.com/is-ticketmaster-a-monopoly-6834539" ], [ "LYV", "https://www.investopedia.com/thmb/HihbJNW6W0ZxTK4W7YmVf8yU1rw=/1500x0/filters:no_upscale(" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/articles/bonds/08/bond-market-basics.asp	4 Basic Things to Know About Bonds	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Want to strengthen your portfolio’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskreturntradeoff.asp">risk-return</a> profile? Adding bonds can create a more balanced <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a> by adding <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</a> and calming <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a>. But the bond market may seem unfamiliar even to the most experienced investors. </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"> Many investors make only passing ventures into bonds because they are confused by the apparent complexity of the bond market and the terminology. In reality, bonds are very simple debt instruments. </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"> So how do you get into this part of the market? How do bonds work? Get your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/022516/7-questions-consider-investing-bonds.asp">start in bond investing</a> by learning these basic bond market terms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The bond market can help investors diversify beyond stocks.</li><li>Some of the characteristics of bonds include their maturity, their coupon (interest) rate, their tax status, and their callability.</li><li>Several types of risks associated with bonds include interest rate risk, credit/default risk, and prepayment risk.</li><li>Most bonds come with ratings that describe their investment grade.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-do-bonds-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> How Do Bonds Work? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp">bond</a> is simply a loan taken out by a company. Instead of going to a bank, the company gets the money from investors who buy its bonds. In exchange for the capital, the company pays an interest coupon, which is the annual interest rate paid on a bond expressed as a percentage of the face value. The company pays the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> at predetermined intervals (usually annually or semiannually) and returns 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> on the maturity date, ending the loan. </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"> Unlike stocks, bonds can vary significantly based on the terms of their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/indenture.asp">indenture</a>, a legal document outlining the characteristics of the bond. Because each bond issue is different, it is important to understand the precise terms before investing. In particular, there are six important features to look for when considering a bond. </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-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Bonds are a form of IOU between the lender and the borrower.</p></div></div></div> <span class="heading-toc" id="toc-types-of-bonds"></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"> Types of Bonds </span> </h2> <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"> Corporate Bonds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Corporate bonds refer to the debt securities that companies issue to pay their expenses and raise capital. The yield of these bonds depends on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-worthiness.asp">creditworthiness</a> of the company that issues them. The riskiest bonds are known as “junk bonds,” but they also offer the highest returns. Interest from corporate bonds is subject to both federal and local income taxes.<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_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"> Sovereign Bonds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Sovereign bonds, or sovereign debt, are debt securities issued by national governments to defray their expenses. Because the issuing governments are very unlikely to default, these bonds typically have a very high credit rating and a relatively low yield. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> In the United States, bonds issued by the federal government are called <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">Treasuries</a>, while those issued by the United Kingdom are called <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gilts.asp">gilts</a>. Treasuries are exempt from state and local tax, although they are still subject to federal income tax.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Municipal Bonds </span> </h3> <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/m/municipalbond.asp">Municipal bonds</a>, or munis, are bonds issued by local governments. Contrary to what the name suggests, this can refer to state and county debt, not just municipal debt. Municipal bond income is not subject to most taxes, making them an attractive investment for investors in higher tax brackets.<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_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_28-0"><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_29-0"><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>Read about Investopedia’s <a data-component="amazon" data-ordinal="1" data-source="affiliate" data-type="externalLink" href="https://www.amazon.com/Investopedia-10-Rules-Investing/dp/B0CP7T6TQM/" rel="sponsored nofollow">10 Rules of Investing</a> by picking up a copy of our special-issue print edition.</p></div></div></div> <span class="heading-toc" id="toc-key-terms"></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"> Key Terms </span> </h2> <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"> Maturity </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> This is the date when the principal or par amount of the bond is paid to investors and the company’s bond <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/obligation.asp">obligation</a> ends. Therefore, it defines the lifetime of the bond. </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 bond’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturity.asp">maturity</a> is one of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/111215/simple-math-fixedcoupon-corporate-bonds.asp">the primary considerations</a> that an investor weighs against their investment goals and horizon. Maturity is often classified in three ways: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <li>Short-term: Bonds that fall into this category tend to mature in one to three years.</li><li>Medium-term: Maturity dates for these types of bonds are normally four to 10 years.</li><li>Long-term: These bonds generally mature over more than 10 years.<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_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"> Secured/Unsecured </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> A bond can be secured or unsecured. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/securedbond.asp">secured bond</a> pledges specific assets to bondholders if the company cannot repay the obligation. This asset is also called collateral on the loan. If the bond issuer defaults, the asset is then transferred to the investor. A <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp">mortgage-backed security (MBS)</a> is one type of secured bond backed by titles to the homes of the borrowers.<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_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Unsecured bonds, on the other hand, are not backed by any collateral. This means that the interest and principal are only guaranteed by the issuing company. Also called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debenture.asp">debentures</a>, these bonds return little of your investment if the company fails. As such, they are much riskier than secured bonds. </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"> Liquidation Preference </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> When a firm goes bankrupt, it repays investors in a particular order as it liquidates. After a firm sells off all its assets, it begins to pay out its investors. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seniordebt.asp" rel="noopener noreferrer">Senior debt</a> is debt that must be paid first, followed by junior (subordinated) debt. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shareholder.asp" rel="noopener noreferrer">Stockholders</a> get whatever is left. </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"> Coupon </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon.asp">coupon</a> amount represents interest paid to bondholders, normally annually or semiannually. The coupon is also called the coupon rate or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nominalyield.asp">nominal yield</a>. To calculate the coupon rate, divide the annual payments by the face value of the bond.<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_48-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-subheading__text"> Tax Status </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> While the majority of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/052715/how-corporate-bond-taxed.asp">corporate bonds are taxable investments</a>, some government and municipal bonds are tax-exempt, so income and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalgain.asp">capital gains</a> are not subject to taxation. Tax-exempt bonds normally have lower interest than equivalent taxable bonds. An investor must calculate the tax-equivalent yield to compare the return with that of taxable instruments.<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_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"> Callability </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Some bonds can be paid off by an issuer before maturity. If a bond has a call provision, it may be paid off at earlier dates, at the option of the company, usually at a slight premium to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/parvalue.asp">par</a>. A company may choose to call its bonds if <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a> allow them to borrow at a better rate. Callable bonds also appeal to investors, as they offer better coupon rates.<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_54-0"></div> <span class="heading-toc" id="toc-risks-of-bonds"></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"> Risks of Bonds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Bonds are a great way to earn <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a> because they tend to be relatively safe investments. But, just like any other investment, they do come with certain risks. Here are some of the most common risks with these investments. </p> <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"> Interest Rate Risk </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Interest rates share an inverse relationship with bonds, so when rates rise, bonds tend to fall, and vice versa. <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> comes when rates change significantly from what the investor expected. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> If interest rates decline significantly, the investor faces the possibility of prepayment. If interest rates rise, the investor will be stuck with an instrument yielding below market rates. The greater the time to maturity, the greater the interest rate risk an investor bears, because it is harder to predict market developments further into the future.<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_62-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-subheading__text"> Credit/Default Risk </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> Credit or <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> is the risk that interest and principal payments due on the obligation will not be made as required. When an investor buys a bond, they expect that the issuer will make good on the interest and principal payments—just like any other creditor. </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"> When an investor looks into corporate bonds, they should weigh out the possibility that the company may <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">default</a> on the debt. Safety usually means the company has greater operating income and cash flow compared to its debt. If the inverse is true and the debt outweighs available cash, the investor may want to stay away. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-subheading__text"> Prepayment Risk </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prepayment.asp">Prepayment</a> risk is the risk that a given bond issue will be paid off earlier than expected, normally through a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/callprovision.asp">call provision</a>. This can be bad news for investors because the company only has an incentive to repay the obligation early when interest rates have declined substantially. Instead of continuing to hold a high-interest investment, investors are left to reinvest funds in a lower-interest-rate environment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <span class="heading-toc" id="toc-bond-ratings"></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"> Bond Ratings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> Most bonds come with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondrating.asp">rating</a> that outlines their quality of credit—that is, how strong the bond is and its ability to pay its principal and interest. Ratings are published and used by investors and professionals to judge their worthiness. </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"> Agencies </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> The most commonly cited bond rating agencies are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp.asp">Standard & Poor’s</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moodys.asp#toc-what-does-moodys-investors-service-do">Moody’s Investors Service</a>, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fitch-ratings.asp">Fitch Ratings</a>. They rate a company’s ability to repay its obligations. Each rating agency has a different scale. For S&P, investment grade ranges from AAA to BBB. These are the safest bonds with the lowest risk. This means they are unlikely to default and tend to remain stable investments.<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_76-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> Bonds rated BB or below are speculative bonds, also known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/junkbond.asp">junk bonds</a>—default is more likely, and they are more speculative and subject to price volatility.<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_78-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> Firms will not have their bonds rated, in which case it is solely up to the investor to judge a firm’s repayment ability. Because the rating systems differ for each agency and change from time to time, research the rating definition for the bond issue you are considering. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <span class="heading-toc" id="toc-bond-yields"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_81-0"> <span class="mntl-sc-block-heading__text"> Bond Yields </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond-yield.asp">Bond yields</a> are all measures of return. Yield to maturity is the measurement most often used, but it is important to understand several other yield measurements that are used in certain situations.<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_83-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_84-0"> <span class="mntl-sc-block-subheading__text"> Yield to Maturity (YTM) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> As noted above, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yieldtomaturity.asp">yield to maturity (YTM)</a> is the most commonly cited yield measurement. It measures what the return on a bond is if it is held to maturity and all coupons are reinvested at the YTM rate. Because it is unlikely that coupons will be reinvested at the same rate, an investor’s actual return will differ slightly. </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"> Calculating YTM by hand is a lengthy procedure, so it is best to use Excel’s RATE or YIELDMAT functions (starting with Excel 2007). A simple function is also available on a financial calculator. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_89-0"> <span class="mntl-sc-block-subheading__text"> Current Yield </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currentyield.asp">current yield</a> can be used to compare the interest income provided by a bond to the dividend income provided by a stock. This is calculated by dividing the bond’s annual coupon by the bond’s current price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_92-0"> Keep in mind, this yield incorporates only the income portion of the return, ignoring possible capital gains or losses. As such, this yield is most useful for investors concerned with current income only. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_94-0"> <span class="mntl-sc-block-subheading__text"> Nominal Yield </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_95-0"> The nominal yield on a bond is simply the percentage of interest to be paid on the bond periodically. It is calculated by dividing the annual coupon payment by the par or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/facevalue.asp">face value</a> of the bond. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_96-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_97-0"> It is important to note that the nominal yield does not estimate return accurately unless the current bond price is the same as its par value. Therefore, nominal yield is used only for calculating other measures of return. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_98-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_99-0"> <span class="mntl-sc-block-subheading__text"> Yield to Call (YTC) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_100-0"> A callable bond always bears some probability of being called before the maturity date. Investors will realize a slightly higher <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yield.asp">yield</a> if the called bonds are paid off at a premium. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_101-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_102-0"> An investor in such a bond may wish to know what yield will be realized if the bond is called at a particular call date, to determine whether the prepayment risk is worthwhile. It is easiest to calculate the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yieldtocall.asp">yield to call</a> using Excel’s YIELD or IRR functions, or with a financial calculator. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_104-0"> <span class="mntl-sc-block-subheading__text"> Realized Yield </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_105-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/realizedyield.asp">realized yield</a> of a bond should be calculated if an investor plans to hold a bond only for a certain period of time, rather than to maturity. In this case, the investor will sell the bond, and this projected future bond price must be estimated for the calculation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_106-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_107-0"> Because future prices are hard to predict, this yield measurement is only an estimation of return. This yield calculation is best performed using Excel’s YIELD or IRR functions, or by using a financial calculator. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_108-0"></div> <span class="heading-toc" id="toc-how-bonds-pay-interest"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_109-0"> <span class="mntl-sc-block-heading__text"> How Bonds Pay Interest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_110-0"> There are two ways that bondholders receive payment for their investment. Coupon payments are the periodic interest payments over the lifetime of a bond before the bond can be redeemed for par value at maturity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_111-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_112-0"> Some bonds are structured differently. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/z/zero-couponbond.asp">Zero-coupon bonds</a> are bonds with no coupon—the only payment is the face-value redemption at maturity. Zeros are usually sold at a discount from face value, so the difference between the purchase price and the par value can be computed as interest. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_113-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_114-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/convertiblebond.asp">Convertible bonds</a> are a type of hybrid security that combines the properties of bonds and stocks. These are ordinary, fixed-income bonds, but they can also be converted into stock of the issuing company. This adds an extra opportunity for profit if the issuing company shows large gains in its share price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_115-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_116-0"><span class="heading-toc" id="toc-which-is-larger-the-stock-market-or-the-bond-market"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Is Larger, the Stock Market or the Bond Market?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondmarket.asp">bond market</a> is actually much larger than the stock market, in terms of aggregate market value.<span class="ql-inline-citation" data-cite="15"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_117-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_118-0"><span class="heading-toc" id="toc-what-is-the-relationship-between-a-bonds-price-and-interest-rates"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Relationship Between a Bond’s Price and Interest Rates?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Bond prices are inversely related to interest rate moves. So if interest rates go up, bond prices fall, and vice versa.<span class="ql-inline-citation" data-cite="17"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_119-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_120-0"><span class="heading-toc" id="toc-are-bonds-risky-investments"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Bonds Risky Investments?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Bonds have historically been more conservative and less volatile than stocks, but there are still risks. For instance, there is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditrisk.asp">credit risk</a> that the bond issuer will default. There is also interest rate risk, where bond prices can fall if interest rates increase.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_121-0"></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_122-0"> <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_123-0"> Although the bond market appears complex, it is really driven by the same risk-return tradeoffs as the stock market. Once an investor masters these few basic terms and measurements to unmask the familiar market dynamics, they can become a competent bond investor. Once you have a hang of the lingo, the rest is easy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_124-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_125-0"> <em>Correction—Jan. 18, 2024: This article has been corrected to state that medium-term bonds tend to mature in four to 10 years.<br/></em> </p></div>	Want to strengthen your portfolio’s [risk-return](https://www.investopedia.com/terms/r/riskreturntradeoff.asp) profile? Adding bonds can create a more balanced [portfolio](https://www.investopedia.com/terms/p/portfolio.asp) by adding [diversification](https://www.investopedia.com/terms/d/diversification.asp) and calming [volatility](https://www.investopedia.com/terms/v/volatility.asp). But the bond market may seem unfamiliar even to the most experienced investors. Many investors make only passing ventures into bonds because they are confused by the apparent complexity of the bond market and the terminology. In reality, bonds are very simple debt instruments. So how do you get into this part of the market? How do bonds work? Get your [start in bond investing](https://www.investopedia.com/articles/investing/022516/7-questions-consider-investing-bonds.asp) by learning these basic bond market terms. ### Key Takeaways * The bond market can help investors diversify beyond stocks. * Some of the characteristics of bonds include their maturity, their coupon (interest) rate, their tax status, and their callability. * Several types of risks associated with bonds include interest rate risk, credit/default risk, and prepayment risk. * Most bonds come with ratings that describe their investment grade. ## How Do Bonds Work? A [bond](https://www.investopedia.com/terms/b/bond.asp) is simply a loan taken out by a company. Instead of going to a bank, the company gets the money from investors who buy its bonds. In exchange for the capital, the company pays an interest coupon, which is the annual interest rate paid on a bond expressed as a percentage of the face value. The company pays the [interest](https://www.investopedia.com/terms/i/interest.asp) at predetermined intervals (usually annually or semiannually) and returns the [principal](https://www.investopedia.com/terms/p/principal.asp) on the maturity date, ending the loan. Unlike stocks, bonds can vary significantly based on the terms of their [indenture](https://www.investopedia.com/terms/i/indenture.asp), a legal document outlining the characteristics of the bond. Because each bond issue is different, it is important to understand the precise terms before investing. In particular, there are six important features to look for when considering a bond. ### Bonds are a form of IOU between the lender and the borrower. ## Types of Bonds ### Corporate Bonds Corporate bonds refer to the debt securities that companies issue to pay their expenses and raise capital. The yield of these bonds depends on the [creditworthiness](https://www.investopedia.com/terms/c/credit-worthiness.asp) of the company that issues them. The riskiest bonds are known as “junk bonds,” but they also offer the highest returns. Interest from corporate bonds is subject to both federal and local income taxes. ### Sovereign Bonds Sovereign bonds, or sovereign debt, are debt securities issued by national governments to defray their expenses. Because the issuing governments are very unlikely to default, these bonds typically have a very high credit rating and a relatively low yield. In the United States, bonds issued by the federal government are called [Treasuries](https://www.investopedia.com/articles/investing/073113/introduction-treasury-securities.asp), while those issued by the United Kingdom are called [gilts](https://www.investopedia.com/terms/g/gilts.asp). Treasuries are exempt from state and local tax, although they are still subject to federal income tax. ### Municipal Bonds [Municipal bonds](https://www.investopedia.com/terms/m/municipalbond.asp), or munis, are bonds issued by local governments. Contrary to what the name suggests, this can refer to state and county debt, not just municipal debt. Municipal bond income is not subject to most taxes, making them an attractive investment for investors in higher tax brackets. ### Read about Investopedia’s [10 Rules of Investing](https://www.amazon.com/Investopedia-10-Rules-Investing/dp/B0CP7T6TQM/) by picking up a copy of our special-issue print edition. ## Key Terms ### Maturity This is the date when the principal or par amount of the bond is paid to investors and the company’s bond [obligation](https://www.investopedia.com/terms/o/obligation.asp) ends. Therefore, it defines the lifetime of the bond. A bond’s [maturity](https://www.investopedia.com/terms/m/maturity.asp) is one of [the primary considerations](https://www.investopedia.com/articles/investing/111215/simple-math-fixedcoupon-corporate-bonds.asp) that an investor weighs against their investment goals and horizon. Maturity is often classified in three ways: * Short-term: Bonds that fall into this category tend to mature in one to three years. * Medium-term: Maturity dates for these types of bonds are normally four to 10 years. * Long-term: These bonds generally mature over more than 10 years. ### Secured/Unsecured A bond can be secured or unsecured. A [secured bond](https://www.investopedia.com/terms/s/securedbond.asp) pledges specific assets to bondholders if the company cannot repay the obligation. This asset is also called collateral on the loan. If the bond issuer defaults, the asset is then transferred to the investor. A [mortgage-backed security (MBS)](https://www.investopedia.com/terms/m/mbs.asp) is one type of secured bond backed by titles to the homes of the borrowers. Unsecured bonds, on the other hand, are not backed by any collateral. This means that the interest and principal are only guaranteed by the issuing company. Also called [debentures](https://www.investopedia.com/terms/d/debenture.asp), these bonds return little of your investment if the company fails. As such, they are much riskier than secured bonds. ### Liquidation Preference When a firm goes bankrupt, it repays investors in a particular order as it liquidates. After a firm sells off all its assets, it begins to pay out its investors. [Senior debt](https://www.investopedia.com/terms/s/seniordebt.asp) is debt that must be paid first, followed by junior (subordinated) debt. [Stockholders](https://www.investopedia.com/terms/s/shareholder.asp) get whatever is left. ### Coupon The [coupon](https://www.investopedia.com/terms/c/coupon.asp) amount represents interest paid to bondholders, normally annually or semiannually. The coupon is also called the coupon rate or [nominal yield](https://www.investopedia.com/terms/n/nominalyield.asp). To calculate the coupon rate, divide the annual payments by the face value of the bond. ### Tax Status While the majority of [corporate bonds are taxable investments](https://www.investopedia.com/ask/answers/052715/how-corporate-bond-taxed.asp), some government and municipal bonds are tax-exempt, so income and [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) are not subject to taxation. Tax-exempt bonds normally have lower interest than equivalent taxable bonds. An investor must calculate the tax-equivalent yield to compare the return with that of taxable instruments. ### Callability Some bonds can be paid off by an issuer before maturity. If a bond has a call provision, it may be paid off at earlier dates, at the option of the company, usually at a slight premium to [par](https://www.investopedia.com/terms/p/parvalue.asp). A company may choose to call its bonds if [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) allow them to borrow at a better rate. Callable bonds also appeal to investors, as they offer better coupon rates. ## Risks of Bonds Bonds are a great way to earn [income](https://www.investopedia.com/terms/i/income.asp) because they tend to be relatively safe investments. But, just like any other investment, they do come with certain risks. Here are some of the most common risks with these investments. ### Interest Rate Risk Interest rates share an inverse relationship with bonds, so when rates rise, bonds tend to fall, and vice versa. [Interest rate risk](https://www.investopedia.com/terms/i/interestraterisk.asp) comes when rates change significantly from what the investor expected. If interest rates decline significantly, the investor faces the possibility of prepayment. If interest rates rise, the investor will be stuck with an instrument yielding below market rates. The greater the time to maturity, the greater the interest rate risk an investor bears, because it is harder to predict market developments further into the future. ### Credit/Default Risk Credit or [default risk](https://www.investopedia.com/terms/d/defaultrisk.asp) is the risk that interest and principal payments due on the obligation will not be made as required. When an investor buys a bond, they expect that the issuer will make good on the interest and principal payments—just like any other creditor. When an investor looks into corporate bonds, they should weigh out the possibility that the company may [default](https://www.investopedia.com/terms/d/default2.asp) on the debt. Safety usually means the company has greater operating income and cash flow compared to its debt. If the inverse is true and the debt outweighs available cash, the investor may want to stay away. ### Prepayment Risk [Prepayment](https://www.investopedia.com/terms/p/prepayment.asp) risk is the risk that a given bond issue will be paid off earlier than expected, normally through a [call provision](https://www.investopedia.com/terms/c/callprovision.asp). This can be bad news for investors because the company only has an incentive to repay the obligation early when interest rates have declined substantially. Instead of continuing to hold a high-interest investment, investors are left to reinvest funds in a lower-interest-rate environment. ## Bond Ratings Most bonds come with a [rating](https://www.investopedia.com/terms/b/bondrating.asp) that outlines their quality of credit—that is, how strong the bond is and its ability to pay its principal and interest. Ratings are published and used by investors and professionals to judge their worthiness. ### Agencies The most commonly cited bond rating agencies are [Standard & Poor’s](https://www.investopedia.com/terms/s/sp.asp), [Moody’s Investors Service](https://www.investopedia.com/terms/m/moodys.asp#toc-what-does-moodys-investors-service-do), and [Fitch Ratings](https://www.investopedia.com/terms/f/fitch-ratings.asp). They rate a company’s ability to repay its obligations. Each rating agency has a different scale. For S&P, investment grade ranges from AAA to BBB. These are the safest bonds with the lowest risk. This means they are unlikely to default and tend to remain stable investments. Bonds rated BB or below are speculative bonds, also known as [junk bonds](https://www.investopedia.com/terms/j/junkbond.asp)—default is more likely, and they are more speculative and subject to price volatility. Firms will not have their bonds rated, in which case it is solely up to the investor to judge a firm’s repayment ability. Because the rating systems differ for each agency and change from time to time, research the rating definition for the bond issue you are considering. ## Bond Yields [Bond yields](https://www.investopedia.com/terms/b/bond-yield.asp) are all measures of return. Yield to maturity is the measurement most often used, but it is important to understand several other yield measurements that are used in certain situations. ### Yield to Maturity (YTM) As noted above, [yield to maturity (YTM)](https://www.investopedia.com/terms/y/yieldtomaturity.asp) is the most commonly cited yield measurement. It measures what the return on a bond is if it is held to maturity and all coupons are reinvested at the YTM rate. Because it is unlikely that coupons will be reinvested at the same rate, an investor’s actual return will differ slightly. Calculating YTM by hand is a lengthy procedure, so it is best to use Excel’s RATE or YIELDMAT functions (starting with Excel 2007). A simple function is also available on a financial calculator. ### Current Yield The [current yield](https://www.investopedia.com/terms/c/currentyield.asp) can be used to compare the interest income provided by a bond to the dividend income provided by a stock. This is calculated by dividing the bond’s annual coupon by the bond’s current price. Keep in mind, this yield incorporates only the income portion of the return, ignoring possible capital gains or losses. As such, this yield is most useful for investors concerned with current income only. ### Nominal Yield The nominal yield on a bond is simply the percentage of interest to be paid on the bond periodically. It is calculated by dividing the annual coupon payment by the par or [face value](https://www.investopedia.com/terms/f/facevalue.asp) of the bond. It is important to note that the nominal yield does not estimate return accurately unless the current bond price is the same as its par value. Therefore, nominal yield is used only for calculating other measures of return. ### Yield to Call (YTC) A callable bond always bears some probability of being called before the maturity date. Investors will realize a slightly higher [yield](https://www.investopedia.com/terms/y/yield.asp) if the called bonds are paid off at a premium. An investor in such a bond may wish to know what yield will be realized if the bond is called at a particular call date, to determine whether the prepayment risk is worthwhile. It is easiest to calculate the [yield to call](https://www.investopedia.com/terms/y/yieldtocall.asp) using Excel’s YIELD or IRR functions, or with a financial calculator. ### Realized Yield The [realized yield](https://www.investopedia.com/terms/r/realizedyield.asp) of a bond should be calculated if an investor plans to hold a bond only for a certain period of time, rather than to maturity. In this case, the investor will sell the bond, and this projected future bond price must be estimated for the calculation. Because future prices are hard to predict, this yield measurement is only an estimation of return. This yield calculation is best performed using Excel’s YIELD or IRR functions, or by using a financial calculator. ## How Bonds Pay Interest There are two ways that bondholders receive payment for their investment. Coupon payments are the periodic interest payments over the lifetime of a bond before the bond can be redeemed for par value at maturity. Some bonds are structured differently. [Zero-coupon bonds](https://www.investopedia.com/terms/z/zero-couponbond.asp) are bonds with no coupon—the only payment is the face-value redemption at maturity. Zeros are usually sold at a discount from face value, so the difference between the purchase price and the par value can be computed as interest. [Convertible bonds](https://www.investopedia.com/terms/c/convertiblebond.asp) are a type of hybrid security that combines the properties of bonds and stocks. These are ordinary, fixed-income bonds, but they can also be converted into stock of the issuing company. This adds an extra opportunity for profit if the issuing company shows large gains in its share price. ## Which Is Larger, the Stock Market or the Bond Market? The [bond market](https://www.investopedia.com/terms/b/bondmarket.asp) is actually much larger than the stock market, in terms of aggregate market value. ## What Is the Relationship Between a Bond’s Price and Interest Rates? Bond prices are inversely related to interest rate moves. So if interest rates go up, bond prices fall, and vice versa. ## Are Bonds Risky Investments? Bonds have historically been more conservative and less volatile than stocks, but there are still risks. For instance, there is a [credit risk](https://www.investopedia.com/terms/c/creditrisk.asp) that the bond issuer will default. There is also interest rate risk, where bond prices can fall if interest rates increase. ## The Bottom Line Although the bond market appears complex, it is really driven by the same risk-return tradeoffs as the stock market. Once an investor masters these few basic terms and measurements to unmask the familiar market dynamics, they can become a competent bond investor. Once you have a hang of the lingo, the rest is easy. Correction—Jan. 18, 2024: This article has been corrected to state that medium-term bonds tend to mature in four to 10 years.	Want to strengthen your portfolio’s risk-return profile? Adding bonds can create a more balanced portfolio by adding diversification and calming volatility. But the bond market may seem unfamiliar even to the most experienced investors. Many investors make only passing ventures into bonds because they are confused by the apparent complexity of the bond market and the terminology. In reality, bonds are very simple debt instruments. So how do you get into this part of the market? How do bonds work? Get your start in bond investing by learning these basic bond market terms. Key Takeaways The bond market can help investors diversify beyond stocks.Some of the characteristics of bonds include their maturity, their coupon (interest) rate, their tax status, and their callability.Several types of risks associated with bonds include interest rate risk, credit/default risk, and prepayment risk.Most bonds come with ratings that describe their investment grade. How Do Bonds Work? A bond is simply a loan taken out by a company. Instead of going to a bank, the company gets the money from investors who buy its bonds. In exchange for the capital, the company pays an interest coupon, which is the annual interest rate paid on a bond expressed as a percentage of the face value. The company pays the interest at predetermined intervals (usually annually or semiannually) and returns the principal on the maturity date, ending the loan. Unlike stocks, bonds can vary significantly based on the terms of their indenture, a legal document outlining the characteristics of the bond. Because each bond issue is different, it is important to understand the precise terms before investing. In particular, there are six important features to look for when considering a bond. Bonds are a form of IOU between the lender and the borrower. Types of Bonds Corporate Bonds Corporate bonds refer to the debt securities that companies issue to pay their expenses and raise capital. The yield of these bonds depends on the creditworthiness of the company that issues them. The riskiest bonds are known as “junk bonds,” but they also offer the highest returns. Interest from corporate bonds is subject to both federal and local income taxes. Sovereign Bonds Sovereign bonds, or sovereign debt, are debt securities issued by national governments to defray their expenses. Because the issuing governments are very unlikely to default, these bonds typically have a very high credit rating and a relatively low yield. In the United States, bonds issued by the federal government are called Treasuries, while those issued by the United Kingdom are called gilts. Treasuries are exempt from state and local tax, although they are still subject to federal income tax. Municipal Bonds Municipal bonds, or munis, are bonds issued by local governments. Contrary to what the name suggests, this can refer to state and county debt, not just municipal debt. Municipal bond income is not subject to most taxes, making them an attractive investment for investors in higher tax brackets. Read about Investopedia’s 10 Rules of Investing by picking up a copy of our special-issue print edition. Key Terms Maturity This is the date when the principal or par amount of the bond is paid to investors and the company’s bond obligation ends. Therefore, it defines the lifetime of the bond. A bond’s maturity is one of the primary considerations that an investor weighs against their investment goals and horizon. Maturity is often classified in three ways: Short-term: Bonds that fall into this category tend to mature in one to three years.Medium-term: Maturity dates for these types of bonds are normally four to 10 years.Long-term: These bonds generally mature over more than 10 years. Secured/Unsecured A bond can be secured or unsecured. A secured bond pledges specific assets to bondholders if the company cannot repay the obligation. This asset is also called collateral on the loan. If the bond issuer defaults, the asset is then transferred to the investor. A mortgage-backed security (MBS) is one type of secured bond backed by titles to the homes of the borrowers. Unsecured bonds, on the other hand, are not backed by any collateral. This means that the interest and principal are only guaranteed by the issuing company. Also called debentures, these bonds return little of your investment if the company fails. As such, they are much riskier than secured bonds. Liquidation Preference When a firm goes bankrupt, it repays investors in a particular order as it liquidates. After a firm sells off all its assets, it begins to pay out its investors. Senior debt is debt that must be paid first, followed by junior (subordinated) debt. Stockholders get whatever is left. Coupon The coupon amount represents interest paid to bondholders, normally annually or semiannually. The coupon is also called the coupon rate or nominal yield. To calculate the coupon rate, divide the annual payments by the face value of the bond. Tax Status While the majority of corporate bonds are taxable investments, some government and municipal bonds are tax-exempt, so income and capital gains are not subject to taxation. Tax-exempt bonds normally have lower interest than equivalent taxable bonds. An investor must calculate the tax-equivalent yield to compare the return with that of taxable instruments. Callability Some bonds can be paid off by an issuer before maturity. If a bond has a call provision, it may be paid off at earlier dates, at the option of the company, usually at a slight premium to par. A company may choose to call its bonds if interest rates allow them to borrow at a better rate. Callable bonds also appeal to investors, as they offer better coupon rates. Risks of Bonds Bonds are a great way to earn income because they tend to be relatively safe investments. But, just like any other investment, they do come with certain risks. Here are some of the most common risks with these investments. Interest Rate Risk Interest rates share an inverse relationship with bonds, so when rates rise, bonds tend to fall, and vice versa. Interest rate risk comes when rates change significantly from what the investor expected. If interest rates decline significantly, the investor faces the possibility of prepayment. If interest rates rise, the investor will be stuck with an instrument yielding below market rates. The greater the time to maturity, the greater the interest rate risk an investor bears, because it is harder to predict market developments further into the future. Credit/Default Risk Credit or default risk is the risk that interest and principal payments due on the obligation will not be made as required. When an investor buys a bond, they expect that the issuer will make good on the interest and principal payments—just like any other creditor. When an investor looks into corporate bonds, they should weigh out the possibility that the company may default on the debt. Safety usually means the company has greater operating income and cash flow compared to its debt. If the inverse is true and the debt outweighs available cash, the investor may want to stay away. Prepayment Risk Prepayment risk is the risk that a given bond issue will be paid off earlier than expected, normally through a call provision. This can be bad news for investors because the company only has an incentive to repay the obligation early when interest rates have declined substantially. Instead of continuing to hold a high-interest investment, investors are left to reinvest funds in a lower-interest-rate environment. Bond Ratings Most bonds come with a rating that outlines their quality of credit—that is, how strong the bond is and its ability to pay its principal and interest. Ratings are published and used by investors and professionals to judge their worthiness. Agencies The most commonly cited bond rating agencies are Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings. They rate a company’s ability to repay its obligations. Each rating agency has a different scale. For S&P, investment grade ranges from AAA to BBB. These are the safest bonds with the lowest risk. This means they are unlikely to default and tend to remain stable investments. Bonds rated BB or below are speculative bonds, also known as junk bonds—default is more likely, and they are more speculative and subject to price volatility. Firms will not have their bonds rated, in which case it is solely up to the investor to judge a firm’s repayment ability. Because the rating systems differ for each agency and change from time to time, research the rating definition for the bond issue you are considering. Bond Yields Bond yields are all measures of return. Yield to maturity is the measurement most often used, but it is important to understand several other yield measurements that are used in certain situations. Yield to Maturity (YTM) As noted above, yield to maturity (YTM) is the most commonly cited yield measurement. It measures what the return on a bond is if it is held to maturity and all coupons are reinvested at the YTM rate. Because it is unlikely that coupons will be reinvested at the same rate, an investor’s actual return will differ slightly. Calculating YTM by hand is a lengthy procedure, so it is best to use Excel’s RATE or YIELDMAT functions (starting with Excel 2007). A simple function is also available on a financial calculator. Current Yield The current yield can be used to compare the interest income provided by a bond to the dividend income provided by a stock. This is calculated by dividing the bond’s annual coupon by the bond’s current price. Keep in mind, this yield incorporates only the income portion of the return, ignoring possible capital gains or losses. As such, this yield is most useful for investors concerned with current income only. Nominal Yield The nominal yield on a bond is simply the percentage of interest to be paid on the bond periodically. It is calculated by dividing the annual coupon payment by the par or face value of the bond. It is important to note that the nominal yield does not estimate return accurately unless the current bond price is the same as its par value. Therefore, nominal yield is used only for calculating other measures of return. Yield to Call (YTC) A callable bond always bears some probability of being called before the maturity date. Investors will realize a slightly higher yield if the called bonds are paid off at a premium. An investor in such a bond may wish to know what yield will be realized if the bond is called at a particular call date, to determine whether the prepayment risk is worthwhile. It is easiest to calculate the yield to call using Excel’s YIELD or IRR functions, or with a financial calculator. Realized Yield The realized yield of a bond should be calculated if an investor plans to hold a bond only for a certain period of time, rather than to maturity. In this case, the investor will sell the bond, and this projected future bond price must be estimated for the calculation. Because future prices are hard to predict, this yield measurement is only an estimation of return. This yield calculation is best performed using Excel’s YIELD or IRR functions, or by using a financial calculator. How Bonds Pay Interest There are two ways that bondholders receive payment for their investment. Coupon payments are the periodic interest payments over the lifetime of a bond before the bond can be redeemed for par value at maturity. Some bonds are structured differently. Zero-coupon bonds are bonds with no coupon—the only payment is the face-value redemption at maturity. Zeros are usually sold at a discount from face value, so the difference between the purchase price and the par value can be computed as interest. Convertible bonds are a type of hybrid security that combines the properties of bonds and stocks. These are ordinary, fixed-income bonds, but they can also be converted into stock of the issuing company. This adds an extra opportunity for profit if the issuing company shows large gains in its share price. Which Is Larger, the Stock Market or the Bond Market? The bond market is actually much larger than the stock market, in terms of aggregate market value. What Is the Relationship Between a Bond’s Price and Interest Rates? Bond prices are inversely related to interest rate moves. So if interest rates go up, bond prices fall, and vice versa. Are Bonds Risky Investments? Bonds have historically been more conservative and less volatile than stocks, but there are still risks. For instance, there is a credit risk that the bond issuer will default. There is also interest rate risk, where bond prices can fall if interest rates increase. The Bottom Line Although the bond market appears complex, it is really driven by the same risk-return tradeoffs as the stock market. Once an investor masters these few basic terms and measurements to unmask the familiar market dynamics, they can become a competent bond investor. Once you have a hang of the lingo, the rest is easy. Correction—Jan. 18, 2024: This article has been corrected to state that medium-term bonds tend to mature in four to 10 years.	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https://www.investopedia.com/arista-networks-founder-andy-bechtolsheim-settles-insider-trading-charges-with-sec-8620562	Arista Networks Founder Andy Bechtolsheim Settles Insider Trading Charges With SEC	<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>Arista Networks founder Andy Bechtolsheim reached a settlement with the Securities and Exchange Commission (SEC) on insider trading charges and will pay almost $1 million in penalties, the SEC said Tuesday.</li><li>Officials charged Bechtolsheim with using material nonpublic information concerning the sale of Acacia Communications in 2019 to gain from trading options of Acacia.</li><li>Bechtolsheim settled without admitting or denying charges and will be barred from serving as an officer or director of a public company for five years.</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"> Arista Networks (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ANET">ANET</a>) founder Andy Bechtolsheim reached a settlement with the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission (SEC)</a> on <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insidertrading.asp">insider trading</a> charges and will pay nearly $1 million in penalties, the SEC said Tuesday. </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"> Regulators said that on July 8, 2019, when he was chair of Arista Networks, Andy Bechtolsheim received <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/materialinsiderinformation.asp">material nonpublic information</a> about the impending <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/acquisition.asp">acquisition</a> of Acacia Communications through his and Arista’s “longstanding relationship with another multinational technology company that was also considering acquiring Acacia.” </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 complaint alleges Bechtolsheim then used accounts of a close relative and an associate to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-trade-options-7378194">trade options</a> in Acacia. Before the opening of the markets the next day, Cisco Systems (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CSCO">CSCO</a>) announced it would buy Acacia for $70 per share, sending Acacia shares soaring about 35%. The SEC said the transaction netted Bechtolsheim $415,726. </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 SEC said Bechtolsheim settled without admitting or denying charges and agreed to pay a penalty of $923,740. He will be barred from serving as an officer or director of a public company for five years. The agreement is still subject to approval from the federal district court for the Northern District of California. </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"> “While the SEC announcement did not involve any trading in Arista securities, Arista takes compliance to the company’s code of conduct and insider trading policy seriously,” Arista Networks said in a statement. "Arista will respond appropriately to the situation." </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 Arista Networks finished 2.5% lower Tuesday at $297.83, though they've gained close to 29% so far in 2024. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <em>UPDATE—March 26, 2024: </em>This article has been updated to include additional information from a statement by Arista Networks. </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:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>	### Key Takeaways * Arista Networks founder Andy Bechtolsheim reached a settlement with the Securities and Exchange Commission (SEC) on insider trading charges and will pay almost $1 million in penalties, the SEC said Tuesday. * Officials charged Bechtolsheim with using material nonpublic information concerning the sale of Acacia Communications in 2019 to gain from trading options of Acacia. * Bechtolsheim settled without admitting or denying charges and will be barred from serving as an officer or director of a public company for five years. Arista Networks ([ANET](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ANET)) founder Andy Bechtolsheim reached a settlement with the [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp) on [insider trading](https://www.investopedia.com/terms/i/insidertrading.asp) charges and will pay nearly $1 million in penalties, the SEC said Tuesday. Regulators said that on July 8, 2019, when he was chair of Arista Networks, Andy Bechtolsheim received [material nonpublic information](https://www.investopedia.com/terms/m/materialinsiderinformation.asp) about the impending [acquisition](https://www.investopedia.com/terms/a/acquisition.asp) of Acacia Communications through his and Arista’s “longstanding relationship with another multinational technology company that was also considering acquiring Acacia.” The complaint alleges Bechtolsheim then used accounts of a close relative and an associate to [trade options](https://www.investopedia.com/how-to-trade-options-7378194) in Acacia. Before the opening of the markets the next day, Cisco Systems ([CSCO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CSCO)) announced it would buy Acacia for $70 per share, sending Acacia shares soaring about 35%. The SEC said the transaction netted Bechtolsheim $415,726. The SEC said Bechtolsheim settled without admitting or denying charges and agreed to pay a penalty of $923,740. He will be barred from serving as an officer or director of a public company for five years. The agreement is still subject to approval from the federal district court for the Northern District of California. “While the SEC announcement did not involve any trading in Arista securities, Arista takes compliance to the company’s code of conduct and insider trading policy seriously,” Arista Networks said in a statement. "Arista will respond appropriately to the situation." Shares of Arista Networks finished 2.5% lower Tuesday at $297.83, though they've gained close to 29% so far in 2024. UPDATE—March 26, 2024: This article has been updated to include additional information from a statement by Arista Networks. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])	Key Takeaways Arista Networks founder Andy Bechtolsheim reached a settlement with the Securities and Exchange Commission (SEC) on insider trading charges and will pay almost $1 million in penalties, the SEC said Tuesday.Officials charged Bechtolsheim with using material nonpublic information concerning the sale of Acacia Communications in 2019 to gain from trading options of Acacia.Bechtolsheim settled without admitting or denying charges and will be barred from serving as an officer or director of a public company for five years. Arista Networks (ANET) founder Andy Bechtolsheim reached a settlement with the Securities and Exchange Commission (SEC) on insider trading charges and will pay nearly $1 million in penalties, the SEC said Tuesday. Regulators said that on July 8, 2019, when he was chair of Arista Networks, Andy Bechtolsheim received material nonpublic information about the impending acquisition of Acacia Communications through his and Arista’s “longstanding relationship with another multinational technology company that was also considering acquiring Acacia.” The complaint alleges Bechtolsheim then used accounts of a close relative and an associate to trade options in Acacia. Before the opening of the markets the next day, Cisco Systems (CSCO) announced it would buy Acacia for $70 per share, sending Acacia shares soaring about 35%. The SEC said the transaction netted Bechtolsheim $415,726. The SEC said Bechtolsheim settled without admitting or denying charges and agreed to pay a penalty of $923,740. He will be barred from serving as an officer or director of a public company for five years. The agreement is still subject to approval from the federal district court for the Northern District of California. “While the SEC announcement did not involve any trading in Arista securities, Arista takes compliance to the company’s code of conduct and insider trading policy seriously,” Arista Networks said in a statement. "Arista will respond appropriately to the situation." Shares of Arista Networks finished 2.5% lower Tuesday at $297.83, though they've gained close to 29% so far in 2024. UPDATE—March 26, 2024: This article has been updated to include additional information from a statement by Arista Networks. Do you have a news tip for Investopedia reporters? Please email us at [email protected]	[ [ "ANET", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=ANET" ], [ "Securities and Exchange Commission (SEC)", "https://www.investopedia.com/terms/s/sec.asp" ], [ "insider trading", "https://www.investopedia.com/terms/i/insidertrading.asp" ], [ "material nonpublic information", "https://www.investopedia.com/terms/m/materialinsiderinformation.asp" ], [ "acquisition", "https://www.investopedia.com/terms/a/acquisition.asp" ], [ "trade options", "https://www.investopedia.com/how-to-trade-options-7378194" ], [ "CSCO", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=CSCO" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/terms/u/unified-payment-interface-upi.asp	Unified Payments Interface (UPI): Definition 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-a-unified-payments-interface-upi"></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 Unified Payments Interface (UPI)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A Unified Payments Interface (UPI) is a smartphone application that allows users to transfer money between bank accounts. It is a single-window mobile payment system developed by the National Payments Corporation of India (NPCI). It eliminates the need to enter bank details or other sensitive information each time a customer initiates a transaction.<span class="ql-inline-citation" data-cite="1"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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 Unified Payments Interface (UPI) is a smartphone application for banking in India.</li><li>The interface is regulated by the Reserve Bank of India (RBI), India's central bank.</li><li>This app eliminates the need to enter bank details or other sensitive information each time a customer initiates a transaction, making it a safe way to bank.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-unified-payments-interface-upi-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 Unified Payments Interface (UPI) Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The Unified Payments Interface is a real-time payment system. It is designed to enable peer-to-peer inter-bank transfers through a single two-click factor authentication process. The interface is regulated by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rbi.asp">Reserve Bank of India (RBI)</a>, India's central bank. It works by transferring money between two bank accounts along with a mobile platform. </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 system is said to be a safe and secure method of transferring money between two parties and eliminates the need to transact with physical cash or through a bank. The pilot system was launched in India on April 11, 2016. Banks across the country started to upload their interface in Aug. 2016.<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"> UPI uses existing systems, such as Immediate Payment Service (IMPS) and Aadhaar Enabled Payment System (AEPS), to ensure seamless settlement across accounts. It facilitates push (pay) and pull (receive) transactions and even works for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/otc.asp">over-the-counter</a> or barcode payments, as well as for multiple recurring payments such as utility bills, school fees, and other subscriptions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>In 2021, $940 billion was transacted over UPI, and in 2022, the average monthly transaction count was more than six billion.<span class="ql-inline-citation" data-cite="4"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Once a single identifier is established, the system allows mobile payments to be delivered without the use of credit or debit cards, net banking, or any need to enter account details. This would not just ensure greater safety of sensitive information, but connect people who have bank accounts via <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/smartphone.asp" rel="noopener noreferrer">smartphones</a> to carry out hassle-free transactions. </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"> Overall, UPI implies fewer cash transactions and potentially reduces the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unbanked.asp" rel="noopener noreferrer">unbanked</a> population. </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-sending-money-vs-receiving-money"></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"> Sending Money vs. Receiving Money </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Sending money on the UPI is called a "push." In order to send money, the user logs into the interface and selects the Send Money/Payment option. After entering the recipient's virtual ID and the amount desired, they choose the account from which the money will be debited. The user then enters a special <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/personal-identification-number.asp">personal identification number (PIN)</a> and receives a confirmation. </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"> Receiving money through the system is called a "pull." Once the user has logged in to the system, they select the option to collect money. The user then needs to enter the virtual ID for the remitter, the amount to be collected, and the account in which they will deposit the funds. A message then goes to the payer with the request to pay. If they decide to make the payment, they enter their UPI PIN to authorize the transaction. </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"> Once the transfer has been completed, both the sender and the recipient receive a confirmation by text message to their smartphones. </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-services-offered-by-upi"></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"> Services Offered by UPI </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> A number of key features are offered by UPI. Users can access balances and transaction histories along with sending and receiving money. To send money, users need an account number, the Indian Financial System Code (or IFSC, which is an alphanumeric code that facilitates electronic transfers), the mobile number of the recipient, and a virtual ID or Aadhaar number (which is like a Social Security number). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_29-0"><span class="heading-toc" id="toc-is-upi-available-in-the-us"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is UPI Available in the U.S.?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, UPI is available in the U.S. You are able to send money to India from the U.S. using UPI. You need the UPI ID of the receiver and can use a variety of banking apps, such as Wise, World Remit, and Remitly.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-which-upi-systems-can-you-use-in-india"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which UPI Systems Can You Use in India?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The UPI systems that you can use in India consist of many banking/payment apps that allow you to use UPI. These include PhonePe, Google Pay, Axis Pay, and BHIM.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-is-upi-safe-in-india"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is UPI Safe in India?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, UPI is safe in India. It is regulated by India's central bank, the Reserve Bank of India.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The Unified Payments Interface (UPI) in India is a regulated smartphone tool that allows for mobile payments to be made without debit or credit cards. The UPI has made paying for transactions easier and simpler, facilitating economic movement within the country. </p></div>	## What Is a Unified Payments Interface (UPI)? A Unified Payments Interface (UPI) is a smartphone application that allows users to transfer money between bank accounts. It is a single-window mobile payment system developed by the National Payments Corporation of India (NPCI). It eliminates the need to enter bank details or other sensitive information each time a customer initiates a transaction. ### Key Takeaways * The Unified Payments Interface (UPI) is a smartphone application for banking in India. * The interface is regulated by the Reserve Bank of India (RBI), India's central bank. * This app eliminates the need to enter bank details or other sensitive information each time a customer initiates a transaction, making it a safe way to bank. ## How Unified Payments Interface (UPI) Works The Unified Payments Interface is a real-time payment system. It is designed to enable peer-to-peer inter-bank transfers through a single two-click factor authentication process. The interface is regulated by the [Reserve Bank of India (RBI)](https://www.investopedia.com/terms/r/rbi.asp), India's central bank. It works by transferring money between two bank accounts along with a mobile platform. The system is said to be a safe and secure method of transferring money between two parties and eliminates the need to transact with physical cash or through a bank. The pilot system was launched in India on April 11, 2016. Banks across the country started to upload their interface in Aug. 2016. UPI uses existing systems, such as Immediate Payment Service (IMPS) and Aadhaar Enabled Payment System (AEPS), to ensure seamless settlement across accounts. It facilitates push (pay) and pull (receive) transactions and even works for [over-the-counter](https://www.investopedia.com/terms/o/otc.asp) or barcode payments, as well as for multiple recurring payments such as utility bills, school fees, and other subscriptions. ### In 2021, $940 billion was transacted over UPI, and in 2022, the average monthly transaction count was more than six billion. Once a single identifier is established, the system allows mobile payments to be delivered without the use of credit or debit cards, net banking, or any need to enter account details. This would not just ensure greater safety of sensitive information, but connect people who have bank accounts via [smartphones](https://www.investopedia.com/terms/s/smartphone.asp) to carry out hassle-free transactions. Overall, UPI implies fewer cash transactions and potentially reduces the [unbanked](https://www.investopedia.com/terms/u/unbanked.asp) population. ## Sending Money vs. Receiving Money Sending money on the UPI is called a "push." In order to send money, the user logs into the interface and selects the Send Money/Payment option. After entering the recipient's virtual ID and the amount desired, they choose the account from which the money will be debited. The user then enters a special [personal identification number (PIN)](https://www.investopedia.com/terms/p/personal-identification-number.asp) and receives a confirmation. Receiving money through the system is called a "pull." Once the user has logged in to the system, they select the option to collect money. The user then needs to enter the virtual ID for the remitter, the amount to be collected, and the account in which they will deposit the funds. A message then goes to the payer with the request to pay. If they decide to make the payment, they enter their UPI PIN to authorize the transaction. Once the transfer has been completed, both the sender and the recipient receive a confirmation by text message to their smartphones. ## Services Offered by UPI A number of key features are offered by UPI. Users can access balances and transaction histories along with sending and receiving money. To send money, users need an account number, the Indian Financial System Code (or IFSC, which is an alphanumeric code that facilitates electronic transfers), the mobile number of the recipient, and a virtual ID or Aadhaar number (which is like a Social Security number). ## Is UPI Available in the U.S.? Yes, UPI is available in the U.S. You are able to send money to India from the U.S. using UPI. You need the UPI ID of the receiver and can use a variety of banking apps, such as Wise, World Remit, and Remitly. ## Which UPI Systems Can You Use in India? The UPI systems that you can use in India consist of many banking/payment apps that allow you to use UPI. These include PhonePe, Google Pay, Axis Pay, and BHIM. ## Is UPI Safe in India? Yes, UPI is safe in India. It is regulated by India's central bank, the Reserve Bank of India. ## The Bottom Line The Unified Payments Interface (UPI) in India is a regulated smartphone tool that allows for mobile payments to be made without debit or credit cards. The UPI has made paying for transactions easier and simpler, facilitating economic movement within the country.	What Is a Unified Payments Interface (UPI)? A Unified Payments Interface (UPI) is a smartphone application that allows users to transfer money between bank accounts. It is a single-window mobile payment system developed by the National Payments Corporation of India (NPCI). It eliminates the need to enter bank details or other sensitive information each time a customer initiates a transaction. Key Takeaways The Unified Payments Interface (UPI) is a smartphone application for banking in India.The interface is regulated by the Reserve Bank of India (RBI), India's central bank.This app eliminates the need to enter bank details or other sensitive information each time a customer initiates a transaction, making it a safe way to bank. How Unified Payments Interface (UPI) Works The Unified Payments Interface is a real-time payment system. It is designed to enable peer-to-peer inter-bank transfers through a single two-click factor authentication process. The interface is regulated by the Reserve Bank of India (RBI), India's central bank. It works by transferring money between two bank accounts along with a mobile platform. The system is said to be a safe and secure method of transferring money between two parties and eliminates the need to transact with physical cash or through a bank. The pilot system was launched in India on April 11, 2016. Banks across the country started to upload their interface in Aug. 2016. UPI uses existing systems, such as Immediate Payment Service (IMPS) and Aadhaar Enabled Payment System (AEPS), to ensure seamless settlement across accounts. It facilitates push (pay) and pull (receive) transactions and even works for over-the-counter or barcode payments, as well as for multiple recurring payments such as utility bills, school fees, and other subscriptions. In 2021, $940 billion was transacted over UPI, and in 2022, the average monthly transaction count was more than six billion. Once a single identifier is established, the system allows mobile payments to be delivered without the use of credit or debit cards, net banking, or any need to enter account details. This would not just ensure greater safety of sensitive information, but connect people who have bank accounts via smartphones to carry out hassle-free transactions. Overall, UPI implies fewer cash transactions and potentially reduces the unbanked population. Sending Money vs. Receiving Money Sending money on the UPI is called a "push." In order to send money, the user logs into the interface and selects the Send Money/Payment option. After entering the recipient's virtual ID and the amount desired, they choose the account from which the money will be debited. The user then enters a special personal identification number (PIN) and receives a confirmation. Receiving money through the system is called a "pull." Once the user has logged in to the system, they select the option to collect money. The user then needs to enter the virtual ID for the remitter, the amount to be collected, and the account in which they will deposit the funds. A message then goes to the payer with the request to pay. If they decide to make the payment, they enter their UPI PIN to authorize the transaction. Once the transfer has been completed, both the sender and the recipient receive a confirmation by text message to their smartphones. Services Offered by UPI A number of key features are offered by UPI. Users can access balances and transaction histories along with sending and receiving money. To send money, users need an account number, the Indian Financial System Code (or IFSC, which is an alphanumeric code that facilitates electronic transfers), the mobile number of the recipient, and a virtual ID or Aadhaar number (which is like a Social Security number). Is UPI Available in the U.S.? Yes, UPI is available in the U.S. You are able to send money to India from the U.S. using UPI. You need the UPI ID of the receiver and can use a variety of banking apps, such as Wise, World Remit, and Remitly. Which UPI Systems Can You Use in India? The UPI systems that you can use in India consist of many banking/payment apps that allow you to use UPI. These include PhonePe, Google Pay, Axis Pay, and BHIM. Is UPI Safe in India? Yes, UPI is safe in India. It is regulated by India's central bank, the Reserve Bank of India. The Bottom Line The Unified Payments Interface (UPI) in India is a regulated smartphone tool that allows for mobile payments to be made without debit or credit cards. The UPI has made paying for transactions easier and simpler, facilitating economic movement within the country.	[ [ "Reserve Bank of India (RBI)", "https://www.investopedia.com/terms/r/rbi.asp" ], [ "over-the-counter", "https://www.investopedia.com/terms/o/otc.asp" ], [ "smartphones", "https://www.investopedia.com/terms/s/smartphone.asp" ], [ "unbanked", "https://www.investopedia.com/terms/u/unbanked.asp" ], [ "personal identification number (PIN)", "https://www.investopedia.com/terms/p/personal-identification-number.asp" ] ]
https://www.investopedia.com/secure-2-0-definition-5225115	SECURE 2.0 Act of 2022: Overview, Rules, Limits	<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-secure-20-act-of-2022"></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 SECURE 2.0 Act of 2022? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The SECURE 2.0 Act of 2022 is a law designed to substantially improve retirement savings options—including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k)s</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/403bplan.asp">403(b)s</a>—in the U.S. It builds on the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743">Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019</a>. SECURE 2.0 was signed into law by President Joseph R. Biden on Dec. 29, 2022, as part of the Consolidated Appropriations Act (CAA) of 2023.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The SECURE 2.0 Act began as two pieces of legislation, one from the House of Representatives (H.R. 2954) and one from the U.S. Senate (S. 1770).<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="3"></span> After both branches of Congress passed their respective bills, the consolidated legislation was included in the CAA omnibus budget bill as Division T (SECURE 2.0 Act of 2022).<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>SECURE 2.0 Act of 2022, part of the Consolidated Appropriations Act (CAA) of 2023, builds on and expands the SECURE Act of 2019 to improve retirement-savings opportunities.</li><li>The Act contains 92 new provisions to promote savings, boost incentives for businesses, and offer more flexibility to those saving for retirement.</li><li>Provisions include automatic 401(k) enrollment, an increase in the age for taking RMDs, significant tax benefits for employers, and much more.</li><li>The legislation in both chambers enjoyed broad bipartisan support.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-secure-20-act"></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 SECURE 2.0 Act </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> SECURE 2.0 was something both chambers of Congress wanted to see become law; bipartisan support was woven into both versions of the bill. The 103 sponsors of H.R. 2954 consisted of 55 Democrats and 48 Republicans. On the Senate side, six Republicans and five Democrats were co-sponsors of S. 1770.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The SECURE 2.0 Act attempts to accomplish three goals: Get people to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/employee-plans-compliance-resolution-system-epcrs-5272243">save more for retirement</a>, improve retirement rules, and lower the employer cost of setting up a retirement plan. Some provisions are in effect (as of Jan. 1, 2023), while others will go into effect in 2024, 2025, and even later. In pursuit of those goals, the new statute is packed with 92 retirement-savings provisions, including the following:<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <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"> Automatic Retirement Plan Enrollment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Beginning in 2025, SECURE 2.0, Section 101 requires employers to automatically enroll <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/companies-offer-401ks-hourly-workers-5323752">eligible employees</a> in new 401(k) or 403(b) plans with a participation amount of at least 3% but no more than 10%. The contribution escalates at the rate of 1% per year up to a minimum of 10% and a maximum of 15%.<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_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_17-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Existing 401(k) plans are not required to auto-enroll employees—just new plans.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Employers can encourage participation with small financial incentives. Employees can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/opt-out-plan.asp">opt out</a> of the plan if they wish. Small businesses (with 10 or fewer employees), new businesses (fewer than three years old), church plans, and government plans are exempted from the provision.<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> <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"> New Required Minimum Distribution (RMDs) Rules </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Under previous law, retirees had to begin taking <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> at age 72. SECURE 2.0, Section 107, increases the required minimum distribution age to 73, beginning on Jan. 1, 2023, and to 75, beginning in 2033. Specifically, the RMD age increased to 73 for individuals who turned 72 after Dec. 31, 2022, or who will turn 72 before Jan. 1, 2033. It will increase to 75 for individuals turning 74 after Dec. 31, 2032.<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"> Section 302 reduces the excise tax—the penalty you pay—on failure to take an RMD from 50% to 25%. If the failure to take a required minimum distribution is corrected in a timely manner (as defined under SECURE 2.0), the excise tax on the failure is further reduced from 25% to 10%. The provision is effective for taxable years beginning after Dec. 31, 2022.<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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Section 325 eliminates the pre-death RMD for the owner of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rothira.asp">Roth-designated account</a> in an employer 401(k) or other retirement plan. Under current law, required minimum distributions are not required to begin prior to the death of the owner of a Roth IRA, although pre-death distributions are required in the case of the owner of a Roth-designated account in an employer retirement plan. This provision takes effect for taxable years beginning after Dec. 31, 2023.<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_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"> Changes to Catch-Up Contribution Limits </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Section 108 indexes the $1,000 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/catchupcontribution.asp">catch-up contribution</a> for savers age 50 and above to the IRS <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>. This provision is effective for taxable years beginning after Dec. 31, 2023.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Section 109 of SECURE 2.0 substantially increases catch-up limits for 401(k), 403(b), and 457 plan participants aged 60 to 63 to the greater of $10,000 or 150% of the “standard” catch-up amount for that year, beginning after Dec. 31, 2024. For SIMPLE plans, the limit increases from $3,500 to $5,000, also indexed to inflation.<span class="ql-inline-citation" data-cite="23"></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_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Section 117 increases the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/electivedeferralcontribution.asp">annual deferral limit</a> and the catch-up contribution at age 50 for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/simple-ira.asp">SIMPLE IRA</a> or 401(k) plans by 10% for employers with 25 or fewer employees. Employers with 26 to 100 employees are allowed to provide higher deferral limits if the employer provides a 4% matching contribution or a 3% employer contribution.<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_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-note" 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 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>Under Section 603 of SECURE 2.0, catch-up contributions by employees who make more than $145,000 per year (indexed to inflation) must be made with after-tax dollars (the Roth tax treatment). This provision becomes effective after Dec. 31, 2023.<span class="ql-inline-citation" data-cite="16"></span><br/></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-subheading__text"> Expanded Access to Retirement Funds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> SECURE 2.0 expands access to retirement savings in several ways: </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>Section 115 permits participants to access up to $1,000 (once a year) from retirement savings for emergency personal or family expenses without paying the 10% early withdrawal penalties (starting Jan. 1, 2024).<span class="ql-inline-citation" data-cite="15"></span></li> <li>Section 127 allows employees to set up a Roth emergency savings account with up to $2,500 per participant (starting Jan. 1, 2024).<span class="ql-inline-citation" data-cite="17"></span></li> <li>Section 314 permits survivors of domestic abuse to withdraw the lesser of $10,000 or 50% of their retirement account without penalty (starting Jan. 1, 2024).<span class="ql-inline-citation" data-cite="18"></span></li> <li>Section 331 allows victims of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disasterloss.asp">natural disaster</a>—a qualified, federally declared disaster—to withdraw up to $22,000 from their retirement account without penalty. The withdrawal is treated as gross income over three years without penalty (effective as of the passage of the bill).<span class="ql-inline-citation" data-cite="19"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-subheading__text"> Increased QLAC Amount </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Section 202 increases the amount individuals can move to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/qualified-longevity-annuity-contract-qlac.asp">qualified longevity annuity contract (QLAC)</a> from $125,000 to $200,000. It also adjusts the $200,000 limit annually for inflation and eliminates the rule capping QLAC premiums at 25% of the participant's total plan assets. Some provisions of section 202 apply to QLACs purchased or received on or after July 2, 2014, while others are effective as of the date the legislation became law.<span class="ql-inline-citation" data-cite="20"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_44-0"><span class="heading-toc" id="toc-when-will-provisions-of-the-secure-20-act-take-effect"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Will Provisions of the SECURE 2.0 Act Take Effect?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>That depends on the specific provision. Some take effect immediately, others begin in 2023, 2024, or even later. For example, automatic retirement plan enrollment doesn't start until 2025, while the increase in age for RMDs from 72 to 73 began Jan. 1, 2023.<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_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-how-does-the-secure-20-act-of-2022-impact-when-i-must-begin-taking-rmds"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does the SECURE 2.0 Act of 2022 Impact When I Must Begin Taking RMDs?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Until passage of the Act you had to begin taking RMDs at age 72. SECURE 2.0, Section 107, increased the required minimum distribution age to 73 as of Jan. 1, 2023, and to 75 beginning in 2033.<span class="ql-inline-citation" data-cite="12"></span><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-what-does-secure-20-have-to-do-with-social-security"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does SECURE 2.0 Have to Do With Social Security?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>SECURE 2.0 does not address Social Security issues. One of the downsides of the SECURE Act 2.0 is the fact that it does nothing to solve the problem of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/social-security-trust-fund.asp">Social Security Trust Fund</a>, which is expected to run out of money in just over a decade.<span class="ql-inline-citation" data-cite="22"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Though cooperation between Republicans and Democrats in Congress remains at an all-time low, the SECURE 2.0 Act stands out as one of the few pieces of legislation in which both sides could, and did, find common ground. </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 comprehensive as SECURE 2.0 Act of 2022 is, the law does not address <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/socialsecurity.asp">Social Security</a> shortfalls. That said, its provisions provide a number of routes to improvement in the growth of the percentage of Americans with a retirement savings plan.<br/> </p></div>	## What Is the SECURE 2.0 Act of 2022? The SECURE 2.0 Act of 2022 is a law designed to substantially improve retirement savings options—including [401(k)s](https://www.investopedia.com/terms/1/401kplan.asp) and [403(b)s](https://www.investopedia.com/terms/1/403bplan.asp)—in the U.S. It builds on the [Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019](https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743). SECURE 2.0 was signed into law by President Joseph R. Biden on Dec. 29, 2022, as part of the Consolidated Appropriations Act (CAA) of 2023. The SECURE 2.0 Act began as two pieces of legislation, one from the House of Representatives (H.R. 2954) and one from the U.S. Senate (S. 1770). After both branches of Congress passed their respective bills, the consolidated legislation was included in the CAA omnibus budget bill as Division T (SECURE 2.0 Act of 2022). ### Key Takeaways * SECURE 2.0 Act of 2022, part of the Consolidated Appropriations Act (CAA) of 2023, builds on and expands the SECURE Act of 2019 to improve retirement-savings opportunities. * The Act contains 92 new provisions to promote savings, boost incentives for businesses, and offer more flexibility to those saving for retirement. * Provisions include automatic 401(k) enrollment, an increase in the age for taking RMDs, significant tax benefits for employers, and much more. * The legislation in both chambers enjoyed broad bipartisan support. ## Understanding the SECURE 2.0 Act SECURE 2.0 was something both chambers of Congress wanted to see become law; bipartisan support was woven into both versions of the bill. The 103 sponsors of H.R. 2954 consisted of 55 Democrats and 48 Republicans. On the Senate side, six Republicans and five Democrats were co-sponsors of S. 1770. The SECURE 2.0 Act attempts to accomplish three goals: Get people to [save more for retirement](https://www.investopedia.com/employee-plans-compliance-resolution-system-epcrs-5272243), improve retirement rules, and lower the employer cost of setting up a retirement plan. Some provisions are in effect (as of Jan. 1, 2023), while others will go into effect in 2024, 2025, and even later. In pursuit of those goals, the new statute is packed with 92 retirement-savings provisions, including the following: ### Automatic Retirement Plan Enrollment Beginning in 2025, SECURE 2.0, Section 101 requires employers to automatically enroll [eligible employees](https://www.investopedia.com/companies-offer-401ks-hourly-workers-5323752) in new 401(k) or 403(b) plans with a participation amount of at least 3% but no more than 10%. The contribution escalates at the rate of 1% per year up to a minimum of 10% and a maximum of 15%. ### Existing 401(k) plans are not required to auto-enroll employees—just new plans. Employers can encourage participation with small financial incentives. Employees can [opt out](https://www.investopedia.com/terms/o/opt-out-plan.asp) of the plan if they wish. Small businesses (with 10 or fewer employees), new businesses (fewer than three years old), church plans, and government plans are exempted from the provision. ### New Required Minimum Distribution (RMDs) Rules Under previous law, retirees had to begin taking [required minimum distributions (RMDs)](https://www.investopedia.com/terms/r/requiredminimumdistribution.asp) at age 72. SECURE 2.0, Section 107, increases the required minimum distribution age to 73, beginning on Jan. 1, 2023, and to 75, beginning in 2033. Specifically, the RMD age increased to 73 for individuals who turned 72 after Dec. 31, 2022, or who will turn 72 before Jan. 1, 2033. It will increase to 75 for individuals turning 74 after Dec. 31, 2032. Section 302 reduces the excise tax—the penalty you pay—on failure to take an RMD from 50% to 25%. If the failure to take a required minimum distribution is corrected in a timely manner (as defined under SECURE 2.0), the excise tax on the failure is further reduced from 25% to 10%. The provision is effective for taxable years beginning after Dec. 31, 2022. Section 325 eliminates the pre-death RMD for the owner of a [Roth-designated account](https://www.investopedia.com/terms/r/rothira.asp) in an employer 401(k) or other retirement plan. Under current law, required minimum distributions are not required to begin prior to the death of the owner of a Roth IRA, although pre-death distributions are required in the case of the owner of a Roth-designated account in an employer retirement plan. This provision takes effect for taxable years beginning after Dec. 31, 2023. ### Changes to Catch-Up Contribution Limits Section 108 indexes the $1,000 [catch-up contribution](https://www.investopedia.com/terms/c/catchupcontribution.asp) for savers age 50 and above to the IRS [cost-of-living-adjustment (COLA)](https://www.investopedia.com/terms/c/cola.asp). This provision is effective for taxable years beginning after Dec. 31, 2023. Section 109 of SECURE 2.0 substantially increases catch-up limits for 401(k), 403(b), and 457 plan participants aged 60 to 63 to the greater of $10,000 or 150% of the “standard” catch-up amount for that year, beginning after Dec. 31, 2024. For SIMPLE plans, the limit increases from $3,500 to $5,000, also indexed to inflation. Section 117 increases the [annual deferral limit](https://www.investopedia.com/terms/e/electivedeferralcontribution.asp) and the catch-up contribution at age 50 for [SIMPLE IRA](https://www.investopedia.com/terms/s/simple-ira.asp) or 401(k) plans by 10% for employers with 25 or fewer employees. Employers with 26 to 100 employees are allowed to provide higher deferral limits if the employer provides a 4% matching contribution or a 3% employer contribution. ### Note Under Section 603 of SECURE 2.0, catch-up contributions by employees who make more than $145,000 per year (indexed to inflation) must be made with after-tax dollars (the Roth tax treatment). This provision becomes effective after Dec. 31, 2023. ### Expanded Access to Retirement Funds SECURE 2.0 expands access to retirement savings in several ways: * Section 115 permits participants to access up to $1,000 (once a year) from retirement savings for emergency personal or family expenses without paying the 10% early withdrawal penalties (starting Jan. 1, 2024). * Section 127 allows employees to set up a Roth emergency savings account with up to $2,500 per participant (starting Jan. 1, 2024). * Section 314 permits survivors of domestic abuse to withdraw the lesser of $10,000 or 50% of their retirement account without penalty (starting Jan. 1, 2024). * Section 331 allows victims of a [natural disaster](https://www.investopedia.com/terms/d/disasterloss.asp)—a qualified, federally declared disaster—to withdraw up to $22,000 from their retirement account without penalty. The withdrawal is treated as gross income over three years without penalty (effective as of the passage of the bill). ### Increased QLAC Amount Section 202 increases the amount individuals can move to a [qualified longevity annuity contract (QLAC)](https://www.investopedia.com/terms/q/qualified-longevity-annuity-contract-qlac.asp) from $125,000 to $200,000. It also adjusts the $200,000 limit annually for inflation and eliminates the rule capping QLAC premiums at 25% of the participant's total plan assets. Some provisions of section 202 apply to QLACs purchased or received on or after July 2, 2014, while others are effective as of the date the legislation became law. ## When Will Provisions of the SECURE 2.0 Act Take Effect? That depends on the specific provision. Some take effect immediately, others begin in 2023, 2024, or even later. For example, automatic retirement plan enrollment doesn't start until 2025, while the increase in age for RMDs from 72 to 73 began Jan. 1, 2023. ## How Does the SECURE 2.0 Act of 2022 Impact When I Must Begin Taking RMDs? Until passage of the Act you had to begin taking RMDs at age 72. SECURE 2.0, Section 107, increased the required minimum distribution age to 73 as of Jan. 1, 2023, and to 75 beginning in 2033. ## What Does SECURE 2.0 Have to Do With Social Security? SECURE 2.0 does not address Social Security issues. One of the downsides of the SECURE Act 2.0 is the fact that it does nothing to solve the problem of the [Social Security Trust Fund](https://www.investopedia.com/terms/s/social-security-trust-fund.asp), which is expected to run out of money in just over a decade. ## The Bottom Line Though cooperation between Republicans and Democrats in Congress remains at an all-time low, the SECURE 2.0 Act stands out as one of the few pieces of legislation in which both sides could, and did, find common ground. As comprehensive as SECURE 2.0 Act of 2022 is, the law does not address [Social Security](https://www.investopedia.com/terms/s/socialsecurity.asp) shortfalls. That said, its provisions provide a number of routes to improvement in the growth of the percentage of Americans with a retirement savings plan.	What Is the SECURE 2.0 Act of 2022? The SECURE 2.0 Act of 2022 is a law designed to substantially improve retirement savings options—including 401(k)s and 403(b)s—in the U.S. It builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. SECURE 2.0 was signed into law by President Joseph R. Biden on Dec. 29, 2022, as part of the Consolidated Appropriations Act (CAA) of 2023. The SECURE 2.0 Act began as two pieces of legislation, one from the House of Representatives (H.R. 2954) and one from the U.S. Senate (S. 1770). After both branches of Congress passed their respective bills, the consolidated legislation was included in the CAA omnibus budget bill as Division T (SECURE 2.0 Act of 2022). Key Takeaways SECURE 2.0 Act of 2022, part of the Consolidated Appropriations Act (CAA) of 2023, builds on and expands the SECURE Act of 2019 to improve retirement-savings opportunities.The Act contains 92 new provisions to promote savings, boost incentives for businesses, and offer more flexibility to those saving for retirement.Provisions include automatic 401(k) enrollment, an increase in the age for taking RMDs, significant tax benefits for employers, and much more.The legislation in both chambers enjoyed broad bipartisan support. Understanding the SECURE 2.0 Act SECURE 2.0 was something both chambers of Congress wanted to see become law; bipartisan support was woven into both versions of the bill. The 103 sponsors of H.R. 2954 consisted of 55 Democrats and 48 Republicans. On the Senate side, six Republicans and five Democrats were co-sponsors of S. 1770. The SECURE 2.0 Act attempts to accomplish three goals: Get people to save more for retirement, improve retirement rules, and lower the employer cost of setting up a retirement plan. Some provisions are in effect (as of Jan. 1, 2023), while others will go into effect in 2024, 2025, and even later. In pursuit of those goals, the new statute is packed with 92 retirement-savings provisions, including the following: Automatic Retirement Plan Enrollment Beginning in 2025, SECURE 2.0, Section 101 requires employers to automatically enroll eligible employees in new 401(k) or 403(b) plans with a participation amount of at least 3% but no more than 10%. The contribution escalates at the rate of 1% per year up to a minimum of 10% and a maximum of 15%. Existing 401(k) plans are not required to auto-enroll employees—just new plans. Employers can encourage participation with small financial incentives. Employees can opt out of the plan if they wish. Small businesses (with 10 or fewer employees), new businesses (fewer than three years old), church plans, and government plans are exempted from the provision. New Required Minimum Distribution (RMDs) Rules Under previous law, retirees had to begin taking required minimum distributions (RMDs) at age 72. SECURE 2.0, Section 107, increases the required minimum distribution age to 73, beginning on Jan. 1, 2023, and to 75, beginning in 2033. Specifically, the RMD age increased to 73 for individuals who turned 72 after Dec. 31, 2022, or who will turn 72 before Jan. 1, 2033. It will increase to 75 for individuals turning 74 after Dec. 31, 2032. Section 302 reduces the excise tax—the penalty you pay—on failure to take an RMD from 50% to 25%. If the failure to take a required minimum distribution is corrected in a timely manner (as defined under SECURE 2.0), the excise tax on the failure is further reduced from 25% to 10%. The provision is effective for taxable years beginning after Dec. 31, 2022. Section 325 eliminates the pre-death RMD for the owner of a Roth-designated account in an employer 401(k) or other retirement plan. Under current law, required minimum distributions are not required to begin prior to the death of the owner of a Roth IRA, although pre-death distributions are required in the case of the owner of a Roth-designated account in an employer retirement plan. This provision takes effect for taxable years beginning after Dec. 31, 2023. Changes to Catch-Up Contribution Limits Section 108 indexes the $1,000 catch-up contribution for savers age 50 and above to the IRS cost-of-living-adjustment (COLA). This provision is effective for taxable years beginning after Dec. 31, 2023. Section 109 of SECURE 2.0 substantially increases catch-up limits for 401(k), 403(b), and 457 plan participants aged 60 to 63 to the greater of $10,000 or 150% of the “standard” catch-up amount for that year, beginning after Dec. 31, 2024. For SIMPLE plans, the limit increases from $3,500 to $5,000, also indexed to inflation. Section 117 increases the annual deferral limit and the catch-up contribution at age 50 for SIMPLE IRA or 401(k) plans by 10% for employers with 25 or fewer employees. Employers with 26 to 100 employees are allowed to provide higher deferral limits if the employer provides a 4% matching contribution or a 3% employer contribution. Note Under Section 603 of SECURE 2.0, catch-up contributions by employees who make more than $145,000 per year (indexed to inflation) must be made with after-tax dollars (the Roth tax treatment). This provision becomes effective after Dec. 31, 2023. Expanded Access to Retirement Funds SECURE 2.0 expands access to retirement savings in several ways: Section 115 permits participants to access up to $1,000 (once a year) from retirement savings for emergency personal or family expenses without paying the 10% early withdrawal penalties (starting Jan. 1, 2024). Section 127 allows employees to set up a Roth emergency savings account with up to $2,500 per participant (starting Jan. 1, 2024). Section 314 permits survivors of domestic abuse to withdraw the lesser of $10,000 or 50% of their retirement account without penalty (starting Jan. 1, 2024). Section 331 allows victims of a natural disaster—a qualified, federally declared disaster—to withdraw up to $22,000 from their retirement account without penalty. The withdrawal is treated as gross income over three years without penalty (effective as of the passage of the bill). Increased QLAC Amount Section 202 increases the amount individuals can move to a qualified longevity annuity contract (QLAC) from $125,000 to $200,000. It also adjusts the $200,000 limit annually for inflation and eliminates the rule capping QLAC premiums at 25% of the participant's total plan assets. Some provisions of section 202 apply to QLACs purchased or received on or after July 2, 2014, while others are effective as of the date the legislation became law. When Will Provisions of the SECURE 2.0 Act Take Effect? That depends on the specific provision. Some take effect immediately, others begin in 2023, 2024, or even later. For example, automatic retirement plan enrollment doesn't start until 2025, while the increase in age for RMDs from 72 to 73 began Jan. 1, 2023. How Does the SECURE 2.0 Act of 2022 Impact When I Must Begin Taking RMDs? Until passage of the Act you had to begin taking RMDs at age 72. SECURE 2.0, Section 107, increased the required minimum distribution age to 73 as of Jan. 1, 2023, and to 75 beginning in 2033. What Does SECURE 2.0 Have to Do With Social Security? SECURE 2.0 does not address Social Security issues. One of the downsides of the SECURE Act 2.0 is the fact that it does nothing to solve the problem of the Social Security Trust Fund, which is expected to run out of money in just over a decade. The Bottom Line Though cooperation between Republicans and Democrats in Congress remains at an all-time low, the SECURE 2.0 Act stands out as one of the few pieces of legislation in which both sides could, and did, find common ground. As comprehensive as SECURE 2.0 Act of 2022 is, the law does not address Social Security shortfalls. That said, its provisions provide a number of routes to improvement in the growth of the percentage of Americans with a retirement savings plan.	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https://www.investopedia.com/terms/f/financial-market.asp	Financial Markets: Role in the Economy, Importance, 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-are-financial-markets"></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 Financial Markets? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Financial markets refer broadly to any marketplace where securities trading occurs, including the stock market, bond market, forex market, and derivatives market. Financial markets are vital to the smooth operation of capitalist economies. </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>Financial markets refer broadly to any marketplace where the trading of securities occurs.</li><li>There are many kinds of financial markets, including (but not limited to) forex, money, stock, and bond markets.</li><li>These markets may include assets or securities that are either listed on regulated exchanges or trade over-the-counter (OTC).</li><li>Financial markets trade in all types of securities and are critical to the smooth operation of a capitalist society.</li><li>When financial markets fail, economic disruption, including recession and rising unemployment, can result.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_6-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Financial Markets" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/uLMH2s_hQum8jn5dt2FWeWGHbA0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/financial-market-Final-4459a12ee9f34aa98410afddd075c9c7.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/uLMH2s_hQum8jn5dt2FWeWGHbA0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/financial-market-Final-4459a12ee9f34aa98410afddd075c9c7.jpg" data-srcset="https://www.investopedia.com/thmb/PDcypIo-cdOzvqLeWVfTwStmNUg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/financial-market-Final-4459a12ee9f34aa98410afddd075c9c7.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Financial Markets" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/uLMH2s_hQum8jn5dt2FWeWGHbA0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/financial-market-Final-4459a12ee9f34aa98410afddd075c9c7.jpg" srcset="https://www.investopedia.com/thmb/PDcypIo-cdOzvqLeWVfTwStmNUg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/financial-market-Final-4459a12ee9f34aa98410afddd075c9c7.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 / Theresa Chiechi</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-the-financial-markets"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Understanding the Financial Markets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Financial markets play a vital role in facilitating the smooth operation of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/102914/main-characteristics-capitalist-economies.asp">capitalist economies</a> by allocating resources and creating liquidity for businesses and entrepreneurs. The markets make it easy for buyers and sellers to trade their financial holdings. Financial markets create securities products that provide a return for those with excess funds (investors/lenders) and make these funds available to those needing additional money (borrowers). </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 stock market is just one type of financial market. Financial markets are created when people buy and sell financial instruments, including equities, bonds, currencies, and derivatives. Financial markets rely heavily on informational transparency to ensure that the markets set prices that are efficient and appropriate. </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"> Some financial markets are small with little activity, and others, like the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nyse.asp">New York Stock Exchange (NYSE)</a>, trade trillions of dollars in securities daily. The equities (stock) market is a financial market that enables investors to buy and sell shares of publicly traded companies. The primary stock market is where new issues of stocks are sold. Any subsequent trading of stocks occurs in the secondary market, where investors buy and sell securities they already own. </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-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Prices of securities traded in the financial markets may not necessarily reflect their intrinsic value.</p></div></div></div> <span class="heading-toc" id="toc-types-of-financial-markets"></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"> Types of Financial Markets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> There are several different types of markets. Each one focuses on the types and classes of instruments available on it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Stock Markets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Perhaps the most ubiquitous of financial markets are stock markets. These are venues where companies list their shares, which are bought and sold by traders and investors. Stock markets, or equities markets, are used by companies to raise capital and by investors to search for returns. </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"> Stocks may be traded on listed exchanges, such as the New York Stock Exchange (NYSE), <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp">Nasdaq</a>, or the over-the-counter (OTC) market. Most stock trading is done via regulated exchanges, which plays an important economic role because it is another way for money to flow through the 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"> Typical participants in a stock market include (both retail and institutional) investors, traders, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketmaker.asp">market makers (MMs)</a>, and specialists who maintain liquidity and provide two-sided markets. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockbroker.asp">Brokers</a> are third parties that facilitate trades between buyers and sellers but who do not take an actual position in a stock. </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"> Over-the-Counter Markets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/otc.asp">over-the-counter (OTC)</a> market is a decentralized market—meaning it does not have physical locations, and trading is conducted electronically—in which market participants trade securities directly (meaning without a broker). While OTC markets may handle trading in certain stocks (e.g., smaller or riskier companies that do not meet the listing criteria of exchanges), most stock trading is done via exchanges. Certain derivatives markets, however, are exclusively OTC, making up an essential segment of the financial markets. Broadly speaking, OTC markets and the transactions that occur in them are far less regulated, less liquid, and more opaque. </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"> Bond Markets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> A bond is a security in which an investor loans money for a defined period at a pre-established interest rate. You may think of a bond as an agreement between the lender and borrower containing the loan's details and its payments. Bonds are issued by corporations as well as by municipalities, states, and sovereign governments to finance projects and operations. For example, the bond market sells securities such as notes and bills issued by the United States Treasury. The bond market is also called the debt, credit, or fixed-income market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-subheading__text"> Money Markets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Typically, the money markets trade in products with highly liquid short-term maturities (less than one year) and are characterized by a high degree of safety and a relatively lower interest return than other markets. </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"> At the wholesale level, the money markets involve large-volume trades between institutions and traders. At the retail level, they include money market mutual funds bought by individual investors and money market accounts opened by bank customers. Individuals may also invest in the money markets by purchasing short-term <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>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/municipal-note.asp">municipal notes</a>, or U.S. Treasury bills, among other examples. </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"> Derivatives Markets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index). Rather than trading stocks directly, a derivatives market trades in futures and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/optionscontract.asp">options</a> contracts and other advanced financial products that derive their value from underlying instruments like bonds, commodities, currencies, interest rates, market indexes, and stocks. </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"> Futures markets are where futures contracts are listed and traded. Unlike forwards, which trade OTC, futures markets utilize standardized contract specifications, are well-regulated, and use clearinghouses to settle and confirm trades. Options markets, such as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cboe.asp">Chicago Board Options Exchange (Cboe)</a>, similarly list and regulate options contracts. Both futures and options exchanges may list contracts on various asset classes, such as equities, fixed-income securities, commodities, and so on. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_42-0"> <span class="mntl-sc-block-subheading__text"> Forex Market </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/f/foreign-exchange-markets.asp">forex (foreign exchange) market</a> is where participants can buy, sell, hedge, and speculate on the exchange rates between <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/f/foreign-currency-pairs.asp">currency pairs</a>. The forex market is the most liquid market in the world, as cash is the most liquid of assets. The currency market handles more than $7.5 trillion in daily transactions, more than the futures and equity markets combined.<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_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> As with the OTC markets, the forex market is also decentralized and consists of a global network of computers and brokers worldwide. The forex market is made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-subheading__text"> Commodities Markets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Commodities markets are venues where producers and consumers meet to exchange physical commodities such as agricultural products (e.g., corn, livestock, soybeans), energy products (oil, gas, carbon credits), precious metals (gold, silver, platinum), or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/softcommodity.asp">"soft" commodities</a> (such as cotton, coffee, and sugar). These are known as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spotcommodity.asp">spot commodity</a> markets, where physical goods are exchanged for money. </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"> However, the bulk of trading in these commodities takes place on derivatives markets that utilize spot commodities as the underlying assets. Forwards, futures, and options on commodities are exchanged both OTC and on listed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commoditiesexchange.asp">exchanges</a> around the world, such as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cme.asp">Chicago Mercantile Exchange (CME)</a> and the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intercontinentalexchange.asp">Intercontinental Exchange (ICE)</a>. </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"> Cryptocurrency Markets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Thousands of cryptocurrency tokens are available and traded globally across a patchwork of independent online <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin-exchange.asp">crypto exchanges</a>. These exchanges host digital wallets for traders to swap one cryptocurrency for another or for fiat monies such as dollars or euros. </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"> Because most crypto exchanges are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/what-are-centralized-cryptocurrency-exchanges/">centralized</a> platforms, users are susceptible to hacks or fraudulent activity. Decentralized exchanges are also available that operate without any central authority. These exchanges allow direct peer-to-peer (P2P) trading without an actual exchange authority to facilitate the transactions. Futures and options trading are also available on major cryptocurrencies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <span class="heading-toc" id="toc-examples-of-financial-markets"></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"> Examples of Financial Markets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> The above sections make clear that the "financial markets" are broad in scope and scale. To give two more concrete examples, we will consider the role of stock markets in bringing a company to IPO and the role of the OTC derivatives market in the 2008-09 financial crisis. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_60-0"> <span class="mntl-sc-block-subheading__text"> Stock Markets and IPOs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> As a company establishes itself over time and grows, it needs access to additional capital. It will often find itself in need of much larger amounts of capital than it can get from ongoing operations, traditional bank loans, or venture and angel funding. Firms can raise the amount of capital they need by selling shares of itself to the public through an initial public offering (IPO). This changes the company's status from a "private" firm whose shares are held by a few shareholders to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/publiccompany.asp">publicly traded</a> company whose shares will be subsequently held by public investors. </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"> The IPO also offers early investors in the company an opportunity to cash out part of their stake, often reaping very handsome rewards in the process. Initially, the underwriters usually set the IPO price through their pre-marketing process. </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"> Once the company's shares are listed on a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockmarket.asp">stock exchange</a>, and trading commences, the price of these shares will fluctuate as investors and traders assess and reassess their intrinsic value and the supply and demand for those shares at any given moment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_67-0"> <span class="mntl-sc-block-subheading__text"> OTC Derivatives and the 2008 Financial Crisis: MBS and CDOs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> While the 2008-09 financial crisis was caused and made worse by several factors, one factor that has been widely identified is the market for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp">mortgage-backed securities (MBS)</a>.<span class="ql-inline-citation" data-cite="2"></span> These are OTC derivatives where cash flows from individual mortgages are bundled, sliced up, and sold to investors. The crisis resulted from a sequence of events, each with its own trigger—these events culminated in the banking system's near-collapse. It has been argued that the seeds of the crisis were sown as far back as the 1970s with the Community Development Act, which required banks to loosen their credit requirements for lower-income consumers, creating a market for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subprime_mortgage.asp">subprime mortgages</a>. </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 amount of subprime mortgage debt 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> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/fannie-mae-loans/">Fannie Mae</a> continued to expand into the early 2000s when the Federal Reserve Board began to cut interest rates drastically to avoid a recession.<span class="ql-inline-citation" data-cite="3"></span> The combination of loose credit requirements and cheap money spurred a housing boom, which drove speculation, pushing up housing prices and creating a real estate bubble. In the meantime, the investment banks, looking for easy profits in the wake of the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dotcom-bubble.asp">dotcom bust</a> and the 2001 recession, created a type of MBS called <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cdo.asp">collateralized debt obligations (CDOs)</a> from the mortgages purchased on the secondary market. </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"> Because subprime mortgages were bundled with prime mortgages, there was no way for investors to understand the risks associated with the product. When the market for CDOs began to heat up, the housing bubble that had been building for several years finally burst. As housing prices fell, subprime borrowers began to default on loans that were worth more than their homes, accelerating the decline in prices. </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"> When investors realized the MBS and CDOs were worthless due to the toxic debt they represented, they attempted to unload the obligations. However, there was no market for the CDOs. The subsequent cascade of subprime lender failures created liquidity <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/contagion.asp">contagion</a> that reached the upper tiers of the banking system. Two major investment banks, Lehman Brothers and Bear Stearns, collapsed under the weight of their exposure to subprime debt, and more than 450 banks failed over the next five years.<span class="ql-inline-citation" data-cite="4"></span> Several major banks were on the brink of failure and were rescued by a taxpayer-funded bailout. </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-what-are-the-different-types-of-financial-markets"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Different Types of Financial Markets?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some examples of financial markets and their roles include the stock market, the bond market, forex, commodities, and the real estate market, among others. Financial markets can also be broken down into capital markets, money markets, primary vs. secondary markets, and listed vs. OTC markets.</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-how-do-financial-markets-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Financial Markets Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Despite covering many different asset classes and having various structures and regulations, all financial markets work essentially by bringing together buyers and sellers in some asset or contract and allowing them to trade with one another. This is often done through an auction or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pricediscovery.asp">price-discovery</a> mechanism.</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-main-functions-of-financial-markets"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Main Functions of Financial Markets?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Financial markets exist for several reasons, but the most fundamental function is to allow for the efficient allocation of capital and assets in a financial economy. By allowing a free market for the flow of capital, financial obligations, and money, the financial markets make the global economy run more smoothly while allowing investors to participate in capital gains over time.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_82-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> Financial markets provide liquidity, capital, and participation that are essential for economic growth and stability. Without financial markets, capital could not be allocated efficiently, and economic activity such as commerce and trade, investments, and growth opportunities would be greatly diminished. </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"> Many players make markets an essential part of the economy—firms use stock and bond markets to raise capital from investors. Speculators look to various asset classes to make directional bets on future prices. At the same time, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commercial-hedger.asp">hedgers</a> use derivatives markets to mitigate various risks, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arbitrageur.asp">arbitrageurs</a> seek to take advantage of mispricings or anomalies observed across various markets. Brokers often act as mediators that bring buyers and sellers together, earning a commission or fee for their services. </p></div>	## What Are Financial Markets? Financial markets refer broadly to any marketplace where securities trading occurs, including the stock market, bond market, forex market, and derivatives market. Financial markets are vital to the smooth operation of capitalist economies. ### Key Takeaways * Financial markets refer broadly to any marketplace where the trading of securities occurs. * There are many kinds of financial markets, including (but not limited to) forex, money, stock, and bond markets. * These markets may include assets or securities that are either listed on regulated exchanges or trade over-the-counter (OTC). * Financial markets trade in all types of securities and are critical to the smooth operation of a capitalist society. * When financial markets fail, economic disruption, including recession and rising unemployment, can result. ![Financial Markets]() ![Financial Markets](https://www.investopedia.com/thmb/uLMH2s_hQum8jn5dt2FWeWGHbA0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/financial-market-Final-4459a12ee9f34aa98410afddd075c9c7.jpg) Investopedia / Theresa Chiechi ## Understanding the Financial Markets Financial markets play a vital role in facilitating the smooth operation of [capitalist economies](https://www.investopedia.com/articles/investing/102914/main-characteristics-capitalist-economies.asp) by allocating resources and creating liquidity for businesses and entrepreneurs. The markets make it easy for buyers and sellers to trade their financial holdings. Financial markets create securities products that provide a return for those with excess funds (investors/lenders) and make these funds available to those needing additional money (borrowers). The stock market is just one type of financial market. Financial markets are created when people buy and sell financial instruments, including equities, bonds, currencies, and derivatives. Financial markets rely heavily on informational transparency to ensure that the markets set prices that are efficient and appropriate. Some financial markets are small with little activity, and others, like the [New York Stock Exchange (NYSE)](https://www.investopedia.com/terms/n/nyse.asp), trade trillions of dollars in securities daily. The equities (stock) market is a financial market that enables investors to buy and sell shares of publicly traded companies. The primary stock market is where new issues of stocks are sold. Any subsequent trading of stocks occurs in the secondary market, where investors buy and sell securities they already own. ### Prices of securities traded in the financial markets may not necessarily reflect their intrinsic value. ## Types of Financial Markets There are several different types of markets. Each one focuses on the types and classes of instruments available on it. ### Stock Markets Perhaps the most ubiquitous of financial markets are stock markets. These are venues where companies list their shares, which are bought and sold by traders and investors. Stock markets, or equities markets, are used by companies to raise capital and by investors to search for returns. Stocks may be traded on listed exchanges, such as the New York Stock Exchange (NYSE), [Nasdaq](https://www.investopedia.com/terms/n/nasdaq.asp), or the over-the-counter (OTC) market. Most stock trading is done via regulated exchanges, which plays an important economic role because it is another way for money to flow through the economy. Typical participants in a stock market include (both retail and institutional) investors, traders, [market makers (MMs)](https://www.investopedia.com/terms/m/marketmaker.asp), and specialists who maintain liquidity and provide two-sided markets. [Brokers](https://www.investopedia.com/terms/s/stockbroker.asp) are third parties that facilitate trades between buyers and sellers but who do not take an actual position in a stock. ### Over-the-Counter Markets An [over-the-counter (OTC)](https://www.investopedia.com/terms/o/otc.asp) market is a decentralized market—meaning it does not have physical locations, and trading is conducted electronically—in which market participants trade securities directly (meaning without a broker). While OTC markets may handle trading in certain stocks (e.g., smaller or riskier companies that do not meet the listing criteria of exchanges), most stock trading is done via exchanges. Certain derivatives markets, however, are exclusively OTC, making up an essential segment of the financial markets. Broadly speaking, OTC markets and the transactions that occur in them are far less regulated, less liquid, and more opaque. ### Bond Markets A bond is a security in which an investor loans money for a defined period at a pre-established interest rate. You may think of a bond as an agreement between the lender and borrower containing the loan's details and its payments. Bonds are issued by corporations as well as by municipalities, states, and sovereign governments to finance projects and operations. For example, the bond market sells securities such as notes and bills issued by the United States Treasury. The bond market is also called the debt, credit, or fixed-income market. ### Money Markets Typically, the money markets trade in products with highly liquid short-term maturities (less than one year) and are characterized by a high degree of safety and a relatively lower interest return than other markets. At the wholesale level, the money markets involve large-volume trades between institutions and traders. At the retail level, they include money market mutual funds bought by individual investors and money market accounts opened by bank customers. Individuals may also invest in the money markets by purchasing short-term [certificates of deposit (CDs)](https://www.investopedia.com/terms/c/certificateofdeposit.asp), [municipal notes](https://www.investopedia.com/terms/m/municipal-note.asp), or U.S. Treasury bills, among other examples. ### Derivatives Markets A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index). Rather than trading stocks directly, a derivatives market trades in futures and [options](https://www.investopedia.com/terms/o/optionscontract.asp) contracts and other advanced financial products that derive their value from underlying instruments like bonds, commodities, currencies, interest rates, market indexes, and stocks. Futures markets are where futures contracts are listed and traded. Unlike forwards, which trade OTC, futures markets utilize standardized contract specifications, are well-regulated, and use clearinghouses to settle and confirm trades. Options markets, such as the [Chicago Board Options Exchange (Cboe)](https://www.investopedia.com/terms/c/cboe.asp), similarly list and regulate options contracts. Both futures and options exchanges may list contracts on various asset classes, such as equities, fixed-income securities, commodities, and so on. ### Forex Market The [forex (foreign exchange) market](https://www.investopedia.com/terms/forex/f/foreign-exchange-markets.asp) is where participants can buy, sell, hedge, and speculate on the exchange rates between [currency pairs](https://www.investopedia.com/terms/forex/f/foreign-currency-pairs.asp). The forex market is the most liquid market in the world, as cash is the most liquid of assets. The currency market handles more than $7.5 trillion in daily transactions, more than the futures and equity markets combined. As with the OTC markets, the forex market is also decentralized and consists of a global network of computers and brokers worldwide. The forex market is made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. ### Commodities Markets Commodities markets are venues where producers and consumers meet to exchange physical commodities such as agricultural products (e.g., corn, livestock, soybeans), energy products (oil, gas, carbon credits), precious metals (gold, silver, platinum), or ["soft" commodities](https://www.investopedia.com/terms/s/softcommodity.asp) (such as cotton, coffee, and sugar). These are known as [spot commodity](https://www.investopedia.com/terms/s/spotcommodity.asp) markets, where physical goods are exchanged for money. However, the bulk of trading in these commodities takes place on derivatives markets that utilize spot commodities as the underlying assets. Forwards, futures, and options on commodities are exchanged both OTC and on listed [exchanges](https://www.investopedia.com/terms/c/commoditiesexchange.asp) around the world, such as the [Chicago Mercantile Exchange (CME)](https://www.investopedia.com/terms/c/cme.asp) and the [Intercontinental Exchange (ICE)](https://www.investopedia.com/terms/i/intercontinentalexchange.asp). ### Cryptocurrency Markets Thousands of cryptocurrency tokens are available and traded globally across a patchwork of independent online [crypto exchanges](https://www.investopedia.com/terms/b/bitcoin-exchange.asp). These exchanges host digital wallets for traders to swap one cryptocurrency for another or for fiat monies such as dollars or euros. Because most crypto exchanges are [centralized](https://www.investopedia.com/tech/what-are-centralized-cryptocurrency-exchanges/) platforms, users are susceptible to hacks or fraudulent activity. Decentralized exchanges are also available that operate without any central authority. These exchanges allow direct peer-to-peer (P2P) trading without an actual exchange authority to facilitate the transactions. Futures and options trading are also available on major cryptocurrencies. ## Examples of Financial Markets The above sections make clear that the "financial markets" are broad in scope and scale. To give two more concrete examples, we will consider the role of stock markets in bringing a company to IPO and the role of the OTC derivatives market in the 2008-09 financial crisis. ### Stock Markets and IPOs As a company establishes itself over time and grows, it needs access to additional capital. It will often find itself in need of much larger amounts of capital than it can get from ongoing operations, traditional bank loans, or venture and angel funding. Firms can raise the amount of capital they need by selling shares of itself to the public through an initial public offering (IPO). This changes the company's status from a "private" firm whose shares are held by a few shareholders to a [publicly traded](https://www.investopedia.com/terms/p/publiccompany.asp) company whose shares will be subsequently held by public investors. The IPO also offers early investors in the company an opportunity to cash out part of their stake, often reaping very handsome rewards in the process. Initially, the underwriters usually set the IPO price through their pre-marketing process. Once the company's shares are listed on a [stock exchange](https://www.investopedia.com/terms/s/stockmarket.asp), and trading commences, the price of these shares will fluctuate as investors and traders assess and reassess their intrinsic value and the supply and demand for those shares at any given moment. ### OTC Derivatives and the 2008 Financial Crisis: MBS and CDOs While the 2008-09 financial crisis was caused and made worse by several factors, one factor that has been widely identified is the market for [mortgage-backed securities (MBS)](https://www.investopedia.com/terms/m/mbs.asp). These are OTC derivatives where cash flows from individual mortgages are bundled, sliced up, and sold to investors. The crisis resulted from a sequence of events, each with its own trigger—these events culminated in the banking system's near-collapse. It has been argued that the seeds of the crisis were sown as far back as the 1970s with the Community Development Act, which required banks to loosen their credit requirements for lower-income consumers, creating a market for [subprime mortgages](https://www.investopedia.com/terms/s/subprime_mortgage.asp). The amount of subprime mortgage debt guaranteed by [Freddie Mac](https://www.investopedia.com/terms/f/freddiemac.asp) and [Fannie Mae](https://www.investopedia.com/mortgage/fannie-mae-loans/) continued to expand into the early 2000s when the Federal Reserve Board began to cut interest rates drastically to avoid a recession. The combination of loose credit requirements and cheap money spurred a housing boom, which drove speculation, pushing up housing prices and creating a real estate bubble. In the meantime, the investment banks, looking for easy profits in the wake of the [dotcom bust](https://www.investopedia.com/terms/d/dotcom-bubble.asp) and the 2001 recession, created a type of MBS called [collateralized debt obligations (CDOs)](https://www.investopedia.com/terms/c/cdo.asp) from the mortgages purchased on the secondary market. Because subprime mortgages were bundled with prime mortgages, there was no way for investors to understand the risks associated with the product. When the market for CDOs began to heat up, the housing bubble that had been building for several years finally burst. As housing prices fell, subprime borrowers began to default on loans that were worth more than their homes, accelerating the decline in prices. When investors realized the MBS and CDOs were worthless due to the toxic debt they represented, they attempted to unload the obligations. However, there was no market for the CDOs. The subsequent cascade of subprime lender failures created liquidity [contagion](https://www.investopedia.com/terms/c/contagion.asp) that reached the upper tiers of the banking system. Two major investment banks, Lehman Brothers and Bear Stearns, collapsed under the weight of their exposure to subprime debt, and more than 450 banks failed over the next five years. Several major banks were on the brink of failure and were rescued by a taxpayer-funded bailout. ## What Are the Different Types of Financial Markets? Some examples of financial markets and their roles include the stock market, the bond market, forex, commodities, and the real estate market, among others. Financial markets can also be broken down into capital markets, money markets, primary vs. secondary markets, and listed vs. OTC markets. ## How Do Financial Markets Work? Despite covering many different asset classes and having various structures and regulations, all financial markets work essentially by bringing together buyers and sellers in some asset or contract and allowing them to trade with one another. This is often done through an auction or [price-discovery](https://www.investopedia.com/terms/p/pricediscovery.asp) mechanism. ## What Are the Main Functions of Financial Markets? Financial markets exist for several reasons, but the most fundamental function is to allow for the efficient allocation of capital and assets in a financial economy. By allowing a free market for the flow of capital, financial obligations, and money, the financial markets make the global economy run more smoothly while allowing investors to participate in capital gains over time. ## The Bottom Line Financial markets provide liquidity, capital, and participation that are essential for economic growth and stability. Without financial markets, capital could not be allocated efficiently, and economic activity such as commerce and trade, investments, and growth opportunities would be greatly diminished. Many players make markets an essential part of the economy—firms use stock and bond markets to raise capital from investors. Speculators look to various asset classes to make directional bets on future prices. At the same time, [hedgers](https://www.investopedia.com/terms/c/commercial-hedger.asp) use derivatives markets to mitigate various risks, and [arbitrageurs](https://www.investopedia.com/terms/a/arbitrageur.asp) seek to take advantage of mispricings or anomalies observed across various markets. Brokers often act as mediators that bring buyers and sellers together, earning a commission or fee for their services.	What Are Financial Markets? Financial markets refer broadly to any marketplace where securities trading occurs, including the stock market, bond market, forex market, and derivatives market. Financial markets are vital to the smooth operation of capitalist economies. Key Takeaways Financial markets refer broadly to any marketplace where the trading of securities occurs.There are many kinds of financial markets, including (but not limited to) forex, money, stock, and bond markets.These markets may include assets or securities that are either listed on regulated exchanges or trade over-the-counter (OTC).Financial markets trade in all types of securities and are critical to the smooth operation of a capitalist society.When financial markets fail, economic disruption, including recession and rising unemployment, can result. Investopedia / Theresa Chiechi Understanding the Financial Markets Financial markets play a vital role in facilitating the smooth operation of capitalist economies by allocating resources and creating liquidity for businesses and entrepreneurs. The markets make it easy for buyers and sellers to trade their financial holdings. Financial markets create securities products that provide a return for those with excess funds (investors/lenders) and make these funds available to those needing additional money (borrowers). The stock market is just one type of financial market. Financial markets are created when people buy and sell financial instruments, including equities, bonds, currencies, and derivatives. Financial markets rely heavily on informational transparency to ensure that the markets set prices that are efficient and appropriate. Some financial markets are small with little activity, and others, like the New York Stock Exchange (NYSE), trade trillions of dollars in securities daily. The equities (stock) market is a financial market that enables investors to buy and sell shares of publicly traded companies. The primary stock market is where new issues of stocks are sold. Any subsequent trading of stocks occurs in the secondary market, where investors buy and sell securities they already own. Prices of securities traded in the financial markets may not necessarily reflect their intrinsic value. Types of Financial Markets There are several different types of markets. Each one focuses on the types and classes of instruments available on it. Stock Markets Perhaps the most ubiquitous of financial markets are stock markets. These are venues where companies list their shares, which are bought and sold by traders and investors. Stock markets, or equities markets, are used by companies to raise capital and by investors to search for returns. Stocks may be traded on listed exchanges, such as the New York Stock Exchange (NYSE), Nasdaq, or the over-the-counter (OTC) market. Most stock trading is done via regulated exchanges, which plays an important economic role because it is another way for money to flow through the economy. Typical participants in a stock market include (both retail and institutional) investors, traders, market makers (MMs), and specialists who maintain liquidity and provide two-sided markets. Brokers are third parties that facilitate trades between buyers and sellers but who do not take an actual position in a stock. Over-the-Counter Markets An over-the-counter (OTC) market is a decentralized market—meaning it does not have physical locations, and trading is conducted electronically—in which market participants trade securities directly (meaning without a broker). While OTC markets may handle trading in certain stocks (e.g., smaller or riskier companies that do not meet the listing criteria of exchanges), most stock trading is done via exchanges. Certain derivatives markets, however, are exclusively OTC, making up an essential segment of the financial markets. Broadly speaking, OTC markets and the transactions that occur in them are far less regulated, less liquid, and more opaque. Bond Markets A bond is a security in which an investor loans money for a defined period at a pre-established interest rate. You may think of a bond as an agreement between the lender and borrower containing the loan's details and its payments. Bonds are issued by corporations as well as by municipalities, states, and sovereign governments to finance projects and operations. For example, the bond market sells securities such as notes and bills issued by the United States Treasury. The bond market is also called the debt, credit, or fixed-income market. Money Markets Typically, the money markets trade in products with highly liquid short-term maturities (less than one year) and are characterized by a high degree of safety and a relatively lower interest return than other markets. At the wholesale level, the money markets involve large-volume trades between institutions and traders. At the retail level, they include money market mutual funds bought by individual investors and money market accounts opened by bank customers. Individuals may also invest in the money markets by purchasing short-term certificates of deposit (CDs), municipal notes, or U.S. Treasury bills, among other examples. Derivatives Markets A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index). Rather than trading stocks directly, a derivatives market trades in futures and options contracts and other advanced financial products that derive their value from underlying instruments like bonds, commodities, currencies, interest rates, market indexes, and stocks. Futures markets are where futures contracts are listed and traded. Unlike forwards, which trade OTC, futures markets utilize standardized contract specifications, are well-regulated, and use clearinghouses to settle and confirm trades. Options markets, such as the Chicago Board Options Exchange (Cboe), similarly list and regulate options contracts. Both futures and options exchanges may list contracts on various asset classes, such as equities, fixed-income securities, commodities, and so on. Forex Market The forex (foreign exchange) market is where participants can buy, sell, hedge, and speculate on the exchange rates between currency pairs. The forex market is the most liquid market in the world, as cash is the most liquid of assets. The currency market handles more than $7.5 trillion in daily transactions, more than the futures and equity markets combined. As with the OTC markets, the forex market is also decentralized and consists of a global network of computers and brokers worldwide. The forex market is made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. Commodities Markets Commodities markets are venues where producers and consumers meet to exchange physical commodities such as agricultural products (e.g., corn, livestock, soybeans), energy products (oil, gas, carbon credits), precious metals (gold, silver, platinum), or "soft" commodities (such as cotton, coffee, and sugar). These are known as spot commodity markets, where physical goods are exchanged for money. However, the bulk of trading in these commodities takes place on derivatives markets that utilize spot commodities as the underlying assets. Forwards, futures, and options on commodities are exchanged both OTC and on listed exchanges around the world, such as the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE). Cryptocurrency Markets Thousands of cryptocurrency tokens are available and traded globally across a patchwork of independent online crypto exchanges. These exchanges host digital wallets for traders to swap one cryptocurrency for another or for fiat monies such as dollars or euros. Because most crypto exchanges are centralized platforms, users are susceptible to hacks or fraudulent activity. Decentralized exchanges are also available that operate without any central authority. These exchanges allow direct peer-to-peer (P2P) trading without an actual exchange authority to facilitate the transactions. Futures and options trading are also available on major cryptocurrencies. Examples of Financial Markets The above sections make clear that the "financial markets" are broad in scope and scale. To give two more concrete examples, we will consider the role of stock markets in bringing a company to IPO and the role of the OTC derivatives market in the 2008-09 financial crisis. Stock Markets and IPOs As a company establishes itself over time and grows, it needs access to additional capital. It will often find itself in need of much larger amounts of capital than it can get from ongoing operations, traditional bank loans, or venture and angel funding. Firms can raise the amount of capital they need by selling shares of itself to the public through an initial public offering (IPO). This changes the company's status from a "private" firm whose shares are held by a few shareholders to a publicly traded company whose shares will be subsequently held by public investors. The IPO also offers early investors in the company an opportunity to cash out part of their stake, often reaping very handsome rewards in the process. Initially, the underwriters usually set the IPO price through their pre-marketing process. Once the company's shares are listed on a stock exchange, and trading commences, the price of these shares will fluctuate as investors and traders assess and reassess their intrinsic value and the supply and demand for those shares at any given moment. OTC Derivatives and the 2008 Financial Crisis: MBS and CDOs While the 2008-09 financial crisis was caused and made worse by several factors, one factor that has been widely identified is the market for mortgage-backed securities (MBS). These are OTC derivatives where cash flows from individual mortgages are bundled, sliced up, and sold to investors. The crisis resulted from a sequence of events, each with its own trigger—these events culminated in the banking system's near-collapse. It has been argued that the seeds of the crisis were sown as far back as the 1970s with the Community Development Act, which required banks to loosen their credit requirements for lower-income consumers, creating a market for subprime mortgages. The amount of subprime mortgage debt guaranteed by Freddie Mac and Fannie Mae continued to expand into the early 2000s when the Federal Reserve Board began to cut interest rates drastically to avoid a recession. The combination of loose credit requirements and cheap money spurred a housing boom, which drove speculation, pushing up housing prices and creating a real estate bubble. In the meantime, the investment banks, looking for easy profits in the wake of the dotcom bust and the 2001 recession, created a type of MBS called collateralized debt obligations (CDOs) from the mortgages purchased on the secondary market. Because subprime mortgages were bundled with prime mortgages, there was no way for investors to understand the risks associated with the product. When the market for CDOs began to heat up, the housing bubble that had been building for several years finally burst. As housing prices fell, subprime borrowers began to default on loans that were worth more than their homes, accelerating the decline in prices. When investors realized the MBS and CDOs were worthless due to the toxic debt they represented, they attempted to unload the obligations. However, there was no market for the CDOs. The subsequent cascade of subprime lender failures created liquidity contagion that reached the upper tiers of the banking system. Two major investment banks, Lehman Brothers and Bear Stearns, collapsed under the weight of their exposure to subprime debt, and more than 450 banks failed over the next five years. Several major banks were on the brink of failure and were rescued by a taxpayer-funded bailout. What Are the Different Types of Financial Markets? Some examples of financial markets and their roles include the stock market, the bond market, forex, commodities, and the real estate market, among others. Financial markets can also be broken down into capital markets, money markets, primary vs. secondary markets, and listed vs. OTC markets. How Do Financial Markets Work? Despite covering many different asset classes and having various structures and regulations, all financial markets work essentially by bringing together buyers and sellers in some asset or contract and allowing them to trade with one another. This is often done through an auction or price-discovery mechanism. What Are the Main Functions of Financial Markets? Financial markets exist for several reasons, but the most fundamental function is to allow for the efficient allocation of capital and assets in a financial economy. By allowing a free market for the flow of capital, financial obligations, and money, the financial markets make the global economy run more smoothly while allowing investors to participate in capital gains over time. The Bottom Line Financial markets provide liquidity, capital, and participation that are essential for economic growth and stability. Without financial markets, capital could not be allocated efficiently, and economic activity such as commerce and trade, investments, and growth opportunities would be greatly diminished. Many players make markets an essential part of the economy—firms use stock and bond markets to raise capital from investors. Speculators look to various asset classes to make directional bets on future prices. At the same time, hedgers use derivatives markets to mitigate various risks, and arbitrageurs seek to take advantage of mispricings or anomalies observed across various markets. Brokers often act as mediators that bring buyers and sellers together, earning a commission or fee for their services.	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https://www.investopedia.com/average-credit-scores-by-state-5105100	Average Credit Score by State	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Economic conditions can vary widely among states. It's difficult to get a complete picture of a given area without taking all the key factors into consideration. In the case of credit scores, knowing the average can help residents of a state see how they compare to their neighbors—and make it simpler for those considering a move to that state to learn more about how they'd fit in economically. It can also be a factor in assessing business opportunities within a state. </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 FICO score national average was 714 in 2021. This represents an increase of four points from 2020 and is the fourth consecutive annual increase.<span class="ql-inline-citation" data-cite="15"></span></li><li>Minnesota had the highest average FICO score, as of 2021, with Vermont, Wisconsin, New Hampshire, Washington, and North Dakota close behind.<span class="ql-inline-citation" data-cite="15"></span></li><li>The state with the single lowest average FICO score in 2021 was Mississippi, followed by Louisiana, Alabama, Oklahoma, Texas, and Georgia.<span class="ql-inline-citation" data-cite="15"></span></li><li>As reported in 2018 by the Board of Governors of the Federal Reserve System, there exists a moderate correlation between household income and consumer credit scores.<span class="ql-inline-citation" data-cite="17"></span></li><li>Average credit card debt is also a useful figure for approximating a consumer's individual financial circumstances within a given state, though it doesn't conclusively correlate with average credit scores.<span class="ql-inline-citation" data-cite="15"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-credit-scores"></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"> Understanding Credit Scores </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> In the most basic terms, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> is a three-digit number that financial institutions can use to determine an individual's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-worthiness.asp">creditworthiness</a>, which is typically updated monthly. Your credit score is based on a number of factors pulled from your three <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit reports</a>, such as overall debt and total number of late payments. The highest possible credit score is 850, while the lowest is 300.<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_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Lenders see having a higher credit score as a sign that a borrower is more likely to repay their debts. Not only can it affect whether or not you'll qualify for insurance or a loan, but it can also affect how much you'll pay overall. Lenders charge those with lower credit scores higher <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> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/premium.asp">premiums</a> to account for the increased risk to lenders.<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_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>In order to improve a bad credit score and/or keep your current one strong, be sure to pay down debt, make timely payments, and maintain a balance of zero on credit accounts.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Rather than each one having a specific value, credit scores fall within one of five possible <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/081514/what-do-credit-score-ranges-mean.asp">ranges</a>, which provides an easy reference for an individual's financial health. For instance, someone with a credit score of 800 or above, which is considered "Exceptional," will have a much easier time qualifying for a loan.<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_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Conversely, anyone seeking a loan with a credit score of 669 and below, also known as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subprime-borrower.asp">subprime borrower</a>, may find themselves paying more than most, should they be approved at all.<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_15-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_16-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">FICO Score Ranges</th> </tr> </thead> <tbody data-check="-1"> <tr> <td>850–800</td> <td>Exceptional</td> </tr> <tr> <td>799–740</td> <td>Very Good</td> </tr> <tr> <td>739–670</td> <td>Good</td> </tr> <tr> <td>669–580</td> <td>Fair</td> </tr> <tr> <td>579–300</td> <td>Very Poor</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Bear in mind that creditors may define their own ranges, thus making it possible for an individual to technically have more than one credit score. The ranges seen above, however, are the ones most frequently utilized due to the market domination of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ficoscore.asp">FICO score</a> model.<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_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"> Why FICO? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> A FICO score is a specific credit score that was created by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fico-fair-isaac.asp">Fair Isaac Corporation (FICO)</a> in 1989.<span class="ql-inline-citation" data-cite="7"></span><span class="ql-inline-citation" data-cite="10"></span> Considering that FICO scores factor into more than 90% of the credit decisions made in the U.S., they are the ideal figure for assessing the financial health of a given area.<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_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> FICO scores consider payment history, current level of indebtedness, types of credit used, length of credit history, and new credit accounts when determining creditworthiness. This offers multiple methods for explaining why certain states have credit scores that are lower or higher than those of their neighbors.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> According to our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-research-data-hub-5192040">research</a>, the FICO Score national average was 714 in 2021. This represents an increase of four points from 2020 and constitutes the fourth consecutive year scores have gone up.<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_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_27-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/CcmyN/3/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Average FICO Score by State"></iframe></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"> Note that FICO isn't the only name in the game. Created in 2006 by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/top-three-credit-bureaus/">the top three credit bureaus</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/vantagescore.asp">VantageScore</a> is a consumer <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditrating.asp">credit rating</a> product that serves as an alternative to the FICO score.<span class="ql-inline-citation" data-cite="11"></span> Despite claiming to be more accurate than other models due to its advanced algorithms and machine learning techniques, FICO's widespread acceptance makes it a better candidate for the purposes of this article.<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_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_31-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/fYJ6B/3/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Average FICO Score by State"></iframe></div> <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-state-by-state-breakdown"></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"> State-by-State Breakdown </span> </h2> <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"> FICO scores </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> As of 2021, Minnesota had the highest average FICO score, with Vermont, Wisconsin, New Hampshire, Washington, and North Dakota close behind it. Maine, Mississippi, and Nevada grew the most from 2020 at six points each, while 12 states all grew by five.<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_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Notably, the majority of states with the greatest average credit score improvements were relatively close in 2020 to the current national average. Additionally, even the states with the highest average credit scores are still in the "Good" category with the exception of Minnesota, which is two points above the "Very Good" threshold.<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_38-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_39-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_40-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The quality of your credit score has a direct impact on how much you might pay for any loans you take out, including the interest rate and any premiums.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The state with the single lowest average FICO score was Mississippi. The next lowest was Louisiana, followed by other neighboring states, including Alabama, Oklahoma, Texas, and Georgia. Interestingly, both Oklahoma and the high-scoring state of South Dakota grew the least from 2020, at two points each. Behind these two were 11 states that grew by just three points, the majority of which started with scores over 720.<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_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> On a somewhat encouraging note, no state has an average credit score below the "Good" category, though this doesn't indicate that a state's typical residents are financially secure.<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_44-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-subheading__text"> FICO and household income </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> As reported in 2018 by the Board of Governors of the Federal Reserve System, there was a moderate correlation between household income and consumer credit scores. This would suggest that rising income inequality could lead to widening disparities in credit access.<span class="ql-inline-citation" data-cite="5"></span> It's no coincidence that credit scores tend to be lower in the Southern portion of the U.S.<span class="ql-inline-citation" data-cite="15"></span> In 2019, the U.S. Census Bureau found that 75% of the top eight poorest states in the U.S. were located in the South.<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_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Mississippi is particularly noteworthy in this regard; as of 2019, the Magnolia State had both the lowest median income and the highest poverty rate in the U.S.<span class="ql-inline-citation" data-cite="3"></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_49-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-subheading__text"> FICO and credit card debt </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Average credit card debt is another figure that is useful for approximating a consumer's individual financial circumstances within a given state, though it doesn't conclusively correlate with average credit scores, despite providing insight into how much of one particular form of debt a typical individual is carrying. </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/hT2lo/2/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Average FICO Score and Credit Card Balance by State"></iframe></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-which-state-has-the-highest-average-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which State Has the Highest Average Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>According to Experian, at 742, Minnesota had the highest average FICO score in 2021. It was followed closely by Vermont, Wisconsin, New Hampshire, Washington, and North Dakota.<span class="ql-inline-citation" data-cite="15"></span></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-what-is-the-average-credit-score-in-the-united-states"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Average Credit Score in the United States?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In 2021, the average FICO Score in the U.S. was 714, according to Experian. This was up four points from the year prior and the fourth consecutive year of growth.<span class="ql-inline-citation" data-cite="15"></span></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-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>A "Good" FICO Score is considered anything between 739 and 670. The four other FICO Score ranges are:<span class="ql-inline-citation" data-cite="14"></span></p><ul><li>Exceptional: 850 to 800</li><li>Very Good: 799 to 740</li><li>Fair: 669 to 580</li><li>Very Poor: 579 to 300</li></ul></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> It's important to keep in mind that the economic conditions of the state in which you're living don't inherently determine what your credit score will be—it's your responsibility. Averages are calculated by adding together all of the values in a given dataset and then dividing by the amount of numbers there are. While it's possible that most of the values will be relatively close to each other, outliers can exist. </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"> In order to end up on the higher end of the credit score scale, make sure to continue paying down your debts, avoid late payments, and try to maintain as small a balance as possible on any credit accounts you may have. </p></div>	Economic conditions can vary widely among states. It's difficult to get a complete picture of a given area without taking all the key factors into consideration. In the case of credit scores, knowing the average can help residents of a state see how they compare to their neighbors—and make it simpler for those considering a move to that state to learn more about how they'd fit in economically. It can also be a factor in assessing business opportunities within a state. ### Key Takeaways * The FICO score national average was 714 in 2021. This represents an increase of four points from 2020 and is the fourth consecutive annual increase. * Minnesota had the highest average FICO score, as of 2021, with Vermont, Wisconsin, New Hampshire, Washington, and North Dakota close behind. * The state with the single lowest average FICO score in 2021 was Mississippi, followed by Louisiana, Alabama, Oklahoma, Texas, and Georgia. * As reported in 2018 by the Board of Governors of the Federal Reserve System, there exists a moderate correlation between household income and consumer credit scores. * Average credit card debt is also a useful figure for approximating a consumer's individual financial circumstances within a given state, though it doesn't conclusively correlate with average credit scores. ## Understanding Credit Scores In the most basic terms, a [credit score](https://www.investopedia.com/terms/c/credit_score.asp) is a three-digit number that financial institutions can use to determine an individual's [creditworthiness](https://www.investopedia.com/terms/c/credit-worthiness.asp), which is typically updated monthly. Your credit score is based on a number of factors pulled from your three [credit reports](https://www.investopedia.com/terms/c/creditreport.asp), such as overall debt and total number of late payments. The highest possible credit score is 850, while the lowest is 300. Lenders see having a higher credit score as a sign that a borrower is more likely to repay their debts. Not only can it affect whether or not you'll qualify for insurance or a loan, but it can also affect how much you'll pay overall. Lenders charge those with lower credit scores higher [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) and [premiums](https://www.investopedia.com/terms/p/premium.asp) to account for the increased risk to lenders. ### In order to improve a bad credit score and/or keep your current one strong, be sure to pay down debt, make timely payments, and maintain a balance of zero on credit accounts. Rather than each one having a specific value, credit scores fall within one of five possible [ranges](https://www.investopedia.com/articles/personal-finance/081514/what-do-credit-score-ranges-mean.asp), which provides an easy reference for an individual's financial health. For instance, someone with a credit score of 800 or above, which is considered "Exceptional," will have a much easier time qualifying for a loan. Conversely, anyone seeking a loan with a credit score of 669 and below, also known as a [subprime borrower](https://www.investopedia.com/terms/s/subprime-borrower.asp), may find themselves paying more than most, should they be approved at all. \| FICO Score Ranges \| \| \| --- \| --- \| \| 850–800 \| Exceptional \| \| 799–740 \| Very Good \| \| 739–670 \| Good \| \| 669–580 \| Fair \| \| 579–300 \| Very Poor \| Bear in mind that creditors may define their own ranges, thus making it possible for an individual to technically have more than one credit score. The ranges seen above, however, are the ones most frequently utilized due to the market domination of the [FICO score](https://www.investopedia.com/terms/f/ficoscore.asp) model. ### Why FICO? A FICO score is a specific credit score that was created by the [Fair Isaac Corporation (FICO)](https://www.investopedia.com/terms/f/fico-fair-isaac.asp) in 1989. Considering that FICO scores factor into more than 90% of the credit decisions made in the U.S., they are the ideal figure for assessing the financial health of a given area. FICO scores consider payment history, current level of indebtedness, types of credit used, length of credit history, and new credit accounts when determining creditworthiness. This offers multiple methods for explaining why certain states have credit scores that are lower or higher than those of their neighbors. According to our [research](https://www.investopedia.com/financial-research-data-hub-5192040), the FICO Score national average was 714 in 2021. This represents an increase of four points from 2020 and constitutes the fourth consecutive year scores have gone up. Note that FICO isn't the only name in the game. Created in 2006 by [the top three credit bureaus](https://www.investopedia.com/personal-finance/top-three-credit-bureaus/), [VantageScore](https://www.investopedia.com/terms/v/vantagescore.asp) is a consumer [credit rating](https://www.investopedia.com/terms/c/creditrating.asp) product that serves as an alternative to the FICO score. Despite claiming to be more accurate than other models due to its advanced algorithms and machine learning techniques, FICO's widespread acceptance makes it a better candidate for the purposes of this article. ## State-by-State Breakdown ### FICO scores As of 2021, Minnesota had the highest average FICO score, with Vermont, Wisconsin, New Hampshire, Washington, and North Dakota close behind it. Maine, Mississippi, and Nevada grew the most from 2020 at six points each, while 12 states all grew by five. Notably, the majority of states with the greatest average credit score improvements were relatively close in 2020 to the current national average. Additionally, even the states with the highest average credit scores are still in the "Good" category with the exception of Minnesota, which is two points above the "Very Good" threshold. ### The quality of your credit score has a direct impact on how much you might pay for any loans you take out, including the interest rate and any premiums. The state with the single lowest average FICO score was Mississippi. The next lowest was Louisiana, followed by other neighboring states, including Alabama, Oklahoma, Texas, and Georgia. Interestingly, both Oklahoma and the high-scoring state of South Dakota grew the least from 2020, at two points each. Behind these two were 11 states that grew by just three points, the majority of which started with scores over 720. On a somewhat encouraging note, no state has an average credit score below the "Good" category, though this doesn't indicate that a state's typical residents are financially secure. ### FICO and household income As reported in 2018 by the Board of Governors of the Federal Reserve System, there was a moderate correlation between household income and consumer credit scores. This would suggest that rising income inequality could lead to widening disparities in credit access. It's no coincidence that credit scores tend to be lower in the Southern portion of the U.S. In 2019, the U.S. Census Bureau found that 75% of the top eight poorest states in the U.S. were located in the South. Mississippi is particularly noteworthy in this regard; as of 2019, the Magnolia State had both the lowest median income and the highest poverty rate in the U.S. ### FICO and credit card debt Average credit card debt is another figure that is useful for approximating a consumer's individual financial circumstances within a given state, though it doesn't conclusively correlate with average credit scores, despite providing insight into how much of one particular form of debt a typical individual is carrying. ## Which State Has the Highest Average Credit Score? According to Experian, at 742, Minnesota had the highest average FICO score in 2021. It was followed closely by Vermont, Wisconsin, New Hampshire, Washington, and North Dakota. ## What Is the Average Credit Score in the United States? In 2021, the average FICO Score in the U.S. was 714, according to Experian. This was up four points from the year prior and the fourth consecutive year of growth. ## What Is a Good Credit Score? A "Good" FICO Score is considered anything between 739 and 670. The four other FICO Score ranges are: * Exceptional: 850 to 800 * Very Good: 799 to 740 * Fair: 669 to 580 * Very Poor: 579 to 300 ## The Bottom Line It's important to keep in mind that the economic conditions of the state in which you're living don't inherently determine what your credit score will be—it's your responsibility. Averages are calculated by adding together all of the values in a given dataset and then dividing by the amount of numbers there are. While it's possible that most of the values will be relatively close to each other, outliers can exist. In order to end up on the higher end of the credit score scale, make sure to continue paying down your debts, avoid late payments, and try to maintain as small a balance as possible on any credit accounts you may have.	Economic conditions can vary widely among states. It's difficult to get a complete picture of a given area without taking all the key factors into consideration. In the case of credit scores, knowing the average can help residents of a state see how they compare to their neighbors—and make it simpler for those considering a move to that state to learn more about how they'd fit in economically. It can also be a factor in assessing business opportunities within a state. Key Takeaways The FICO score national average was 714 in 2021. This represents an increase of four points from 2020 and is the fourth consecutive annual increase.Minnesota had the highest average FICO score, as of 2021, with Vermont, Wisconsin, New Hampshire, Washington, and North Dakota close behind.The state with the single lowest average FICO score in 2021 was Mississippi, followed by Louisiana, Alabama, Oklahoma, Texas, and Georgia.As reported in 2018 by the Board of Governors of the Federal Reserve System, there exists a moderate correlation between household income and consumer credit scores.Average credit card debt is also a useful figure for approximating a consumer's individual financial circumstances within a given state, though it doesn't conclusively correlate with average credit scores. Understanding Credit Scores In the most basic terms, a credit score is a three-digit number that financial institutions can use to determine an individual's creditworthiness, which is typically updated monthly. Your credit score is based on a number of factors pulled from your three credit reports, such as overall debt and total number of late payments. The highest possible credit score is 850, while the lowest is 300. Lenders see having a higher credit score as a sign that a borrower is more likely to repay their debts. Not only can it affect whether or not you'll qualify for insurance or a loan, but it can also affect how much you'll pay overall. Lenders charge those with lower credit scores higher interest rates and premiums to account for the increased risk to lenders. In order to improve a bad credit score and/or keep your current one strong, be sure to pay down debt, make timely payments, and maintain a balance of zero on credit accounts. Rather than each one having a specific value, credit scores fall within one of five possible ranges, which provides an easy reference for an individual's financial health. For instance, someone with a credit score of 800 or above, which is considered "Exceptional," will have a much easier time qualifying for a loan. Conversely, anyone seeking a loan with a credit score of 669 and below, also known as a subprime borrower, may find themselves paying more than most, should they be approved at all. FICO Score Ranges 850–800 Exceptional 799–740 Very Good 739–670 Good 669–580 Fair 579–300 Very Poor Bear in mind that creditors may define their own ranges, thus making it possible for an individual to technically have more than one credit score. The ranges seen above, however, are the ones most frequently utilized due to the market domination of the FICO score model. Why FICO? A FICO score is a specific credit score that was created by the Fair Isaac Corporation (FICO) in 1989. Considering that FICO scores factor into more than 90% of the credit decisions made in the U.S., they are the ideal figure for assessing the financial health of a given area. FICO scores consider payment history, current level of indebtedness, types of credit used, length of credit history, and new credit accounts when determining creditworthiness. This offers multiple methods for explaining why certain states have credit scores that are lower or higher than those of their neighbors. According to our research, the FICO Score national average was 714 in 2021. This represents an increase of four points from 2020 and constitutes the fourth consecutive year scores have gone up. Note that FICO isn't the only name in the game. Created in 2006 by the top three credit bureaus, VantageScore is a consumer credit rating product that serves as an alternative to the FICO score. Despite claiming to be more accurate than other models due to its advanced algorithms and machine learning techniques, FICO's widespread acceptance makes it a better candidate for the purposes of this article. State-by-State Breakdown FICO scores As of 2021, Minnesota had the highest average FICO score, with Vermont, Wisconsin, New Hampshire, Washington, and North Dakota close behind it. Maine, Mississippi, and Nevada grew the most from 2020 at six points each, while 12 states all grew by five. Notably, the majority of states with the greatest average credit score improvements were relatively close in 2020 to the current national average. Additionally, even the states with the highest average credit scores are still in the "Good" category with the exception of Minnesota, which is two points above the "Very Good" threshold. The quality of your credit score has a direct impact on how much you might pay for any loans you take out, including the interest rate and any premiums. The state with the single lowest average FICO score was Mississippi. The next lowest was Louisiana, followed by other neighboring states, including Alabama, Oklahoma, Texas, and Georgia. Interestingly, both Oklahoma and the high-scoring state of South Dakota grew the least from 2020, at two points each. Behind these two were 11 states that grew by just three points, the majority of which started with scores over 720. On a somewhat encouraging note, no state has an average credit score below the "Good" category, though this doesn't indicate that a state's typical residents are financially secure. FICO and household income As reported in 2018 by the Board of Governors of the Federal Reserve System, there was a moderate correlation between household income and consumer credit scores. This would suggest that rising income inequality could lead to widening disparities in credit access. It's no coincidence that credit scores tend to be lower in the Southern portion of the U.S. In 2019, the U.S. Census Bureau found that 75% of the top eight poorest states in the U.S. were located in the South. Mississippi is particularly noteworthy in this regard; as of 2019, the Magnolia State had both the lowest median income and the highest poverty rate in the U.S. FICO and credit card debt Average credit card debt is another figure that is useful for approximating a consumer's individual financial circumstances within a given state, though it doesn't conclusively correlate with average credit scores, despite providing insight into how much of one particular form of debt a typical individual is carrying. Which State Has the Highest Average Credit Score? According to Experian, at 742, Minnesota had the highest average FICO score in 2021. It was followed closely by Vermont, Wisconsin, New Hampshire, Washington, and North Dakota. What Is the Average Credit Score in the United States? In 2021, the average FICO Score in the U.S. was 714, according to Experian. This was up four points from the year prior and the fourth consecutive year of growth. What Is a Good Credit Score? A "Good" FICO Score is considered anything between 739 and 670. The four other FICO Score ranges are:Exceptional: 850 to 800Very Good: 799 to 740Fair: 669 to 580Very Poor: 579 to 300 The Bottom Line It's important to keep in mind that the economic conditions of the state in which you're living don't inherently determine what your credit score will be—it's your responsibility. Averages are calculated by adding together all of the values in a given dataset and then dividing by the amount of numbers there are. While it's possible that most of the values will be relatively close to each other, outliers can exist. In order to end up on the higher end of the credit score scale, make sure to continue paying down your debts, avoid late payments, and try to maintain as small a balance as possible on any credit accounts you may have.	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https://www.investopedia.com/terms/c/credit-card-balance.asp	What Is a Credit Card Balance? Definition and What's Included	<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-credit-card-balance"></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 Credit Card Balance? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A credit card balance is the total amount of money currently owed by a cardholder to their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit card company</a>. Balances change based on when and how they are used—they increase when purchases are made and decrease when cardholders make payments. Any remaining balance at the end of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/billing-cycle.asp">billing cycle</a> is carried over to the next month’s bill and incurs an interest charge. Credit card balances are important factors in calculating a person’s <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/1111/what-credit-score-should-you-have.aspx">credit score</a>. Future creditors look at them to determine the risk (and cost) of granting their customers additional credit. </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 credit card balance is the total amount of money that you currently owe on your credit card. </li><li>The balance increases when purchases are made and decreases when payments are made.</li><li>Purchases, balance transfers, foreign exchange, fees, and interest all factor into your credit card balance. </li><li>Credit card balances can increase your credit utilization ratio, which can decrease your credit score.</li><li>A credit card balance shouldn't be confused with a statement balance, which is the amount printed on the statement by your card issuer. </li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-credit-card-balances"></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 Credit Card Balances </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Credit cards are payment cards that allow individuals and business owners to make purchases without having to immediately fork over any cash. They give cardholders the chance to pay for their goods and services later while providing them with a secure and safer method to shop. Unlike cash, credit cards are generally accepted worldwide and may offer incentives like points or cashback. </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 on your credit card is the total amount of money you owe to your credit card issuer. This amount changes each month based on how you use your card. It is made up of different factors, including: </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>Purchases</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/111214/pros-and-cons-balance-transfers.asp">Balance transfers</a></li> <li>Foreign exchange</li> <li>Fees such as late payment charges, returned payment charges, and forex and balance transfer fees</li> <li>Annual fees and cash advance fees</li> <li>Interest charges</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"> Payments are also a key component of your credit card balance and it's always advisable to pay off your statement balance in full before the due date. If you make only the minimum payment, the remaining balance rolls over into the next billing cycle. You incur interest on whatever remains, which is reflected on your next statement. </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"> New credit card balances are commonly updated anywhere from 24 to 72 hours once a purchase or payment is processed. The length of time depends on the credit card company and how the transaction was executed.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <div class="comp mntl-sc-block finance-sc-block-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>If you return an item purchased on your credit card, the merchant will issue a refund to your account. This amount is also reflected in your credit card balance. The length of time for a refund to be generated depends on the retailer and the type of purchase but it generally takes anywhere from a few to 15 days for the refund to be applied to your balance. If you had any points or cashback, that amount will be deducted.</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_19-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <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"> Paying Down Your Balance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The best approach to managing your credit card (and, therefore, your credit) effectively is to pay your balance off in full. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/z/zero-balance-card.asp">zero balance</a> helps avoid the interest charges associated with maintaining a balance. If you have no other option, try paying more than the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/minimum-monthly-payment.asp">minimum monthly payment</a>, as this knocks off more of the balance and accumulates less interest that you'll owe to the card issuer. </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"> But sometimes, it’s just not that simple. You may find yourself in a situation where you can only make the minimum payment. If you do that, know that it will take a long time to pay off the balance. Although you'll pay more in interest, you won't damage your credit score. </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"> You can keep your credit score intact or improve it by paying the bill before the card issuer reports to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-reporting-agency.asp">credit reporting agency</a>. Doing so ensures that there's a lower balance reported to the credit bureaus each month. </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"> If you’re having trouble <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transactor.asp">fully paying off your credit card balance</a> each month, then it may be worth switching to a balance transfer credit card to secure a lower interest rate. </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-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_30-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Late payments can add up if you're having trouble paying your bills each month. Payment history accounts for 35% to 40% of your credit score depending on which score your lender uses.</p></div></div></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"> Balances and Credit Scores </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Carrying a credit card balance generally isn’t a good idea because it can affect your credit score. Revolving credit (credit cards and lines of credit) factors into 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>, which is the total amount of credit you use at a particular time divided by the total amount you have available or the sum of all your credit limits. It's a good idea to have a ratio of under 30%. </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 have a credit limit of $5,000 and keep a balance of $4,000 on your credit card, then your credit utilization is 80%, which is extremely high. This tells <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditor.asp">creditors</a> that you aren’t responsible. As such, you may be deemed high risk for defaulting on any future debt. So the chances of getting a new loan or credit card may be slim. If you keep your ratio down, it suggests that you're better able to manage credit responsibly.<br/> </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"> Keeping a high credit card balance can make you financially vulnerable in other ways, too. You won't be able to use your card in an emergency if you maintain a high balance, especially if it's too close to your credit limit. You're also at risk of paying additional interest and/or late fees if your debt increases to an amount that you can't maintain. </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-tip" 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_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Talk to your credit card company to see if you qualify for an automatic increase of your credit limit. This can effectively drop your credit utilization ratio down. But keep in mind that your card issuer may have to pull a hard inquiry if you don't, which means your score may drop as a result.<br/></p></div></div></div> <span class="heading-toc" id="toc-credit-card-balance-vs-statement-balance"></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"> Credit Card Balance vs. Statement Balance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Your credit card balance is the total that you owe today. As such, it's also called your current balance. This figure is different from your statement balance, which is the amount that is reflected on your bill. This figure is calculated at the end of the billing cycle (up to the closing date) and printed on your bill. You will see this noted as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/new-balance.asp">new balance</a> on the statement. </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"> To keep your credit card in good standing, pay this amount or the minimum payment listed on the statement. If you pay off the statement balance each month, you avoid paying interest on your purchases altogether.<span class="ql-inline-citation" data-cite="1"></span> The statement balance does not include any charges incurred or payments made on the credit card after the statement closing date. </p></div>	## What Is a Credit Card Balance? A credit card balance is the total amount of money currently owed by a cardholder to their [credit card company](https://www.investopedia.com/terms/c/creditcard.asp). Balances change based on when and how they are used—they increase when purchases are made and decrease when cardholders make payments. Any remaining balance at the end of the [billing cycle](https://www.investopedia.com/terms/b/billing-cycle.asp) is carried over to the next month’s bill and incurs an interest charge. Credit card balances are important factors in calculating a person’s [credit score](https://www.investopedia.com/financial-edge/1111/what-credit-score-should-you-have.aspx). Future creditors look at them to determine the risk (and cost) of granting their customers additional credit. ### Key Takeaways * A credit card balance is the total amount of money that you currently owe on your credit card. * The balance increases when purchases are made and decreases when payments are made. * Purchases, balance transfers, foreign exchange, fees, and interest all factor into your credit card balance. * Credit card balances can increase your credit utilization ratio, which can decrease your credit score. * A credit card balance shouldn't be confused with a statement balance, which is the amount printed on the statement by your card issuer. ## Understanding Credit Card Balances Credit cards are payment cards that allow individuals and business owners to make purchases without having to immediately fork over any cash. They give cardholders the chance to pay for their goods and services later while providing them with a secure and safer method to shop. Unlike cash, credit cards are generally accepted worldwide and may offer incentives like points or cashback. The balance on your credit card is the total amount of money you owe to your credit card issuer. This amount changes each month based on how you use your card. It is made up of different factors, including: * Purchases * [Balance transfers](https://www.investopedia.com/articles/personal-finance/111214/pros-and-cons-balance-transfers.asp) * Foreign exchange * Fees such as late payment charges, returned payment charges, and forex and balance transfer fees * Annual fees and cash advance fees * Interest charges Payments are also a key component of your credit card balance and it's always advisable to pay off your statement balance in full before the due date. If you make only the minimum payment, the remaining balance rolls over into the next billing cycle. You incur interest on whatever remains, which is reflected on your next statement. New credit card balances are commonly updated anywhere from 24 to 72 hours once a purchase or payment is processed. The length of time depends on the credit card company and how the transaction was executed. ### If you return an item purchased on your credit card, the merchant will issue a refund to your account. This amount is also reflected in your credit card balance. The length of time for a refund to be generated depends on the retailer and the type of purchase but it generally takes anywhere from a few to 15 days for the refund to be applied to your balance. If you had any points or cashback, that amount will be deducted. ## Special Considerations ### Paying Down Your Balance The best approach to managing your credit card (and, therefore, your credit) effectively is to pay your balance off in full. A [zero balance](https://www.investopedia.com/terms/z/zero-balance-card.asp) helps avoid the interest charges associated with maintaining a balance. If you have no other option, try paying more than the [minimum monthly payment](https://www.investopedia.com/terms/m/minimum-monthly-payment.asp), as this knocks off more of the balance and accumulates less interest that you'll owe to the card issuer. But sometimes, it’s just not that simple. You may find yourself in a situation where you can only make the minimum payment. If you do that, know that it will take a long time to pay off the balance. Although you'll pay more in interest, you won't damage your credit score. You can keep your credit score intact or improve it by paying the bill before the card issuer reports to the [credit reporting agency](https://www.investopedia.com/terms/c/credit-reporting-agency.asp). Doing so ensures that there's a lower balance reported to the credit bureaus each month. If you’re having trouble [fully paying off your credit card balance](https://www.investopedia.com/terms/t/transactor.asp) each month, then it may be worth switching to a balance transfer credit card to secure a lower interest rate. ### Late payments can add up if you're having trouble paying your bills each month. Payment history accounts for 35% to 40% of your credit score depending on which score your lender uses. ### Balances and Credit Scores Carrying a credit card balance generally isn’t a good idea because it can affect your credit score. Revolving credit (credit cards and lines of credit) factors into your [credit utilization ratio](https://www.investopedia.com/terms/c/credit-utilization-rate.asp), which is the total amount of credit you use at a particular time divided by the total amount you have available or the sum of all your credit limits. It's a good idea to have a ratio of under 30%. If you have a credit limit of $5,000 and keep a balance of $4,000 on your credit card, then your credit utilization is 80%, which is extremely high. This tells [creditors](https://www.investopedia.com/terms/c/creditor.asp) that you aren’t responsible. As such, you may be deemed high risk for defaulting on any future debt. So the chances of getting a new loan or credit card may be slim. If you keep your ratio down, it suggests that you're better able to manage credit responsibly. Keeping a high credit card balance can make you financially vulnerable in other ways, too. You won't be able to use your card in an emergency if you maintain a high balance, especially if it's too close to your credit limit. You're also at risk of paying additional interest and/or late fees if your debt increases to an amount that you can't maintain. ### Talk to your credit card company to see if you qualify for an automatic increase of your credit limit. This can effectively drop your credit utilization ratio down. But keep in mind that your card issuer may have to pull a hard inquiry if you don't, which means your score may drop as a result. ## Credit Card Balance vs. Statement Balance Your credit card balance is the total that you owe today. As such, it's also called your current balance. This figure is different from your statement balance, which is the amount that is reflected on your bill. This figure is calculated at the end of the billing cycle (up to the closing date) and printed on your bill. You will see this noted as the [new balance](https://www.investopedia.com/terms/n/new-balance.asp) on the statement. To keep your credit card in good standing, pay this amount or the minimum payment listed on the statement. If you pay off the statement balance each month, you avoid paying interest on your purchases altogether. The statement balance does not include any charges incurred or payments made on the credit card after the statement closing date.	What Is a Credit Card Balance? A credit card balance is the total amount of money currently owed by a cardholder to their credit card company. Balances change based on when and how they are used—they increase when purchases are made and decrease when cardholders make payments. Any remaining balance at the end of the billing cycle is carried over to the next month’s bill and incurs an interest charge. Credit card balances are important factors in calculating a person’s credit score. Future creditors look at them to determine the risk (and cost) of granting their customers additional credit. Key Takeaways A credit card balance is the total amount of money that you currently owe on your credit card. The balance increases when purchases are made and decreases when payments are made.Purchases, balance transfers, foreign exchange, fees, and interest all factor into your credit card balance. Credit card balances can increase your credit utilization ratio, which can decrease your credit score.A credit card balance shouldn't be confused with a statement balance, which is the amount printed on the statement by your card issuer. Understanding Credit Card Balances Credit cards are payment cards that allow individuals and business owners to make purchases without having to immediately fork over any cash. They give cardholders the chance to pay for their goods and services later while providing them with a secure and safer method to shop. Unlike cash, credit cards are generally accepted worldwide and may offer incentives like points or cashback. The balance on your credit card is the total amount of money you owe to your credit card issuer. This amount changes each month based on how you use your card. It is made up of different factors, including: Purchases Balance transfers Foreign exchange Fees such as late payment charges, returned payment charges, and forex and balance transfer fees Annual fees and cash advance fees Interest charges Payments are also a key component of your credit card balance and it's always advisable to pay off your statement balance in full before the due date. If you make only the minimum payment, the remaining balance rolls over into the next billing cycle. You incur interest on whatever remains, which is reflected on your next statement. New credit card balances are commonly updated anywhere from 24 to 72 hours once a purchase or payment is processed. The length of time depends on the credit card company and how the transaction was executed. If you return an item purchased on your credit card, the merchant will issue a refund to your account. This amount is also reflected in your credit card balance. The length of time for a refund to be generated depends on the retailer and the type of purchase but it generally takes anywhere from a few to 15 days for the refund to be applied to your balance. If you had any points or cashback, that amount will be deducted. Special Considerations Paying Down Your Balance The best approach to managing your credit card (and, therefore, your credit) effectively is to pay your balance off in full. A zero balance helps avoid the interest charges associated with maintaining a balance. If you have no other option, try paying more than the minimum monthly payment, as this knocks off more of the balance and accumulates less interest that you'll owe to the card issuer. But sometimes, it’s just not that simple. You may find yourself in a situation where you can only make the minimum payment. If you do that, know that it will take a long time to pay off the balance. Although you'll pay more in interest, you won't damage your credit score. You can keep your credit score intact or improve it by paying the bill before the card issuer reports to the credit reporting agency. Doing so ensures that there's a lower balance reported to the credit bureaus each month. If you’re having trouble fully paying off your credit card balance each month, then it may be worth switching to a balance transfer credit card to secure a lower interest rate. Late payments can add up if you're having trouble paying your bills each month. Payment history accounts for 35% to 40% of your credit score depending on which score your lender uses. Balances and Credit Scores Carrying a credit card balance generally isn’t a good idea because it can affect your credit score. Revolving credit (credit cards and lines of credit) factors into your credit utilization ratio, which is the total amount of credit you use at a particular time divided by the total amount you have available or the sum of all your credit limits. It's a good idea to have a ratio of under 30%. If you have a credit limit of $5,000 and keep a balance of $4,000 on your credit card, then your credit utilization is 80%, which is extremely high. This tells creditors that you aren’t responsible. As such, you may be deemed high risk for defaulting on any future debt. So the chances of getting a new loan or credit card may be slim. If you keep your ratio down, it suggests that you're better able to manage credit responsibly. Keeping a high credit card balance can make you financially vulnerable in other ways, too. You won't be able to use your card in an emergency if you maintain a high balance, especially if it's too close to your credit limit. You're also at risk of paying additional interest and/or late fees if your debt increases to an amount that you can't maintain. Talk to your credit card company to see if you qualify for an automatic increase of your credit limit. This can effectively drop your credit utilization ratio down. But keep in mind that your card issuer may have to pull a hard inquiry if you don't, which means your score may drop as a result. Credit Card Balance vs. Statement Balance Your credit card balance is the total that you owe today. As such, it's also called your current balance. This figure is different from your statement balance, which is the amount that is reflected on your bill. This figure is calculated at the end of the billing cycle (up to the closing date) and printed on your bill. You will see this noted as the new balance on the statement. To keep your credit card in good standing, pay this amount or the minimum payment listed on the statement. If you pay off the statement balance each month, you avoid paying interest on your purchases altogether. The statement balance does not include any charges incurred or payments made on the credit card after the statement closing date.	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https://www.investopedia.com/terms/l/libor-scandal.asp	What Was the LIBOR Scandal? What Happened and Impacted Companies	<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-libor-scandal"></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 LIBOR Scandal? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The LIBOR Scandal was a highly-publicized scheme in which bankers at several major financial institutions colluded with each other to manipulate the <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). The scandal sowed distrust in the financial industry and led to a wave of fines, lawsuits, and regulatory actions. Although the scandal came to light in 2012, there is evidence suggesting that the collusion in question had been ongoing since as early as 2003. </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"> Many leading financial institutions were implicated in the scandal, including Deutsche Bank (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=db">DB</a>), Barclays (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=bcs">BCS</a>), Citigroup (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=c">C</a>), JPMorgan Chase (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPM">JPM</a>), and the Royal Bank of Scotland (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=rbs">RBS</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"> As a result of the rate-fixing scandal, questions around <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/libor-curve.asp">LIBOR's validity as a credible benchmark rate</a> has arisen and it is now being phased out. According to the Federal Reserve and regulators in the U.K., LIBOR will be phased out by June 30, 2023, and will be replaced by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secured-overnight-financing-rate-sofr-4683954">Secured Overnight Financing Rate</a> (SOFR). As part of this phase-out, LIBOR's one-week and two-month USD LIBOR rates will no longer be published after December 31, 2021.<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> <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 LIBOR Scandal refers to a major episode of financial collusion in which one of the world’s most influential benchmark interest rates was manipulated by various banks.</li><li>The scheme caused financial contracts to be mispriced throughout the world, in transactions such as mortgages, corporate fundraising, and derivative trades.</li><li>The scandal left several regulatory changes, lawsuits, and fines in its wake, damaging public trust in the financial markets.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-libor-scandal"></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 LIBOR Scandal </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The LIBOR is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark interest rate</a> that is used for the pricing of loans and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp">derivative products</a> throughout the world. It is formed using reference interest rates submitted by participating banks. During the LIBOR Scandal, traders at many of these banks deliberately submitted artificially low or high interest rates in order to force the LIBOR higher or lower, in an effort to support their own institutions’ derivative and trading activities. </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 LIBOR scandal was significant because of the central role LIBOR plays in global finance. The LIBOR is used to determine everything from the interest rates that giant corporations will pay for loans, to the rates individual consumers will pay for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage.asp">home mortgages</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loans-4689727">student loans</a>. It is also used in derivative pricing. Therefore, by manipulating the LIBOR, the traders in question were indirectly causing a cascade of mispriced financial assets throughout the entire global financial system. Understandably, this led to a substantial public backlash, as parties throughout the world wondered whether they may have been harmed financially. </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"> Public outrage at the scandal was further exacerbated by the apparent brashness of many of the actors involved. This became evident as emails and phone records were released during investigations. Evidence showed traders openly asking others to set rates at a specific amount so that a particular position would be profitable. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/09/financial-regulatory-body.asp">Regulators</a> in both the United States and the United Kingdom levied some $9 billion in fines on banks involved in the scandal, as well as a slew of criminal charges. Because LIBOR is used in the pricing of many of the financial instruments <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/112014/who-uses-libor-data-and-why.asp">used by corporations and governments</a>, they have also filed lawsuits, alleging that the rate-fixing negatively affected them. </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-example-of-the-libor-scandal"></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"> Example of the LIBOR Scandal </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Although it is difficult to know whether any particular person was affected by the LIBOR scandal, there are many potential ways in which its impact could have been felt. For example, individual homeowners may have initiated <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/mortgage-rates/fixed-versus-adjustable-rate/">fixed-rate mortgages</a> at a time when mortgage rates were artificially lifted based on upward manipulation of the LIBOR. From the homeowner’s perspective, every dollar of additional expense caused by the artificially high rates could be seen as a kind of “theft” being committed by the LIBOR rate fixers. Similarly, many traders who were party to derivative contracts would have experienced unnecessarily severe losses as a result of the LIBOR scandal. </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"> Ultimately, the LIBOR scandal left many changes in its wake. Following the exposure of the LIBOR collusion, Britain’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-conduct-authority-uk-fca.asp">Financial Conduct Authority</a> (FCA) took the responsibility for LIBOR supervision away from the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/britishba.asp">British Bankers Association</a> (BBA) and turned it over to the Intercontinental Exchange's Benchmark Administration (IBA). The IBA is an independent U.K. subsidiary of the private U.S.-based exchange operator, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intercontinentalexchange.asp">Intercontinental Exchange</a> (ICE). LIBOR is now commonly known as ICE LIBOR. </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"> More recently, the FCA has announced that it will support LIBOR only until 2021, at which point it hopes to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/alternative-reference-rates-committee-arrc-definition-5225398">transition to an alternative system</a>. The New York Federal Reserve launched a possible LIBOR replacement in April 2018 called the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secured-overnight-financing-rate-sofr-4683954">Secured Overnight Financing Rate</a> (SOFR), which is based on short-term loans observed in the repo market. Unlike the LIBOR, there’s extensive trading in Treasury <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repurchaseagreement.asp">repos</a>—roughly 1,500 times that of interbank loans as of 2018—theoretically making it a more accurate indicator of borrowing costs. Moreover, the SOFR is based on data from observable transactions rather than on estimated borrowing rates, as is sometimes the case with LIBOR. </p></div>	## What Is the LIBOR Scandal? The LIBOR Scandal was a highly-publicized scheme in which bankers at several major financial institutions colluded with each other to manipulate the [London Interbank Offered Rate](https://www.investopedia.com/terms/l/libor.asp) (LIBOR). The scandal sowed distrust in the financial industry and led to a wave of fines, lawsuits, and regulatory actions. Although the scandal came to light in 2012, there is evidence suggesting that the collusion in question had been ongoing since as early as 2003. Many leading financial institutions were implicated in the scandal, including Deutsche Bank ([DB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=db)), Barclays ([BCS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=bcs)), Citigroup ([C](https://www.investopedia.com/markets/quote?tvwidgetsymbol=c)), JPMorgan Chase ([JPM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=JPM)), and the Royal Bank of Scotland ([RBS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=rbs)). As a result of the rate-fixing scandal, questions around [LIBOR's validity as a credible benchmark rate](https://www.investopedia.com/terms/l/libor-curve.asp) has arisen and it is now being phased out. According to the Federal Reserve and regulators in the U.K., LIBOR will be phased out by June 30, 2023, and will be replaced by the [Secured Overnight Financing Rate](https://www.investopedia.com/secured-overnight-financing-rate-sofr-4683954) (SOFR). As part of this phase-out, LIBOR's one-week and two-month USD LIBOR rates will no longer be published after December 31, 2021. ### Key Takeaways * The LIBOR Scandal refers to a major episode of financial collusion in which one of the world’s most influential benchmark interest rates was manipulated by various banks. * The scheme caused financial contracts to be mispriced throughout the world, in transactions such as mortgages, corporate fundraising, and derivative trades. * The scandal left several regulatory changes, lawsuits, and fines in its wake, damaging public trust in the financial markets. ## Understanding the LIBOR Scandal The LIBOR is a [benchmark interest rate](https://www.investopedia.com/terms/b/benchmark.asp) that is used for the pricing of loans and [derivative products](https://www.investopedia.com/terms/d/derivative.asp) throughout the world. It is formed using reference interest rates submitted by participating banks. During the LIBOR Scandal, traders at many of these banks deliberately submitted artificially low or high interest rates in order to force the LIBOR higher or lower, in an effort to support their own institutions’ derivative and trading activities. The LIBOR scandal was significant because of the central role LIBOR plays in global finance. The LIBOR is used to determine everything from the interest rates that giant corporations will pay for loans, to the rates individual consumers will pay for [home mortgages](https://www.investopedia.com/terms/m/mortgage.asp) or [student loans](https://www.investopedia.com/student-loans-4689727). It is also used in derivative pricing. Therefore, by manipulating the LIBOR, the traders in question were indirectly causing a cascade of mispriced financial assets throughout the entire global financial system. Understandably, this led to a substantial public backlash, as parties throughout the world wondered whether they may have been harmed financially. Public outrage at the scandal was further exacerbated by the apparent brashness of many of the actors involved. This became evident as emails and phone records were released during investigations. Evidence showed traders openly asking others to set rates at a specific amount so that a particular position would be profitable. [Regulators](https://www.investopedia.com/articles/economics/09/financial-regulatory-body.asp) in both the United States and the United Kingdom levied some $9 billion in fines on banks involved in the scandal, as well as a slew of criminal charges. Because LIBOR is used in the pricing of many of the financial instruments [used by corporations and governments](https://www.investopedia.com/articles/investing/112014/who-uses-libor-data-and-why.asp), they have also filed lawsuits, alleging that the rate-fixing negatively affected them. ## Example of the LIBOR Scandal Although it is difficult to know whether any particular person was affected by the LIBOR scandal, there are many potential ways in which its impact could have been felt. For example, individual homeowners may have initiated [fixed-rate mortgages](https://www.investopedia.com/mortgage/mortgage-rates/fixed-versus-adjustable-rate/) at a time when mortgage rates were artificially lifted based on upward manipulation of the LIBOR. From the homeowner’s perspective, every dollar of additional expense caused by the artificially high rates could be seen as a kind of “theft” being committed by the LIBOR rate fixers. Similarly, many traders who were party to derivative contracts would have experienced unnecessarily severe losses as a result of the LIBOR scandal. Ultimately, the LIBOR scandal left many changes in its wake. Following the exposure of the LIBOR collusion, Britain’s [Financial Conduct Authority](https://www.investopedia.com/terms/f/financial-conduct-authority-uk-fca.asp) (FCA) took the responsibility for LIBOR supervision away from the [British Bankers Association](https://www.investopedia.com/terms/b/britishba.asp) (BBA) and turned it over to the Intercontinental Exchange's Benchmark Administration (IBA). The IBA is an independent U.K. subsidiary of the private U.S.-based exchange operator, [Intercontinental Exchange](https://www.investopedia.com/terms/i/intercontinentalexchange.asp) (ICE). LIBOR is now commonly known as ICE LIBOR. More recently, the FCA has announced that it will support LIBOR only until 2021, at which point it hopes to [transition to an alternative system](https://www.investopedia.com/alternative-reference-rates-committee-arrc-definition-5225398). The New York Federal Reserve launched a possible LIBOR replacement in April 2018 called the [Secured Overnight Financing Rate](https://www.investopedia.com/secured-overnight-financing-rate-sofr-4683954) (SOFR), which is based on short-term loans observed in the repo market. Unlike the LIBOR, there’s extensive trading in Treasury [repos](https://www.investopedia.com/terms/r/repurchaseagreement.asp)—roughly 1,500 times that of interbank loans as of 2018—theoretically making it a more accurate indicator of borrowing costs. Moreover, the SOFR is based on data from observable transactions rather than on estimated borrowing rates, as is sometimes the case with LIBOR.	What Is the LIBOR Scandal? The LIBOR Scandal was a highly-publicized scheme in which bankers at several major financial institutions colluded with each other to manipulate the London Interbank Offered Rate (LIBOR). The scandal sowed distrust in the financial industry and led to a wave of fines, lawsuits, and regulatory actions. Although the scandal came to light in 2012, there is evidence suggesting that the collusion in question had been ongoing since as early as 2003. Many leading financial institutions were implicated in the scandal, including Deutsche Bank (DB), Barclays (BCS), Citigroup (C), JPMorgan Chase (JPM), and the Royal Bank of Scotland (RBS). As a result of the rate-fixing scandal, questions around LIBOR's validity as a credible benchmark rate has arisen and it is now being phased out. According to the Federal Reserve and regulators in the U.K., LIBOR will be phased out by June 30, 2023, and will be replaced by the Secured Overnight Financing Rate (SOFR). As part of this phase-out, LIBOR's one-week and two-month USD LIBOR rates will no longer be published after December 31, 2021. Key Takeaways The LIBOR Scandal refers to a major episode of financial collusion in which one of the world’s most influential benchmark interest rates was manipulated by various banks.The scheme caused financial contracts to be mispriced throughout the world, in transactions such as mortgages, corporate fundraising, and derivative trades.The scandal left several regulatory changes, lawsuits, and fines in its wake, damaging public trust in the financial markets. Understanding the LIBOR Scandal The LIBOR is a benchmark interest rate that is used for the pricing of loans and derivative products throughout the world. It is formed using reference interest rates submitted by participating banks. During the LIBOR Scandal, traders at many of these banks deliberately submitted artificially low or high interest rates in order to force the LIBOR higher or lower, in an effort to support their own institutions’ derivative and trading activities. The LIBOR scandal was significant because of the central role LIBOR plays in global finance. The LIBOR is used to determine everything from the interest rates that giant corporations will pay for loans, to the rates individual consumers will pay for home mortgages or student loans. It is also used in derivative pricing. Therefore, by manipulating the LIBOR, the traders in question were indirectly causing a cascade of mispriced financial assets throughout the entire global financial system. Understandably, this led to a substantial public backlash, as parties throughout the world wondered whether they may have been harmed financially. Public outrage at the scandal was further exacerbated by the apparent brashness of many of the actors involved. This became evident as emails and phone records were released during investigations. Evidence showed traders openly asking others to set rates at a specific amount so that a particular position would be profitable. Regulators in both the United States and the United Kingdom levied some $9 billion in fines on banks involved in the scandal, as well as a slew of criminal charges. Because LIBOR is used in the pricing of many of the financial instruments used by corporations and governments, they have also filed lawsuits, alleging that the rate-fixing negatively affected them. Example of the LIBOR Scandal Although it is difficult to know whether any particular person was affected by the LIBOR scandal, there are many potential ways in which its impact could have been felt. For example, individual homeowners may have initiated fixed-rate mortgages at a time when mortgage rates were artificially lifted based on upward manipulation of the LIBOR. From the homeowner’s perspective, every dollar of additional expense caused by the artificially high rates could be seen as a kind of “theft” being committed by the LIBOR rate fixers. Similarly, many traders who were party to derivative contracts would have experienced unnecessarily severe losses as a result of the LIBOR scandal. Ultimately, the LIBOR scandal left many changes in its wake. Following the exposure of the LIBOR collusion, Britain’s Financial Conduct Authority (FCA) took the responsibility for LIBOR supervision away from the British Bankers Association (BBA) and turned it over to the Intercontinental Exchange's Benchmark Administration (IBA). The IBA is an independent U.K. subsidiary of the private U.S.-based exchange operator, Intercontinental Exchange (ICE). LIBOR is now commonly known as ICE LIBOR. More recently, the FCA has announced that it will support LIBOR only until 2021, at which point it hopes to transition to an alternative system. The New York Federal Reserve launched a possible LIBOR replacement in April 2018 called the Secured Overnight Financing Rate (SOFR), which is based on short-term loans observed in the repo market. Unlike the LIBOR, there’s extensive trading in Treasury repos—roughly 1,500 times that of interbank loans as of 2018—theoretically making it a more accurate indicator of borrowing costs. Moreover, the SOFR is based on data from observable transactions rather than on estimated borrowing rates, as is sometimes the case with LIBOR.	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https://www.investopedia.com/do-cds-make-sense-in-a-rising-inflation-environment-5223581	Do CDs Make Sense in a Rising Inflation Environment?	<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Certificates of deposit (CDs) pay you a fixed interest rate over a specific duration of time that can range from three months to five or more years. Because you lock in a rate for a long time, <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> are not the best investment option when inflation is on the rise because you might lose out on other investments that would better keep up with the rising cost of living. Here's what you need to know about CDs and inflation, as well as some possible alternatives. </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>Investing in CDs may not make sense in a rising inflation environment because you could be locking in your money at too low a rate.</li><li>Some CDs and other relatively low-risk investment products have adjustable rates that make them more suitable in a rising-rate environment, although they also have drawbacks.</li><li>If you want to get out of a low-paying CD, your best bet may be to wait until it matures rather than pay early-withdrawal penalties.</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_5-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="Do CDs Make Sense in a Rising Inflation Environment?" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/0JH6ju4dfhvnYgDnSQzamqI4fno=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/do-cds-make-sense-in-a-rising-inflation-environment-5223581-final-12aba8fe2bbb4f52bbee230b4319a51b.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/0JH6ju4dfhvnYgDnSQzamqI4fno=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/do-cds-make-sense-in-a-rising-inflation-environment-5223581-final-12aba8fe2bbb4f52bbee230b4319a51b.jpg" data-srcset="https://www.investopedia.com/thmb/xqFmWGX_eGoh-awtBAf4ChHRBAk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/do-cds-make-sense-in-a-rising-inflation-environment-5223581-final-12aba8fe2bbb4f52bbee230b4319a51b.jpg 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Do CDs Make Sense in a Rising Inflation Environment?" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/0JH6ju4dfhvnYgDnSQzamqI4fno=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/do-cds-make-sense-in-a-rising-inflation-environment-5223581-final-12aba8fe2bbb4f52bbee230b4319a51b.jpg" srcset="https://www.investopedia.com/thmb/xqFmWGX_eGoh-awtBAf4ChHRBAk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/do-cds-make-sense-in-a-rising-inflation-environment-5223581-final-12aba8fe2bbb4f52bbee230b4319a51b.jpg 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Jake Shi</p></span> </figcaption></figure> <span class="heading-toc" id="toc-how-rising-inflation-affects-cds"></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 Rising Inflation Affects CDs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> CDs, unfortunately, are not the ideal investment for an inflationary environment. If the interest rate on a CD can't keep up with inflation, your money loses <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/purchasingpower.asp">purchasing power</a>. And because <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/inflation-interest-rate-relationship.asp">interest rates usually rise when inflation goes up</a>, you could be missing out on better-paying investments while your money is tied up in a CD. </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"> This is especially true of CDs with longer terms. While paying somewhat higher rates than short-term CDs, they also lock up your money for a longer period, subjecting it to greater <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflationrisk.asp">inflation risk</a>. If you want to get your money out before the CD's term ends, you'll typically face <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cd-early-withdrawal-penalty-5225111">early-withdrawal penalties</a>. These penalties can cost you some or all the interest your CD has earned. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> There are usually better options available. For example, most <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 (HYSAs)</a> pay about as much as a CD, with no early-withdrawal penalties. And like CDs, they 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> or <a data-component="link" data-ordinal="3" 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="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_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Depending on how much risk you are willing to take, there are also other alternatives. </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-alternatives-to-standard-cds"></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"> Alternatives to Standard CDs </span> </h2> <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"> CDs With Adjustable Rates </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Two other CD types, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/variable-rate-certificate-of-deposit.asp">variable-rate CDs</a>, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bumpupcd.asp">bump-up CDs</a>, may adjust their rates upward, making them more suitable in a period when inflation and interest rates are rising. </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>Variable-rate CDs</strong> adjust the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apy.asp">annual percentage yield (APY)</a> you're paid based on the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/primerate.asp">prime rate</a> or another index. </li> <li><strong>Bump-up CDs</strong>, also called liquid CDs or step-up CDs, let you choose one time during the CD term when you'd like to adjust your interest rate.<br/></li> </ul> <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"> These products can give you some inflation protection, but they also have their downsides. One is that they tend to offer a lower initial interest rate than the rate available at that point on a traditional CD. Another, with variable-rate CDs, is that your rate could fall if inflation declines—a particular danger if you happen to buy your CD just as inflation is peaking. Bump-up CDs only go up, however. </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"> I Bonds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The most often recommended alternative to CDs are Series I U.S. savings bonds, commonly known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seriesibond.asp">I bonds</a>. An I bond carries about the same <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidityrisk.asp">liquidity risk</a> as a CD (you can't cash it out until you've had it for 12 months, and you'll pay a penalty if you withdraw it before five years).<span class="ql-inline-citation" data-cite="12"></span> And while it isn't FDIC- or NCUA-insured, it has essentially zero risk of default because it is backed by the U.S. government. </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"> I bonds adjust their interest rates every six months in line with inflation. For example, in February 2024, I bonds were offering a composite rate of 6.89%, compared to the best 5-year CD rate in February 2024, which was <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473">5.30%</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_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_28-0"><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_29-0"><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>The interest you earn on an I bond is tax-free on the state and local levels, although still incurs federal tax.<span class="ql-inline-citation" data-cite="5"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <br>I bonds earn interest for 30 years unless you cash them in sooner.<span class="ql-inline-citation" data-cite="12"></span> There is no penalty for cashing one in after five years but if you cash in before then, you'll pay the last three months' interest as a penalty. You can buy an I bond for as little as $25 or as much as $10,000, per calendar year.<br/> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-subheading__text"> Treasury Inflation-Protected Securities (TIPS) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Other relatively low-risk alternatives to CDs include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tips.asp">Treasury inflation-protected securities (TIPS)</a>. Like I bonds, TIPS are tied to changes in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumerpriceindex.asp">Consumer Price Index (CPI)</a>, specifically the CPI-U. (They pay a fixed interest rate, but your principal value will increase when inflation rises.) TIPS are available for $100 and up, in $100 increments, and with terms of five, 10, or 30 years. Like I bonds, they are subject to federal tax but exempt from state and local taxes.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Floating-Rate Notes </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/frn.asp">Floating-rate notes</a> are still another possibility. These are government or corporate bonds with rates that will "float" as the index they're linked to rises or falls.<span class="ql-inline-citation" data-cite="7"></span> You can buy them through a brokerage firm or in the form of a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mutualfund/10/floating-rate-mutual-funds.asp">floating-rate mutual fund</a> or exchange-traded fund.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-getting-out-of-your-cds"></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"> Getting Out of Your CDs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> If you're locked into one or more <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixed-rate-certificate-of-deposit.asp">fixed-rate CDs</a> that are losing ground to inflation, you have several options, none of them ideal. </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>You can simply wait until the CD's term ends, take the money, and reinvest it in something else. (Make sure you give your bank or credit union instructions when the time comes, or it may just roll the money over into a new CD, locking you in again.)</li> <li>You can take your money out prematurely and pay an early-withdrawal penalty. These penalties can be relatively steep, so you may not come out ahead even if you immediately put the money into a better-paying investment. There is no maximum penalty for early CD withdrawals, as set by the U.S. government.<span class="ql-inline-citation" data-cite="8"></span></li> <li>If you have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokered-cd.asp">brokered CD</a> purchased from a brokerage firm or independent sales agent, you can get out of it by selling it on the secondary market. However, your CD's lower interest rate will make it less valuable compared with newer, better-paying CDs, and you may have to sell it at a loss.<br/></li> </ul> <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-where-do-you-buy-i-bonds"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Do You Buy I Bonds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The primary way to buy I bonds is online, at TreasuryDirect.gov. You can also buy them using your tax refund when you file your federal income taxes for the year.<span class="ql-inline-citation" data-cite="9"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-what-is-the-cpi-u"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the CPI-U?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The CPI-U is one of two consumer price indexes the Bureau of Labor Statistics (BLS) uses to track inflation. It stands for CPI for All Urban Consumers and, according to the BLS, covers about 93% of the total population. The other CPI is Urban Wage Earners and Clerical Workers (CPI-W). The CPI-U is generally what the government or others refer to when mentioning the CPI.<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_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-bump-up-cd"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Bump-Up CD?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A bump-up CD (also called a step-up CD) allows you to request an increase in your interest rate (a "bump up") one or more times during the CD's term if rates are rising in general. If rates are falling, you can stick with your existing rate.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> While high inflationary environments are never a great thing in general, inflation poses a particular threat to fixed-rate investments like certificates of deposit. If you're looking for a place to invest in a time of inflation there are any number of alternatives, some just as safe as CDs, others a bit riskier.<br>Series I savings bonds may be a good option for the risk-averse who don't mind locking up savings for at least one year.<br> </br></br></p></div>	Certificates of deposit (CDs) pay you a fixed interest rate over a specific duration of time that can range from three months to five or more years. Because you lock in a rate for a long time, [certificates of deposit](https://www.investopedia.com/terms/c/certificateofdeposit.asp) are not the best investment option when inflation is on the rise because you might lose out on other investments that would better keep up with the rising cost of living. Here's what you need to know about CDs and inflation, as well as some possible alternatives. ### Key Takeaways * Investing in CDs may not make sense in a rising inflation environment because you could be locking in your money at too low a rate. * Some CDs and other relatively low-risk investment products have adjustable rates that make them more suitable in a rising-rate environment, although they also have drawbacks. * If you want to get out of a low-paying CD, your best bet may be to wait until it matures rather than pay early-withdrawal penalties. ![Do CDs Make Sense in a Rising Inflation Environment?]() ![Do CDs Make Sense in a Rising Inflation Environment?](https://www.investopedia.com/thmb/0JH6ju4dfhvnYgDnSQzamqI4fno=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/do-cds-make-sense-in-a-rising-inflation-environment-5223581-final-12aba8fe2bbb4f52bbee230b4319a51b.jpg) Investopedia / Jake Shi ## How Rising Inflation Affects CDs CDs, unfortunately, are not the ideal investment for an inflationary environment. If the interest rate on a CD can't keep up with inflation, your money loses [purchasing power](https://www.investopedia.com/terms/p/purchasingpower.asp). And because [interest rates usually rise when inflation goes up](https://www.investopedia.com/ask/answers/12/inflation-interest-rate-relationship.asp), you could be missing out on better-paying investments while your money is tied up in a CD. This is especially true of CDs with longer terms. While paying somewhat higher rates than short-term CDs, they also lock up your money for a longer period, subjecting it to greater [inflation risk](https://www.investopedia.com/terms/i/inflationrisk.asp). If you want to get your money out before the CD's term ends, you'll typically face [early-withdrawal penalties](https://www.investopedia.com/cd-early-withdrawal-penalty-5225111). These penalties can cost you some or all the interest your CD has earned. There are usually better options available. For example, most [high-yield savings accounts (HYSAs)](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) pay about as much as a CD, with no early-withdrawal penalties. And like CDs, they are insured by the [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic.asp) or [National Credit Union Administration (NCUA)](https://www.investopedia.com/terms/n/ncua.asp). Depending on how much risk you are willing to take, there are also other alternatives. ## Alternatives to Standard CDs ### CDs With Adjustable Rates Two other CD types, [variable-rate CDs](https://www.investopedia.com/terms/v/variable-rate-certificate-of-deposit.asp), and [bump-up CDs](https://www.investopedia.com/terms/b/bumpupcd.asp), may adjust their rates upward, making them more suitable in a period when inflation and interest rates are rising. * Variable-rate CDs adjust the [annual percentage yield (APY)](https://www.investopedia.com/terms/a/apy.asp) you're paid based on the [prime rate](https://www.investopedia.com/terms/p/primerate.asp) or another index. * Bump-up CDs, also called liquid CDs or step-up CDs, let you choose one time during the CD term when you'd like to adjust your interest rate. These products can give you some inflation protection, but they also have their downsides. One is that they tend to offer a lower initial interest rate than the rate available at that point on a traditional CD. Another, with variable-rate CDs, is that your rate could fall if inflation declines—a particular danger if you happen to buy your CD just as inflation is peaking. Bump-up CDs only go up, however. ### I Bonds The most often recommended alternative to CDs are Series I U.S. savings bonds, commonly known as [I bonds](https://www.investopedia.com/terms/s/seriesibond.asp). An I bond carries about the same [liquidity risk](https://www.investopedia.com/terms/l/liquidityrisk.asp) as a CD (you can't cash it out until you've had it for 12 months, and you'll pay a penalty if you withdraw it before five years). And while it isn't FDIC- or NCUA-insured, it has essentially zero risk of default because it is backed by the U.S. government. I bonds adjust their interest rates every six months in line with inflation. For example, in February 2024, I bonds were offering a composite rate of 6.89%, compared to the best 5-year CD rate in February 2024, which was [5.30%](https://www.investopedia.com/best-5-year-cd-rates-4801473). ### Note The interest you earn on an I bond is tax-free on the state and local levels, although still incurs federal tax. I bonds earn interest for 30 years unless you cash them in sooner. There is no penalty for cashing one in after five years but if you cash in before then, you'll pay the last three months' interest as a penalty. You can buy an I bond for as little as $25 or as much as $10,000, per calendar year. ### Treasury Inflation-Protected Securities (TIPS) Other relatively low-risk alternatives to CDs include [Treasury inflation-protected securities (TIPS)](https://www.investopedia.com/terms/t/tips.asp). Like I bonds, TIPS are tied to changes in the [Consumer Price Index (CPI)](https://www.investopedia.com/terms/c/consumerpriceindex.asp), specifically the CPI-U. (They pay a fixed interest rate, but your principal value will increase when inflation rises.) TIPS are available for $100 and up, in $100 increments, and with terms of five, 10, or 30 years. Like I bonds, they are subject to federal tax but exempt from state and local taxes. ### Floating-Rate Notes [Floating-rate notes](https://www.investopedia.com/terms/f/frn.asp) are still another possibility. These are government or corporate bonds with rates that will "float" as the index they're linked to rises or falls. You can buy them through a brokerage firm or in the form of a [floating-rate mutual fund](https://www.investopedia.com/articles/mutualfund/10/floating-rate-mutual-funds.asp) or exchange-traded fund. ## Getting Out of Your CDs If you're locked into one or more [fixed-rate CDs](https://www.investopedia.com/terms/f/fixed-rate-certificate-of-deposit.asp) that are losing ground to inflation, you have several options, none of them ideal. * You can simply wait until the CD's term ends, take the money, and reinvest it in something else. (Make sure you give your bank or credit union instructions when the time comes, or it may just roll the money over into a new CD, locking you in again.) * You can take your money out prematurely and pay an early-withdrawal penalty. These penalties can be relatively steep, so you may not come out ahead even if you immediately put the money into a better-paying investment. There is no maximum penalty for early CD withdrawals, as set by the U.S. government. * If you have a [brokered CD](https://www.investopedia.com/terms/b/brokered-cd.asp) purchased from a brokerage firm or independent sales agent, you can get out of it by selling it on the secondary market. However, your CD's lower interest rate will make it less valuable compared with newer, better-paying CDs, and you may have to sell it at a loss. ## Where Do You Buy I Bonds? The primary way to buy I bonds is online, at TreasuryDirect.gov. You can also buy them using your tax refund when you file your federal income taxes for the year. ## What Is the CPI-U? The CPI-U is one of two consumer price indexes the Bureau of Labor Statistics (BLS) uses to track inflation. It stands for CPI for All Urban Consumers and, according to the BLS, covers about 93% of the total population. The other CPI is Urban Wage Earners and Clerical Workers (CPI-W). The CPI-U is generally what the government or others refer to when mentioning the CPI. ## What Is a Bump-Up CD? A bump-up CD (also called a step-up CD) allows you to request an increase in your interest rate (a "bump up") one or more times during the CD's term if rates are rising in general. If rates are falling, you can stick with your existing rate. ## The Bottom Line While high inflationary environments are never a great thing in general, inflation poses a particular threat to fixed-rate investments like certificates of deposit. If you're looking for a place to invest in a time of inflation there are any number of alternatives, some just as safe as CDs, others a bit riskier. Series I savings bonds may be a good option for the risk-averse who don't mind locking up savings for at least one year.	Certificates of deposit (CDs) pay you a fixed interest rate over a specific duration of time that can range from three months to five or more years. Because you lock in a rate for a long time, certificates of deposit are not the best investment option when inflation is on the rise because you might lose out on other investments that would better keep up with the rising cost of living. Here's what you need to know about CDs and inflation, as well as some possible alternatives. Key Takeaways Investing in CDs may not make sense in a rising inflation environment because you could be locking in your money at too low a rate.Some CDs and other relatively low-risk investment products have adjustable rates that make them more suitable in a rising-rate environment, although they also have drawbacks.If you want to get out of a low-paying CD, your best bet may be to wait until it matures rather than pay early-withdrawal penalties. Investopedia / Jake Shi How Rising Inflation Affects CDs CDs, unfortunately, are not the ideal investment for an inflationary environment. If the interest rate on a CD can't keep up with inflation, your money loses purchasing power. And because interest rates usually rise when inflation goes up, you could be missing out on better-paying investments while your money is tied up in a CD. This is especially true of CDs with longer terms. While paying somewhat higher rates than short-term CDs, they also lock up your money for a longer period, subjecting it to greater inflation risk. If you want to get your money out before the CD's term ends, you'll typically face early-withdrawal penalties. These penalties can cost you some or all the interest your CD has earned. There are usually better options available. For example, most high-yield savings accounts (HYSAs) pay about as much as a CD, with no early-withdrawal penalties. And like CDs, they are insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). Depending on how much risk you are willing to take, there are also other alternatives. Alternatives to Standard CDs CDs With Adjustable Rates Two other CD types, variable-rate CDs, and bump-up CDs, may adjust their rates upward, making them more suitable in a period when inflation and interest rates are rising. Variable-rate CDs adjust the annual percentage yield (APY) you're paid based on the prime rate or another index. Bump-up CDs, also called liquid CDs or step-up CDs, let you choose one time during the CD term when you'd like to adjust your interest rate. These products can give you some inflation protection, but they also have their downsides. One is that they tend to offer a lower initial interest rate than the rate available at that point on a traditional CD. Another, with variable-rate CDs, is that your rate could fall if inflation declines—a particular danger if you happen to buy your CD just as inflation is peaking. Bump-up CDs only go up, however. I Bonds The most often recommended alternative to CDs are Series I U.S. savings bonds, commonly known as I bonds. An I bond carries about the same liquidity risk as a CD (you can't cash it out until you've had it for 12 months, and you'll pay a penalty if you withdraw it before five years). And while it isn't FDIC- or NCUA-insured, it has essentially zero risk of default because it is backed by the U.S. government. I bonds adjust their interest rates every six months in line with inflation. For example, in February 2024, I bonds were offering a composite rate of 6.89%, compared to the best 5-year CD rate in February 2024, which was 5.30%. Note The interest you earn on an I bond is tax-free on the state and local levels, although still incurs federal tax. I bonds earn interest for 30 years unless you cash them in sooner. There is no penalty for cashing one in after five years but if you cash in before then, you'll pay the last three months' interest as a penalty. You can buy an I bond for as little as $25 or as much as $10,000, per calendar year. Treasury Inflation-Protected Securities (TIPS) Other relatively low-risk alternatives to CDs include Treasury inflation-protected securities (TIPS). Like I bonds, TIPS are tied to changes in the Consumer Price Index (CPI), specifically the CPI-U. (They pay a fixed interest rate, but your principal value will increase when inflation rises.) TIPS are available for $100 and up, in $100 increments, and with terms of five, 10, or 30 years. Like I bonds, they are subject to federal tax but exempt from state and local taxes. Floating-Rate Notes Floating-rate notes are still another possibility. These are government or corporate bonds with rates that will "float" as the index they're linked to rises or falls. You can buy them through a brokerage firm or in the form of a floating-rate mutual fund or exchange-traded fund. Getting Out of Your CDs If you're locked into one or more fixed-rate CDs that are losing ground to inflation, you have several options, none of them ideal. You can simply wait until the CD's term ends, take the money, and reinvest it in something else. (Make sure you give your bank or credit union instructions when the time comes, or it may just roll the money over into a new CD, locking you in again.) You can take your money out prematurely and pay an early-withdrawal penalty. These penalties can be relatively steep, so you may not come out ahead even if you immediately put the money into a better-paying investment. There is no maximum penalty for early CD withdrawals, as set by the U.S. government. If you have a brokered CD purchased from a brokerage firm or independent sales agent, you can get out of it by selling it on the secondary market. However, your CD's lower interest rate will make it less valuable compared with newer, better-paying CDs, and you may have to sell it at a loss. Where Do You Buy I Bonds? The primary way to buy I bonds is online, at TreasuryDirect.gov. You can also buy them using your tax refund when you file your federal income taxes for the year. What Is the CPI-U? The CPI-U is one of two consumer price indexes the Bureau of Labor Statistics (BLS) uses to track inflation. It stands for CPI for All Urban Consumers and, according to the BLS, covers about 93% of the total population. The other CPI is Urban Wage Earners and Clerical Workers (CPI-W). The CPI-U is generally what the government or others refer to when mentioning the CPI. What Is a Bump-Up CD? A bump-up CD (also called a step-up CD) allows you to request an increase in your interest rate (a "bump up") one or more times during the CD's term if rates are rising in general. If rates are falling, you can stick with your existing rate. The Bottom Line While high inflationary environments are never a great thing in general, inflation poses a particular threat to fixed-rate investments like certificates of deposit. If you're looking for a place to invest in a time of inflation there are any number of alternatives, some just as safe as CDs, others a bit riskier.Series I savings bonds may be a good option for the risk-averse who don't mind locking up savings for at least one year.	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https://www.investopedia.com/articles/stocks/10/5-steps-of-a-bubble.asp	5 Stages of A Bubble	<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-bubble"></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 Bubble? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A basic characteristic of financial <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bubble.asp" rel="noopener noreferrer">bubbles</a> is the suspension of disbelief by most participants when the speculative price surge is occurring: It's only in retrospect, after the bubble has burst, that they're recognized (to many an investor's chagrin). Nevertheless, some economists have identified five stages of a bubble—a pattern to its rise and fall—that could prevent the unwary from getting caught in its deceptive clutches. </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>Bubble, in an economic context, generally refers to a situation where the price for something—an individual stock, a financial asset, or even an entire sector, market, or asset class—exceeds its fundamental value by a large margin.</li><li>Financial bubbles, aka asset bubbles or economic bubbles, fit into four basic categories: stock market bubbles, market bubbles, credit bubbles, and commodity bubbles.</li><li>Bubbles are deceptive and unpredictable, but understanding the five stages they characteristically go through can help investors prepare for them.</li><li>The five steps in the lifecycle of a bubble are displacement, boom, euphoria, profit-taking, and panic.</li><li>The damage caused by the bursting of a bubble depends on the economic sector(s) involved, whether the extent of participation is widespread or localized, and to what extent debt fueled the investments that inflated the bubble.</li></ul></div></div></div> <span class="heading-toc" id="toc-economic-bubbles"></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"> Economic Bubbles </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The term "bubble," in an economic context, generally refers to a situation where the price for something—an individual stock, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialasset.asp">financial asset</a>, or even an entire sector, market, or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assetclasses.asp">asset class</a>—exceeds its fundamental value by a large margin. Because speculative demand, rather than intrinsic worth, fuels the inflated prices, the bubble eventually but inevitably pops, and massive sell-offs cause prices to decline, often quite dramatically. In most cases, in fact, a speculative bubble is followed by a spectacular crash in the securities in question. </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 damage caused by the bursting of a bubble depends on the economic sector(s) involved, and also whether the extent of participation is widespread or localized. For example, the bursting of the equity and real estate bubbles in Japan in 1989–1992 led to a prolonged period of stagnation for the Japanese economy—so long that the 1990s are referred to as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/08/japan-1990s-credit-crunch-liquidity-trap.asp">Lost Decade</a>.<span class="ql-inline-citation" data-cite="1"></span> In the U.S., the burst of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dotcom-bubble.asp">dotcom bubble</a> in 2000 and the residential real estate bubble in 2008 led to severe recessions.<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_10-0"></div> <span class="heading-toc" id="toc-types-of-asset-bubbles"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> Types of Asset Bubbles </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Theoretically, there is an infinite number of asset bubbles—after all, a speculative frenzy can arise over anything, from cryptocurrencies like Bitcoin & Dogecoin to meme stocks like Gamestop & AMC to housing prices to tulip bulbs (just to cite a couple of real-life examples). But in general, asset bubbles can be broken down into four basic 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><strong>Stock market bubbles</strong> involve equities—shares of stocks that rise rapidly in price, often out of proportion to their companies' fundamental value (their earnings, assets, etc.). These bubbles can include the overall stock market, exchange-traded funds (ETFs), or equities in a particular field or market sector—like Internet-based businesses, which fueled the <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dotcom.asp">dotcom</a><a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dotcom-bubble.asp"> bubble</a> of the late 1990s.</li> <li><strong>Asset Market bubbles</strong> involve other industries or sections of the economy, outside of the equities market. Real estate is a classic example. Run-ups in currencies, either traditional ones like the US dollar or euro or cryptocurrencies like Bitcoin or Litecoin, could also fall into this bubble category.</li> <li><strong>Credit bubbles</strong> involve a sudden surge in consumer or business loans, debt instruments, and other forms of credit. Specific examples of assets include corporate bonds or government bonds (like US Treasuries), student loans, or mortgages.</li> <li><strong>Commodity bubbles</strong> involve an increase in the price of traded commodities, "hard"—that is, tangible—materials and resources, such as gold, oil, industrial metals, or agricultural crops.</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"> Stock market and market bubbles, in particular, can lead to a more general economic bubble, in which a regional or national economy overall inflates at a dangerously fast clip. Many historians feel the U.S. was overheating in this way in the 1920s, aka "The Roaring Twenties"—leading to the meltdown of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stock-market-crash-1929.asp">Crash of 1929</a> and the subsequent <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/great_depression.asp">Great Depression</a>.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-5-stages-of-a-bubble"></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"> 5 Stages of a Bubble </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Economist Hyman P. Minsky was one of the first to explain the development of financial instability and the relationship it has with the economy. In his pioneering book <em>Stabilizing an Unstable Economy</em> (1986), he identified five stages in a typical <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-cycle.asp">credit cycle</a>, one of several recurrent economic cycles.<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"> These stages also outline the basic pattern of a bubble. </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"> 1. Displacement </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> A displacement occurs when investors get enamored by a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/newparadigm.asp">new paradigm</a>, such as an innovative new technology or interest rates that are historically low. A classic example of displacement is the decline in 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> from 6.5% in July 2000, to 1.2% in June 2003.<span class="ql-inline-citation" data-cite="2"></span> Over this three-year period, the interest rate on 30-year fixed-rate mortgages fell by 2.5 percentage points to a then-historic low of 5.23%, sowing the seeds for the subsequent housing bubble.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <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"> 2. Boom </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Prices rise slowly at first, following a displacement, but then gain <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/momentum.asp" rel="noopener noreferrer">momentum</a> as more and more participants enter the market, setting the stage for the boom phase. During this phase, the asset in question attracts widespread media coverage. Fear of missing out on what could be a once-in-a-lifetime opportunity spurs more speculation, drawing an increasing number of investors and traders into the fold. </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"> 3. Euphoria </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> During this phase, caution is thrown to the wind, as asset prices skyrocket. Valuations reach extreme levels during this phase as new valuation measures and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/metrics.asp">metrics</a> are touted to justify the relentless rise, and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/greaterfooltheory.asp">"greater fool" theory</a>—the idea that no matter how prices go, there will always be a market of buyers willing to pay more—plays out everywhere. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> For example, at the peak of the Japanese real estate bubble in 1989, prime office space in Tokyo sold for as much as $139,000 per square foot.<span class="ql-inline-citation" data-cite="5"></span> Similarly, at the height of the <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/internet-bubble.asp">Internet bubble</a> in March 2000, the combined value of all technology stocks on the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp">Nasdaq</a> was higher than the GDP of most nations.<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_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"> 4. Profit-Taking </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> In this phase, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/smart-money.asp">smart money</a>—heeding the warning signs that the bubble is about at its bursting point—starts selling positions and taking profits. But estimating the exact time when a bubble is due to collapse can be a difficult exercise because, as economist <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/john_maynard_keynes.asp">John Maynard Keynes</a> put it, "the markets can stay irrational longer than you can stay solvent." </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"> In Aug. 2007, for example, French bank BNP Paribas halted withdrawals from three investment funds with substantial exposure to U.S. subprime mortgages because it could not value its holdings.<span class="ql-inline-citation" data-cite="6"></span> While this development initially rattled financial markets, it was brushed aside over the next couple of months, as global equity markets reached new highs. In retrospect, Paribas had the right idea, and this relatively minor event was indeed a warning sign of the turbulent times to come. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-subheading__text"> 5. Panic </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> It only takes a relatively minor event to prick a bubble, but once it is pricked, the bubble cannot inflate again. In the panic stage, asset prices reverse course and descend as rapidly as they had ascended. Investors and speculators, faced with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margincall.asp">margin calls</a> and plunging values of their holdings, now want to liquidate at any price. As supply overwhelms demand, asset prices slide sharply. </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"> One of the most vivid examples of global panic in financial markets occurred in Oct. 2008, weeks after <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lehman-brothers.asp">Lehman Brothers</a> declared bankruptcy and Fannie Mae, Freddie Mac, and AIG almost collapsed. The S&P 500 plunged almost 17% that month, its ninth-worst monthly performance.<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_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-note" 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 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><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dutch_tulip_bulb_market_bubble.asp">Tulipmania</a> describes the first major financial bubble, which took place in 17<sup>th</sup>-century Holland: Prices for tulips soared beyond reason, then fell as fast as the flower's petals.</p></div></div></div> <span class="heading-toc" id="toc-example-of-a-stock-bubble-etoys"></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"> Example of a Stock Bubble: eToys </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> The Internet bubble around the turn of the 21<sup>st </sup>century was an especially dramatic one. Numerous Internet-related companies made their public debut in spectacular fashion in the late 1990s before disappearing into oblivion by 2002. The story of eToys illustrates how the stages of a stock bubble typically play out. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-subheading__text"> A Rosy Start </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> In May 1999, with the Internet revolution in full swing, eToys had a very successful <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</a> (IPO), where shares at $20 each escalated to $78 on their first trading day.<span class="ql-inline-citation" data-cite="12"></span> The company was less than three years old at that point and had grown sales to $30 million for the year ended March 31, 1999, from $0.7 million in the preceding year.<span class="ql-inline-citation" data-cite="13"></span> Investors were very enthusiastic about the stock's prospects, with the general thinking being that most toy buyers would buy toys online rather than at retail stores such as Toys "R" Us. This was the displacement phase of the bubble. </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"> While eToys had posted a net loss of $28.6 million on revenues of $30 million in its most recent fiscal year, investors were expecting the financial situation of the firm to take a turn for the best.<span class="ql-inline-citation" data-cite="13"></span> By the time markets closed on May 20, eToys sported a price/sales valuation that was largely exceeding that of rival Toys "R" Us, which had a stronger <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>. This marked the boom and euphoria stages of the bubble. </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"> Shortly afterward, eToys shares fell sharply on concerns that potential sales by company insiders could drag down the stock price, following the expiry of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lockup.asp">lockup agreements</a> that placed restrictions on insider sales.<span class="ql-inline-citation" data-cite="15"></span> Trading volume was exceptionally heavy that day, at nine times the three-month daily average. By March of 2000, the company had seen a 70% decline in its stock price from its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/record_high.asp">record high</a> of $84, identifying this as the profit-taking phase of the bubble.<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_55-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-subheading__text"> Decline and Fall </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> By the end of Q1 2000, the panic stage had arrived, and the company was still spending an extraordinary $2.27 on advertising costs for every dollar of revenue generated.<span class="ql-inline-citation" data-cite="16"></span> Although the investors were saying that such expenditures were characteristic of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/neweconomy.asp">new economy</a>, such a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/businessmodel.asp">business model</a> simply is not sustainable. </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 July 2000, eToys reported its fiscal first-quarter loss widened to $59.5 million from $20.8 million a year earlier, even as sales tripled over this period to $24.9 million. It added 219,000 new customers during the quarter, but the company was not able to show <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> profits. By this time, with the ongoing correction in technology shares, the stock was trading around $5.<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_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Towards the end of the year, with losses continuing to mount, eToys would not meet its fiscal third-quarter sales forecast and had just four months of cash left. The stock, which had already been caught up in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/panicselling.asp">panic selling</a> of Internet-related stocks since March and was trading around at slightly over $1, fell 73% to 28 cents by Feb. 2001. Since the company failed to retain a stable stock price of at least $1, it was delisted from the Nasdaq.<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_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> A month after it had reduced its workforce by 70%, eToys fired its remaining 300 workers and was forced to declare <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankruptcy.asp">bankruptcy</a>. By this time, eToys had lost $493 million over the previous three years and had $274 million in outstanding debt.<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_64-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_65-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_66-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>"Irrational exuberance is the psychological basis of a speculative bubble," wrote economist Robert Shiller in his 2000 book,<em> Irrational Exuberance</em>. He defined a bubble "as a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases, and bringing in a larger and larger class of investors who, despite doubts about the real value of an investment, are drawn to it partly by envy of others' successes and partly through a gamblers' excitement."</p></div></div></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-causes-asset-bubbles"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Causes Asset Bubbles?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Asset bubbles can begin in any number of ways, and often for sound reasons. Major incubators of bubbles, which often interact or occur in tandem, include:</p><ul><li>Interest rates might be low, which tends to encourage borrowing for spending, expansion, and investment.</li><li>Low-interest rates and other favorable conditions in a nation encourage an influx of foreign investment and purchases.</li><li>New products or technologies spur demand and, whenever something's in demand, its price naturally rises (what the economists dub demand-pull inflation).</li><li>There are shortages of an asset, causing the cost of it to climb—again, classic supply-and-demand principles.</li></ul><p>So far, so good: These are all solid factors for appreciation. However, a problem arises when an asset bubble begins, snowball-like, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/082515/how-do-asset-bubbles-cause-recessions.asp">to feed on itself</a>—and to swell out of proportion to the fundamentals, or intrinsic worth, of the assets involved. Opportunistic investors and speculators are plunging in and pushing prices up even more.</p><p>Why are they doing this? It has to do not with fundamentals but with human foibles—psychological and often irrational thinking and actions about money, known as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/behavioralfinance.asp">behavioral financial</a> biases. These behaviors include things like:</p><ul><li><strong>Herd mentality:</strong> doing something because everyone else is</li><li><strong>Short-term thinking</strong>: just looking at the immediate returns, or thinking you can "beat the market" and time a quick exit</li><li><strong>Cognitive dissonance:</strong> only accepting information that confirms an already-held belief, and ignoring anything that doesn't </li></ul></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-happens-when-an-asset-bubble-bursts"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Happens When an Asset Bubble Bursts?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A range of things can happen when an asset bubble finally bursts, as it always does, eventually. Sometimes, the effect can be small, causing losses to only a few, and/or short-lived. At other times, it can trigger a stock market crash, a general economic recession, or even depression. It is also possible to have a temporary rebound, known as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/echobubble.asp">echo bubble</a>.</p><p>Much depends on how big the bubble is—whether it involves a relatively small or specialized asset class vs. a significant sector like, say, tech stocks or residential real estate. And, of course, how much investment money is involved.</p><p>Another factor is to what degree debt is involved in inflating the bubble. A major 2015 research study, "<a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="http://conference.nber.org/confer/2015/EASE15/Jorda_Schularick_Taylor.pdf">Leveraged Bubbles</a>," examined asset bubbles in 17 countries dating back to the 1870s. It categorized them into four types, but along two basic lines, based on credit—that is, how funded investments were by financing and borrowing.</p><p>The study found that the more credit involved, the more damaging the bubble's pop. Debt-fueled equity bubbles led to longer-lived recessions. Even worse were leveraged housing bubbles, like the one that popped in 2006-07, leading to the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/07/subprime-blame.asp">subprime mortgage crisis</a> that kicked off the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/great-recession.asp">Great Recession</a>.</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-what-is-an-indicator-of-an-economic-bubble"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is an Indicator of an Economic Bubble?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One of the tricky things about bubbles is that they're hard to spot while you're in one. Only in hindsight, after they burst, do they become clear.</p><p>One such was the dotcom bubble that occurred around the turn of the 21st century. It was a rapid rise in U.S. technology stocks, especially those in then-novel Internet-based companies, that helped lift the stock markets in general. The tech-dominated <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp">Nasdaq</a> index quintupled in value, from under 1,000 to more than 5,000 between 1995 and 2000.</p><p>Unfortunately, when many of the new, hot tech companies failed to turn a profit or perform up to expectations, investors soured on them. In 2001-02, the bubble popped. In the ensuing crash, the Nasdaq index fell over 75%. Stocks in general entered a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bearmarket.asp">bear market</a>.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_73-0"><span class="heading-toc" id="toc-what-is-a-bubble-in-finance"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Bubble in Finance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A financial bubble, also known as an economic bubble or an asset bubble, is characterized by a fast, large climb in the market price of different assets. This rapid growth, though, is relatively short-lived—like the bursting of a bubble—and it abruptly reverses course, dragging asset prices down with it, sometimes even lower than their original levels.</p><p>Typically, a bubble is created out of sound <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundamentals.asp">fundamentals</a>, but eventually exuberant, irrational behavior takes over, and the surge is caused by speculation—buying for the sake of buying, in the hopes prices continue to rise.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_75-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> "A rapid price rise, high trading volume, and word-of-mouth spread are the hallmarks of typical bubbles," says <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bus.miami.edu/thought-leadership/faculty/finance/burch.html" rel="noopener noreferrer">Timothy R. Burch</a>, an Associate Professor of Finance at the Miami Herbert Business School. "If you learn of an investment opportunity with dreams of unusually high profits from social media or friends, be particularly wary—in most cases, you’ll need uncanny timing to come out ahead." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> As Minsky and a number of other experts opine, speculative bubbles in some asset or the other are inevitable in a free-market economy. However, becoming familiar with the steps involved in bubble formation may help you to spot the next one and avoid becoming an unwitting participant in it. </p></div>	## What Is a Bubble? A basic characteristic of financial [bubbles](https://www.investopedia.com/terms/b/bubble.asp) is the suspension of disbelief by most participants when the speculative price surge is occurring: It's only in retrospect, after the bubble has burst, that they're recognized (to many an investor's chagrin). Nevertheless, some economists have identified five stages of a bubble—a pattern to its rise and fall—that could prevent the unwary from getting caught in its deceptive clutches. ### Key Takeaways * Bubble, in an economic context, generally refers to a situation where the price for something—an individual stock, a financial asset, or even an entire sector, market, or asset class—exceeds its fundamental value by a large margin. * Financial bubbles, aka asset bubbles or economic bubbles, fit into four basic categories: stock market bubbles, market bubbles, credit bubbles, and commodity bubbles. * Bubbles are deceptive and unpredictable, but understanding the five stages they characteristically go through can help investors prepare for them. * The five steps in the lifecycle of a bubble are displacement, boom, euphoria, profit-taking, and panic. * The damage caused by the bursting of a bubble depends on the economic sector(s) involved, whether the extent of participation is widespread or localized, and to what extent debt fueled the investments that inflated the bubble. ## Economic Bubbles The term "bubble," in an economic context, generally refers to a situation where the price for something—an individual stock, a [financial asset](https://www.investopedia.com/terms/f/financialasset.asp), or even an entire sector, market, or [asset class](https://www.investopedia.com/terms/a/assetclasses.asp)—exceeds its fundamental value by a large margin. Because speculative demand, rather than intrinsic worth, fuels the inflated prices, the bubble eventually but inevitably pops, and massive sell-offs cause prices to decline, often quite dramatically. In most cases, in fact, a speculative bubble is followed by a spectacular crash in the securities in question. The damage caused by the bursting of a bubble depends on the economic sector(s) involved, and also whether the extent of participation is widespread or localized. For example, the bursting of the equity and real estate bubbles in Japan in 1989–1992 led to a prolonged period of stagnation for the Japanese economy—so long that the 1990s are referred to as the [Lost Decade](https://www.investopedia.com/articles/economics/08/japan-1990s-credit-crunch-liquidity-trap.asp). In the U.S., the burst of the [dotcom bubble](https://www.investopedia.com/terms/d/dotcom-bubble.asp) in 2000 and the residential real estate bubble in 2008 led to severe recessions. ## Types of Asset Bubbles Theoretically, there is an infinite number of asset bubbles—after all, a speculative frenzy can arise over anything, from cryptocurrencies like Bitcoin & Dogecoin to meme stocks like Gamestop & AMC to housing prices to tulip bulbs (just to cite a couple of real-life examples). But in general, asset bubbles can be broken down into four basic categories: * Stock market bubbles involve equities—shares of stocks that rise rapidly in price, often out of proportion to their companies' fundamental value (their earnings, assets, etc.). These bubbles can include the overall stock market, exchange-traded funds (ETFs), or equities in a particular field or market sector—like Internet-based businesses, which fueled the [dotcom](https://www.investopedia.com/terms/d/dotcom.asp)[bubble](https://www.investopedia.com/terms/d/dotcom-bubble.asp) of the late 1990s. * Asset Market bubbles involve other industries or sections of the economy, outside of the equities market. Real estate is a classic example. Run-ups in currencies, either traditional ones like the US dollar or euro or cryptocurrencies like Bitcoin or Litecoin, could also fall into this bubble category. * Credit bubbles involve a sudden surge in consumer or business loans, debt instruments, and other forms of credit. Specific examples of assets include corporate bonds or government bonds (like US Treasuries), student loans, or mortgages. * Commodity bubbles involve an increase in the price of traded commodities, "hard"—that is, tangible—materials and resources, such as gold, oil, industrial metals, or agricultural crops. Stock market and market bubbles, in particular, can lead to a more general economic bubble, in which a regional or national economy overall inflates at a dangerously fast clip. Many historians feel the U.S. was overheating in this way in the 1920s, aka "The Roaring Twenties"—leading to the meltdown of the [Crash of 1929](https://www.investopedia.com/terms/s/stock-market-crash-1929.asp) and the subsequent [Great Depression](https://www.investopedia.com/terms/g/great_depression.asp). ## 5 Stages of a Bubble Economist Hyman P. Minsky was one of the first to explain the development of financial instability and the relationship it has with the economy. In his pioneering book Stabilizing an Unstable Economy (1986), he identified five stages in a typical [credit cycle](https://www.investopedia.com/terms/c/credit-cycle.asp), one of several recurrent economic cycles. These stages also outline the basic pattern of a bubble. ### 1. Displacement A displacement occurs when investors get enamored by a [new paradigm](https://www.investopedia.com/terms/n/newparadigm.asp), such as an innovative new technology or interest rates that are historically low. A classic example of displacement is the decline in the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) from 6.5% in July 2000, to 1.2% in June 2003. Over this three-year period, the interest rate on 30-year fixed-rate mortgages fell by 2.5 percentage points to a then-historic low of 5.23%, sowing the seeds for the subsequent housing bubble. ### 2. Boom Prices rise slowly at first, following a displacement, but then gain [momentum](https://www.investopedia.com/terms/m/momentum.asp) as more and more participants enter the market, setting the stage for the boom phase. During this phase, the asset in question attracts widespread media coverage. Fear of missing out on what could be a once-in-a-lifetime opportunity spurs more speculation, drawing an increasing number of investors and traders into the fold. ### 3. Euphoria During this phase, caution is thrown to the wind, as asset prices skyrocket. Valuations reach extreme levels during this phase as new valuation measures and [metrics](https://www.investopedia.com/terms/m/metrics.asp) are touted to justify the relentless rise, and the ["greater fool" theory](https://www.investopedia.com/terms/g/greaterfooltheory.asp)—the idea that no matter how prices go, there will always be a market of buyers willing to pay more—plays out everywhere. For example, at the peak of the Japanese real estate bubble in 1989, prime office space in Tokyo sold for as much as $139,000 per square foot. Similarly, at the height of the [Internet bubble](https://www.investopedia.com/terms/i/internet-bubble.asp) in March 2000, the combined value of all technology stocks on the [Nasdaq](https://www.investopedia.com/terms/n/nasdaq.asp) was higher than the GDP of most nations. ### 4. Profit-Taking In this phase, the [smart money](https://www.investopedia.com/terms/s/smart-money.asp)—heeding the warning signs that the bubble is about at its bursting point—starts selling positions and taking profits. But estimating the exact time when a bubble is due to collapse can be a difficult exercise because, as economist [John Maynard Keynes](https://www.investopedia.com/terms/j/john_maynard_keynes.asp) put it, "the markets can stay irrational longer than you can stay solvent." In Aug. 2007, for example, French bank BNP Paribas halted withdrawals from three investment funds with substantial exposure to U.S. subprime mortgages because it could not value its holdings. While this development initially rattled financial markets, it was brushed aside over the next couple of months, as global equity markets reached new highs. In retrospect, Paribas had the right idea, and this relatively minor event was indeed a warning sign of the turbulent times to come. ### 5. Panic It only takes a relatively minor event to prick a bubble, but once it is pricked, the bubble cannot inflate again. In the panic stage, asset prices reverse course and descend as rapidly as they had ascended. Investors and speculators, faced with [margin calls](https://www.investopedia.com/terms/m/margincall.asp) and plunging values of their holdings, now want to liquidate at any price. As supply overwhelms demand, asset prices slide sharply. One of the most vivid examples of global panic in financial markets occurred in Oct. 2008, weeks after [Lehman Brothers](https://www.investopedia.com/terms/l/lehman-brothers.asp) declared bankruptcy and Fannie Mae, Freddie Mac, and AIG almost collapsed. The S&P 500 plunged almost 17% that month, its ninth-worst monthly performance. ### [Tulipmania](https://www.investopedia.com/terms/d/dutch_tulip_bulb_market_bubble.asp) describes the first major financial bubble, which took place in 17th-century Holland: Prices for tulips soared beyond reason, then fell as fast as the flower's petals. ## Example of a Stock Bubble: eToys The Internet bubble around the turn of the 21st century was an especially dramatic one. Numerous Internet-related companies made their public debut in spectacular fashion in the late 1990s before disappearing into oblivion by 2002. The story of eToys illustrates how the stages of a stock bubble typically play out. ### A Rosy Start In May 1999, with the Internet revolution in full swing, eToys had a very successful [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO), where shares at $20 each escalated to $78 on their first trading day. The company was less than three years old at that point and had grown sales to $30 million for the year ended March 31, 1999, from $0.7 million in the preceding year. Investors were very enthusiastic about the stock's prospects, with the general thinking being that most toy buyers would buy toys online rather than at retail stores such as Toys "R" Us. This was the displacement phase of the bubble. While eToys had posted a net loss of $28.6 million on revenues of $30 million in its most recent fiscal year, investors were expecting the financial situation of the firm to take a turn for the best. By the time markets closed on May 20, eToys sported a price/sales valuation that was largely exceeding that of rival Toys "R" Us, which had a stronger [balance sheet](https://www.investopedia.com/terms/b/balancesheet.asp). This marked the boom and euphoria stages of the bubble. Shortly afterward, eToys shares fell sharply on concerns that potential sales by company insiders could drag down the stock price, following the expiry of [lockup agreements](https://www.investopedia.com/terms/l/lockup.asp) that placed restrictions on insider sales. Trading volume was exceptionally heavy that day, at nine times the three-month daily average. By March of 2000, the company had seen a 70% decline in its stock price from its [record high](https://www.investopedia.com/terms/r/record_high.asp) of $84, identifying this as the profit-taking phase of the bubble. ### Decline and Fall By the end of Q1 2000, the panic stage had arrived, and the company was still spending an extraordinary $2.27 on advertising costs for every dollar of revenue generated. Although the investors were saying that such expenditures were characteristic of the [new economy](https://www.investopedia.com/terms/n/neweconomy.asp), such a [business model](https://www.investopedia.com/terms/b/businessmodel.asp) simply is not sustainable. In July 2000, eToys reported its fiscal first-quarter loss widened to $59.5 million from $20.8 million a year earlier, even as sales tripled over this period to $24.9 million. It added 219,000 new customers during the quarter, but the company was not able to show [bottom-line](https://www.investopedia.com/terms/b/bottomline.asp) profits. By this time, with the ongoing correction in technology shares, the stock was trading around $5. Towards the end of the year, with losses continuing to mount, eToys would not meet its fiscal third-quarter sales forecast and had just four months of cash left. The stock, which had already been caught up in the [panic selling](https://www.investopedia.com/terms/p/panicselling.asp) of Internet-related stocks since March and was trading around at slightly over $1, fell 73% to 28 cents by Feb. 2001. Since the company failed to retain a stable stock price of at least $1, it was delisted from the Nasdaq. A month after it had reduced its workforce by 70%, eToys fired its remaining 300 workers and was forced to declare [bankruptcy](https://www.investopedia.com/terms/b/bankruptcy.asp). By this time, eToys had lost $493 million over the previous three years and had $274 million in outstanding debt. ### "Irrational exuberance is the psychological basis of a speculative bubble," wrote economist Robert Shiller in his 2000 book, Irrational Exuberance. He defined a bubble "as a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases, and bringing in a larger and larger class of investors who, despite doubts about the real value of an investment, are drawn to it partly by envy of others' successes and partly through a gamblers' excitement." ## What Causes Asset Bubbles? Asset bubbles can begin in any number of ways, and often for sound reasons. Major incubators of bubbles, which often interact or occur in tandem, include: * Interest rates might be low, which tends to encourage borrowing for spending, expansion, and investment. * Low-interest rates and other favorable conditions in a nation encourage an influx of foreign investment and purchases. * New products or technologies spur demand and, whenever something's in demand, its price naturally rises (what the economists dub demand-pull inflation). * There are shortages of an asset, causing the cost of it to climb—again, classic supply-and-demand principles. So far, so good: These are all solid factors for appreciation. However, a problem arises when an asset bubble begins, snowball-like, [to feed on itself](https://www.investopedia.com/articles/investing/082515/how-do-asset-bubbles-cause-recessions.asp)—and to swell out of proportion to the fundamentals, or intrinsic worth, of the assets involved. Opportunistic investors and speculators are plunging in and pushing prices up even more. Why are they doing this? It has to do not with fundamentals but with human foibles—psychological and often irrational thinking and actions about money, known as [behavioral financial](https://www.investopedia.com/terms/b/behavioralfinance.asp) biases. These behaviors include things like: * Herd mentality: doing something because everyone else is * Short-term thinking: just looking at the immediate returns, or thinking you can "beat the market" and time a quick exit * Cognitive dissonance: only accepting information that confirms an already-held belief, and ignoring anything that doesn't ## What Happens When an Asset Bubble Bursts? A range of things can happen when an asset bubble finally bursts, as it always does, eventually. Sometimes, the effect can be small, causing losses to only a few, and/or short-lived. At other times, it can trigger a stock market crash, a general economic recession, or even depression. It is also possible to have a temporary rebound, known as an [echo bubble](https://www.investopedia.com/terms/e/echobubble.asp). Much depends on how big the bubble is—whether it involves a relatively small or specialized asset class vs. a significant sector like, say, tech stocks or residential real estate. And, of course, how much investment money is involved. Another factor is to what degree debt is involved in inflating the bubble. A major 2015 research study, "[Leveraged Bubbles](http://conference.nber.org/confer/2015/EASE15/Jorda_Schularick_Taylor.pdf)," examined asset bubbles in 17 countries dating back to the 1870s. It categorized them into four types, but along two basic lines, based on credit—that is, how funded investments were by financing and borrowing. The study found that the more credit involved, the more damaging the bubble's pop. Debt-fueled equity bubbles led to longer-lived recessions. Even worse were leveraged housing bubbles, like the one that popped in 2006-07, leading to the [subprime mortgage crisis](https://www.investopedia.com/articles/07/subprime-blame.asp) that kicked off the [Great Recession](https://www.investopedia.com/terms/g/great-recession.asp). ## What Is an Indicator of an Economic Bubble? One of the tricky things about bubbles is that they're hard to spot while you're in one. Only in hindsight, after they burst, do they become clear. One such was the dotcom bubble that occurred around the turn of the 21st century. It was a rapid rise in U.S. technology stocks, especially those in then-novel Internet-based companies, that helped lift the stock markets in general. The tech-dominated [Nasdaq](https://www.investopedia.com/terms/n/nasdaq.asp) index quintupled in value, from under 1,000 to more than 5,000 between 1995 and 2000. Unfortunately, when many of the new, hot tech companies failed to turn a profit or perform up to expectations, investors soured on them. In 2001-02, the bubble popped. In the ensuing crash, the Nasdaq index fell over 75%. Stocks in general entered a [bear market](https://www.investopedia.com/terms/b/bearmarket.asp). ## What Is a Bubble in Finance? A financial bubble, also known as an economic bubble or an asset bubble, is characterized by a fast, large climb in the market price of different assets. This rapid growth, though, is relatively short-lived—like the bursting of a bubble—and it abruptly reverses course, dragging asset prices down with it, sometimes even lower than their original levels. Typically, a bubble is created out of sound [fundamentals](https://www.investopedia.com/terms/f/fundamentals.asp), but eventually exuberant, irrational behavior takes over, and the surge is caused by speculation—buying for the sake of buying, in the hopes prices continue to rise. ## The Bottom Line "A rapid price rise, high trading volume, and word-of-mouth spread are the hallmarks of typical bubbles," says [Timothy R. Burch](https://www.bus.miami.edu/thought-leadership/faculty/finance/burch.html), an Associate Professor of Finance at the Miami Herbert Business School. "If you learn of an investment opportunity with dreams of unusually high profits from social media or friends, be particularly wary—in most cases, you’ll need uncanny timing to come out ahead." As Minsky and a number of other experts opine, speculative bubbles in some asset or the other are inevitable in a free-market economy. However, becoming familiar with the steps involved in bubble formation may help you to spot the next one and avoid becoming an unwitting participant in it.	What Is a Bubble? A basic characteristic of financial bubbles is the suspension of disbelief by most participants when the speculative price surge is occurring: It's only in retrospect, after the bubble has burst, that they're recognized (to many an investor's chagrin). Nevertheless, some economists have identified five stages of a bubble—a pattern to its rise and fall—that could prevent the unwary from getting caught in its deceptive clutches. Key Takeaways Bubble, in an economic context, generally refers to a situation where the price for something—an individual stock, a financial asset, or even an entire sector, market, or asset class—exceeds its fundamental value by a large margin.Financial bubbles, aka asset bubbles or economic bubbles, fit into four basic categories: stock market bubbles, market bubbles, credit bubbles, and commodity bubbles.Bubbles are deceptive and unpredictable, but understanding the five stages they characteristically go through can help investors prepare for them.The five steps in the lifecycle of a bubble are displacement, boom, euphoria, profit-taking, and panic.The damage caused by the bursting of a bubble depends on the economic sector(s) involved, whether the extent of participation is widespread or localized, and to what extent debt fueled the investments that inflated the bubble. Economic Bubbles The term "bubble," in an economic context, generally refers to a situation where the price for something—an individual stock, a financial asset, or even an entire sector, market, or asset class—exceeds its fundamental value by a large margin. Because speculative demand, rather than intrinsic worth, fuels the inflated prices, the bubble eventually but inevitably pops, and massive sell-offs cause prices to decline, often quite dramatically. In most cases, in fact, a speculative bubble is followed by a spectacular crash in the securities in question. The damage caused by the bursting of a bubble depends on the economic sector(s) involved, and also whether the extent of participation is widespread or localized. For example, the bursting of the equity and real estate bubbles in Japan in 1989–1992 led to a prolonged period of stagnation for the Japanese economy—so long that the 1990s are referred to as the Lost Decade. In the U.S., the burst of the dotcom bubble in 2000 and the residential real estate bubble in 2008 led to severe recessions. Types of Asset Bubbles Theoretically, there is an infinite number of asset bubbles—after all, a speculative frenzy can arise over anything, from cryptocurrencies like Bitcoin & Dogecoin to meme stocks like Gamestop & AMC to housing prices to tulip bulbs (just to cite a couple of real-life examples). But in general, asset bubbles can be broken down into four basic categories: Stock market bubbles involve equities—shares of stocks that rise rapidly in price, often out of proportion to their companies' fundamental value (their earnings, assets, etc.). These bubbles can include the overall stock market, exchange-traded funds (ETFs), or equities in a particular field or market sector—like Internet-based businesses, which fueled the dotcom bubble of the late 1990s. Asset Market bubbles involve other industries or sections of the economy, outside of the equities market. Real estate is a classic example. Run-ups in currencies, either traditional ones like the US dollar or euro or cryptocurrencies like Bitcoin or Litecoin, could also fall into this bubble category. Credit bubbles involve a sudden surge in consumer or business loans, debt instruments, and other forms of credit. Specific examples of assets include corporate bonds or government bonds (like US Treasuries), student loans, or mortgages. Commodity bubbles involve an increase in the price of traded commodities, "hard"—that is, tangible—materials and resources, such as gold, oil, industrial metals, or agricultural crops. Stock market and market bubbles, in particular, can lead to a more general economic bubble, in which a regional or national economy overall inflates at a dangerously fast clip. Many historians feel the U.S. was overheating in this way in the 1920s, aka "The Roaring Twenties"—leading to the meltdown of the Crash of 1929 and the subsequent Great Depression. 5 Stages of a Bubble Economist Hyman P. Minsky was one of the first to explain the development of financial instability and the relationship it has with the economy. In his pioneering book Stabilizing an Unstable Economy (1986), he identified five stages in a typical credit cycle, one of several recurrent economic cycles. These stages also outline the basic pattern of a bubble. 1. Displacement A displacement occurs when investors get enamored by a new paradigm, such as an innovative new technology or interest rates that are historically low. A classic example of displacement is the decline in the federal funds rate from 6.5% in July 2000, to 1.2% in June 2003. Over this three-year period, the interest rate on 30-year fixed-rate mortgages fell by 2.5 percentage points to a then-historic low of 5.23%, sowing the seeds for the subsequent housing bubble. 2. Boom Prices rise slowly at first, following a displacement, but then gain momentum as more and more participants enter the market, setting the stage for the boom phase. During this phase, the asset in question attracts widespread media coverage. Fear of missing out on what could be a once-in-a-lifetime opportunity spurs more speculation, drawing an increasing number of investors and traders into the fold. 3. Euphoria During this phase, caution is thrown to the wind, as asset prices skyrocket. Valuations reach extreme levels during this phase as new valuation measures and metrics are touted to justify the relentless rise, and the "greater fool" theory—the idea that no matter how prices go, there will always be a market of buyers willing to pay more—plays out everywhere. For example, at the peak of the Japanese real estate bubble in 1989, prime office space in Tokyo sold for as much as $139,000 per square foot. Similarly, at the height of the Internet bubble in March 2000, the combined value of all technology stocks on the Nasdaq was higher than the GDP of most nations. 4. Profit-Taking In this phase, the smart money—heeding the warning signs that the bubble is about at its bursting point—starts selling positions and taking profits. But estimating the exact time when a bubble is due to collapse can be a difficult exercise because, as economist John Maynard Keynes put it, "the markets can stay irrational longer than you can stay solvent." In Aug. 2007, for example, French bank BNP Paribas halted withdrawals from three investment funds with substantial exposure to U.S. subprime mortgages because it could not value its holdings. While this development initially rattled financial markets, it was brushed aside over the next couple of months, as global equity markets reached new highs. In retrospect, Paribas had the right idea, and this relatively minor event was indeed a warning sign of the turbulent times to come. 5. Panic It only takes a relatively minor event to prick a bubble, but once it is pricked, the bubble cannot inflate again. In the panic stage, asset prices reverse course and descend as rapidly as they had ascended. Investors and speculators, faced with margin calls and plunging values of their holdings, now want to liquidate at any price. As supply overwhelms demand, asset prices slide sharply. One of the most vivid examples of global panic in financial markets occurred in Oct. 2008, weeks after Lehman Brothers declared bankruptcy and Fannie Mae, Freddie Mac, and AIG almost collapsed. The S&P 500 plunged almost 17% that month, its ninth-worst monthly performance. Tulipmania describes the first major financial bubble, which took place in 17th-century Holland: Prices for tulips soared beyond reason, then fell as fast as the flower's petals. Example of a Stock Bubble: eToys The Internet bubble around the turn of the 21st century was an especially dramatic one. Numerous Internet-related companies made their public debut in spectacular fashion in the late 1990s before disappearing into oblivion by 2002. The story of eToys illustrates how the stages of a stock bubble typically play out. A Rosy Start In May 1999, with the Internet revolution in full swing, eToys had a very successful initial public offering (IPO), where shares at $20 each escalated to $78 on their first trading day. The company was less than three years old at that point and had grown sales to $30 million for the year ended March 31, 1999, from $0.7 million in the preceding year. Investors were very enthusiastic about the stock's prospects, with the general thinking being that most toy buyers would buy toys online rather than at retail stores such as Toys "R" Us. This was the displacement phase of the bubble. While eToys had posted a net loss of $28.6 million on revenues of $30 million in its most recent fiscal year, investors were expecting the financial situation of the firm to take a turn for the best. By the time markets closed on May 20, eToys sported a price/sales valuation that was largely exceeding that of rival Toys "R" Us, which had a stronger balance sheet. This marked the boom and euphoria stages of the bubble. Shortly afterward, eToys shares fell sharply on concerns that potential sales by company insiders could drag down the stock price, following the expiry of lockup agreements that placed restrictions on insider sales. Trading volume was exceptionally heavy that day, at nine times the three-month daily average. By March of 2000, the company had seen a 70% decline in its stock price from its record high of $84, identifying this as the profit-taking phase of the bubble. Decline and Fall By the end of Q1 2000, the panic stage had arrived, and the company was still spending an extraordinary $2.27 on advertising costs for every dollar of revenue generated. Although the investors were saying that such expenditures were characteristic of the new economy, such a business model simply is not sustainable. In July 2000, eToys reported its fiscal first-quarter loss widened to $59.5 million from $20.8 million a year earlier, even as sales tripled over this period to $24.9 million. It added 219,000 new customers during the quarter, but the company was not able to show bottom-line profits. By this time, with the ongoing correction in technology shares, the stock was trading around $5. Towards the end of the year, with losses continuing to mount, eToys would not meet its fiscal third-quarter sales forecast and had just four months of cash left. The stock, which had already been caught up in the panic selling of Internet-related stocks since March and was trading around at slightly over $1, fell 73% to 28 cents by Feb. 2001. Since the company failed to retain a stable stock price of at least $1, it was delisted from the Nasdaq. A month after it had reduced its workforce by 70%, eToys fired its remaining 300 workers and was forced to declare bankruptcy. By this time, eToys had lost $493 million over the previous three years and had $274 million in outstanding debt. "Irrational exuberance is the psychological basis of a speculative bubble," wrote economist Robert Shiller in his 2000 book, Irrational Exuberance. He defined a bubble "as a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases, and bringing in a larger and larger class of investors who, despite doubts about the real value of an investment, are drawn to it partly by envy of others' successes and partly through a gamblers' excitement." What Causes Asset Bubbles? Asset bubbles can begin in any number of ways, and often for sound reasons. Major incubators of bubbles, which often interact or occur in tandem, include:Interest rates might be low, which tends to encourage borrowing for spending, expansion, and investment.Low-interest rates and other favorable conditions in a nation encourage an influx of foreign investment and purchases.New products or technologies spur demand and, whenever something's in demand, its price naturally rises (what the economists dub demand-pull inflation).There are shortages of an asset, causing the cost of it to climb—again, classic supply-and-demand principles.So far, so good: These are all solid factors for appreciation. However, a problem arises when an asset bubble begins, snowball-like, to feed on itself—and to swell out of proportion to the fundamentals, or intrinsic worth, of the assets involved. Opportunistic investors and speculators are plunging in and pushing prices up even more.Why are they doing this? It has to do not with fundamentals but with human foibles—psychological and often irrational thinking and actions about money, known as behavioral financial biases. These behaviors include things like:Herd mentality: doing something because everyone else isShort-term thinking: just looking at the immediate returns, or thinking you can "beat the market" and time a quick exitCognitive dissonance: only accepting information that confirms an already-held belief, and ignoring anything that doesn't What Happens When an Asset Bubble Bursts? A range of things can happen when an asset bubble finally bursts, as it always does, eventually. Sometimes, the effect can be small, causing losses to only a few, and/or short-lived. At other times, it can trigger a stock market crash, a general economic recession, or even depression. It is also possible to have a temporary rebound, known as an echo bubble.Much depends on how big the bubble is—whether it involves a relatively small or specialized asset class vs. a significant sector like, say, tech stocks or residential real estate. And, of course, how much investment money is involved.Another factor is to what degree debt is involved in inflating the bubble. A major 2015 research study, "Leveraged Bubbles," examined asset bubbles in 17 countries dating back to the 1870s. It categorized them into four types, but along two basic lines, based on credit—that is, how funded investments were by financing and borrowing.The study found that the more credit involved, the more damaging the bubble's pop. Debt-fueled equity bubbles led to longer-lived recessions. Even worse were leveraged housing bubbles, like the one that popped in 2006-07, leading to the subprime mortgage crisis that kicked off the Great Recession. What Is an Indicator of an Economic Bubble? One of the tricky things about bubbles is that they're hard to spot while you're in one. Only in hindsight, after they burst, do they become clear.One such was the dotcom bubble that occurred around the turn of the 21st century. It was a rapid rise in U.S. technology stocks, especially those in then-novel Internet-based companies, that helped lift the stock markets in general. The tech-dominated Nasdaq index quintupled in value, from under 1,000 to more than 5,000 between 1995 and 2000.Unfortunately, when many of the new, hot tech companies failed to turn a profit or perform up to expectations, investors soured on them. In 2001-02, the bubble popped. In the ensuing crash, the Nasdaq index fell over 75%. Stocks in general entered a bear market. What Is a Bubble in Finance? A financial bubble, also known as an economic bubble or an asset bubble, is characterized by a fast, large climb in the market price of different assets. This rapid growth, though, is relatively short-lived—like the bursting of a bubble—and it abruptly reverses course, dragging asset prices down with it, sometimes even lower than their original levels.Typically, a bubble is created out of sound fundamentals, but eventually exuberant, irrational behavior takes over, and the surge is caused by speculation—buying for the sake of buying, in the hopes prices continue to rise. The Bottom Line "A rapid price rise, high trading volume, and word-of-mouth spread are the hallmarks of typical bubbles," says Timothy R. Burch, an Associate Professor of Finance at the Miami Herbert Business School. "If you learn of an investment opportunity with dreams of unusually high profits from social media or friends, be particularly wary—in most cases, you’ll need uncanny timing to come out ahead." As Minsky and a number of other experts opine, speculative bubbles in some asset or the other are inevitable in a free-market economy. However, becoming familiar with the steps involved in bubble formation may help you to spot the next one and avoid becoming an unwitting participant in it.	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Burch", "https://www.bus.miami.edu/thought-leadership/faculty/finance/burch.html" ] ]

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