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https://www.investopedia.com/mutual-funds-types-strategies-8611142
How to Invest in Mutual Funds
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">Mutual funds</a> have long been a popular choice for first-time investors, and for good reason. These investment vehicles offer a simple, accessible, and diversified way to enter the investing world, making them a good option for many Americans. </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"> Given the many changes in the U.S. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economy.asp">economy</a> in recent decades, including the steep drop in the number of Americans with defined <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pensionplan.asp">pension plans</a>, mutual funds are frequently the vehicle of choice for long-term investing, with a majority—52%—of American households with money in them as of 2022, a vast increase from the 5.7% in 1980.<span class="ql-inline-citation" data-cite="23"></span><span class="ql-inline-citation" data-cite="1"></span> They are now the backbone of middle America’s retirement savings. </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>Mutual funds are a convenient way for individuals to invest in a diversified portfolio of securities.</li><li>Clearly determining your investment goals and understanding how much risk you can tolerate against the potential rewards are crucial before investing in mutual funds.</li><li>Different types of mutual funds, such as equity, bond, and balanced funds, are for different investment strategies.</li><li>It’s important to assess different mutual funds based on their performance, expense ratios, and fund manager experience. With over 9,000 mutual funds in the United States, you have many to choose from.</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"> Mutual funds pool money from many investors to purchase a diversified portfolio of securities, such as stocks and bonds. Established by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentcompanyact.asp">1940 legislation</a>, these funds are meant to be relatively lower in risk. They were to pool the investment capital of many Americans and provide access to a broader range of assets and the safeguards of professional money management that otherwise would have been too costly to obtain on their own. </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 significant benefit of investing in mutual funds is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</a>. By spreading your investment across a variety of securities, sectors, and locations, you reduce your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a>’s overall risk. The performance of different investments is often different even in the same market conditions, so gains in another can offset losses in one. </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"> Mutual funds also cater to various investment goals and risk tolerances. There are over 9,000 mutual funds to choose from in the U.S. alone.<span class="ql-inline-citation" data-cite="2"></span> Each has its own investment strategy and goals. Whether you’re looking for aggressive growth, steady income, or a balanced approach, there is likely a mutual fund that aligns with your needs. </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 how can you add mutual funds to your portfolios? Putting your money into mutual funds is done differently from trading stocks. Unlike stocks, which are traded throughout the day on stock exchanges, mutual fund shares are purchased and sold directly through the mutual fund company or a brokerage firm. Fund shares are priced once at the close of each trading day. Many people set money aside in mutual funds through their paychecks, some with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/matchingcontribution.asp">matching funds</a> from their employer. </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"> But don’t let this overwhelm you. Owning mutual funds is easier than it sounds. Just read on to find out how. </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-type-of-mutual-funds"></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"> Type of Mutual Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Understanding the different types of mutual funds can help you find the one that best aligns with your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/100516/setting-financial-goals/">financial goals</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risktolerance.asp">risk tolerance</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"> Here are some of the main types: </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"> Equity Funds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Also known as stock funds, equity funds live up to their name by investing in publicly traded companies. Their goal is to increase the value of your investment by putting money into companies expected to grow. </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"> An essential factor to consider when evaluating equity funds is <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>, which refers to the total value of a company’s outstanding shares. Generally, larger companies tend to be more stable and less risky, while smaller companies may offer higher growth potential but also have increased <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk.asp">risk</a>. They may be the next big thing or soon forgotten. </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"> Equity funds can be broken down by looking at these factors: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/market-capitalization-defined/"><strong>Market capitalization</strong></a>: Large-cap funds invest in companies with a market value exceeding $10 billion, which are ordinarily more established and less volatile. Midcap funds focus on companies worth $2 billion to $10 billion, offering a balance between growth and stability. Small-cap funds invest in companies with a market value below $2 billion, which may have higher growth potential and risk.<span class="ql-inline-citation" data-cite="3"></span></li> <li><strong>Investment style</strong>: Growth funds invest in companies with high growth potential, prioritizing capital appreciation over income through dividends. Value funds seek undervalued stocks believed to be trading below their true worth, aiming to benefit from a potential price increase. Blend funds provide a more balanced approach between the two.<span class="ql-inline-citation" data-cite="5"></span></li> <li><strong>Geography</strong>: Domestic funds focus on stocks of U.S. companies, while international funds invest in stocks outside the U.S. Some funds may also focus on a specific region, such as Europe or Asia. International funds can offer diversification benefits but may also be subject to additional risks, such as currency fluctuations and political instability.<span class="ql-inline-citation" data-cite="24"></span><span class="ql-inline-citation" data-cite="25"></span></li> </ul> <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"> Bond Funds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondfund.asp">Bond funds</a> invest primarily in fixed-income securities, such as corporate, government, and municipal bonds. They aim to provide regular income and add stability to a portfolio. Bond funds can be categorized based on the type of issuer or bonds in which they invest (e.g., government vs. corporate), the credit quality of the issuers (from investment-grade to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/junkbond.asp">junk</a>), and the duration of the bonds (from short-term to long-term).<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_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"> Balanced Funds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Also known as hybrid funds, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balancedfund.asp">balanced funds</a> invest in a mix of stocks and bonds to offer a balance of growth and income.<span class="ql-inline-citation" data-cite="24"></span> The allocation between stocks and bonds depends on the fund’s investment strategy and risk profile, but the most common is 60% in stocks and 40% in bonds. These funds are suitable for investors seeking a single, diversified investment solution. </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"> Money Market Funds </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/m/money-marketfund.asp">Money market funds</a> invest in short-term, low-risk debt securities, such as Treasury bills, certificates of deposit (CDs), and commercial paper. They aim to maintain a stable value and provide a low-risk, liquid investment option. Money market funds are often used for short-term savings or as a temporary holding place for cash. They are more attractive when interest rates are high since they earn more interest.<span class="ql-inline-citation" data-cite="26"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Index Funds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/indexfund.asp">Index funds</a> and target-date funds are the most popular. Index funds passively track the performance of a specific market index, such as the S&amp;P 500 or the Dow Jones Industrial Average. If that index performs well, so does the fund.<span class="ql-inline-citation" data-cite="27"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Target-Date Funds </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/terms/t/target-date_fund.asp">Target-date funds</a>, also known as life cycle funds, are designed for investors with a specific retirement date in mind. Over 85% of 401(k) plans offer these funds, which automatically adjust their asset allocation over time, becoming more conservative as the target date approaches.<span class="ql-inline-citation" data-cite="9"></span> This “set it and forget it” approach is great for investors who want a simple, long-term investment solution.<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_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"> Specialty Funds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Specialty funds focus on specific investment strategies or asset classes beyond stocks and bonds. Here are some examples: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> <li>Sector funds invest in companies within a particular industry or sector, such as healthcare, energy, or technology.<span class="ql-inline-citation" data-cite="24"></span></li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mutualfund/03/030503.asp">Socially responsible investment (SRI)</a> funds, also known as environmental, social, and governance (ESG) funds, invest in companies that meet specific social, environmental, or ethical criteria.<span class="ql-inline-citation" data-cite="12"></span></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/012015/what-difference-between-reit-and-real-estate-fund.asp">Real estate funds</a> invest in real estate investment trusts or buy their own real estate holdings.<span class="ql-inline-citation" data-cite="13"></span></li> <li>Commodity funds invest in physical commodities like gold, oil, agricultural products, or commodity-linked derivatives.<span class="ql-inline-citation" data-cite="28"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_51-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_52-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">Active vs. Passive Funds</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/a/activemanagement.asp">Actively managed</a> mutual funds try to beat a benchmark index using professional managers to make investment decisions, typically leading to higher fees. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/passivemanagement.asp">Passively managed</a> funds, like index funds, aim to match the performance of a market index by mirroring its composition and usually have lower fees.<span class="ql-inline-citation" data-cite="24"></span></p></div></div></div> <span class="heading-toc" id="toc-how-to-invest-in-mutual-funds-step-by-step"></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"> How to Invest in Mutual Funds, Step by Step </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-subheading__text"> 1. Set Your Investment Goals and Budget </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> As with any investment, it’s important to set clear goals that align with your broader financial objectives, <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>, and risk tolerance before investing in mutual funds. Determining your investment goals and budget is crucial before investing in mutual funds. Consider the following factors: </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><strong>Investment objectives</strong>: Identify your reasons for investing, such as saving for retirement, buying a home, funding your child’s education, or building wealth over the long term.</li><li><strong>Time horizon</strong>: Determine how long you plan to invest before you need to access your funds. This will help you choose the mutual fund that matches your timeline.</li><li><strong>Risk tolerance</strong>: Assess your willingness to take on financial risk. Some investors are comfortable with the potential for higher returns despite increased volatility, while others prefer a more conservative approach.</li><li><strong>Financial situation</strong>: Assess your current income, expenses, and debts to determine how much you can realistically afford to invest without compromising your financial stability.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> You can sort these out by answering a few questions: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> <li>What are my primary financial goals, and how can mutual funds help me achieve them?</li><li>How long do I plan to invest in this fund, and am I comfortable with the potential market ups and downs during that time?</li><li>Am I willing to accept more risk for potentially higher returns, or do I prefer a more stable investment approach?</li><li>How much can I afford to invest in mutual funds, and how often (e.g., one-time lump sum, or monthly contributions, or something else)?</li><li>What types of mutual funds best align with my goals and risk tolerance (e.g., equity, bond, and balanced funds)?</li><li>Do I prefer actively managed funds with higher fees or passively managed funds with lower costs?<br/></li> </ol> <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"> 2. Narrow Down Your Choices </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> There are many, many mutual funds—more than 9,000—from scores of providers. With your goals and budget in mind, begin researching the mutual funds that match your answers to the above questions. </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"> If you choose your retirement plan through your employer, you might be given a catalog (virtual or a glossy version) detailing different funds offered there. However, these can be out of date—even a few months can matter—and produced by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/growth-10k.asp">management companies pitching you to join them</a>. Even if they are scrupulous and have fair judgments about their own products, it’s best to see what outsiders think, too. </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"> Use your brokerage platform or reputable financial websites like Morningstar or Yahoo! Finance to compare funds and read expert analyses. You can also find helpful tools like mutual fund “screeners,” where you put what kind of fund you are looking for, and the results are narrowed down for you. </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"> As you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/how-pick-best-mutual-fund/">choose a mutual fund</a>, these items can act as your 10-point checklist. It looks like more work than it is—most details are found in the same places online: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> <li><strong>Fund type</strong>: Choose funds that match your investment objectives, such as growth, income, or a combination of both.</li> <li><strong>Investment style</strong>: Consider whether you prefer actively managed funds that attempt to outperform the market or passively managed index funds that track market performance.</li> <li><strong>Expense ratios:</strong> Look for funds with low <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>, as high annual management costs can eat into your returns over time.<span class="ql-inline-citation" data-cite="29"></span> Try to find the least expensive funds for your fund type and style, but don’t choose based on fees alone.</li> <li><strong>Loads</strong>: Be aware of any extra fees with mutual funds. Some funds carry sales charges, known as loads, that can eat into your investment returns. Front-end loads are charged when you first buy shares in the fund, while back-end loads are charged when you sell shares.<span class="ql-inline-citation" data-cite="30"></span></li> <li><strong>Additional fees</strong>: Look for no-load funds to avoid these charges. Additionally, pay attention to other fees, such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/redemptionfee.asp">redemption fees</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mutualfund/13/12b1-understanding-mutual-fund-fees.asp">12b-1 fees</a>, which are for marketing and distribution.<span class="ql-inline-citation" data-cite="31"></span> These fees vary significantly among funds, so comparing them carefully and understanding their influence on your returns is essential.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Minimum investment</strong>: While some mutual funds do not have a minimum investment to start investing, some do. The upfront investment could be $100, $1,000, or more. These tend to be waived if you choose a fund through your employer.</li> <li><strong>Fund manager experience</strong>: To assess the fund manager’s track record, visit the mutual fund company’s website or review the fund’s prospectus. Look for the manager’s biography, including their investment philosophy, educational background, and previous experience managing funds. A manager who has been with the fund for several years, ideally five or more, may indicate a more stable management approach.</li> <li><strong>Fund size</strong>: The fund’s <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aum.asp">assets under management (AUM)</a> can be found in the fund’s fact sheet or prospectus. A larger AUM, typically $100 million or more, suggests that the fund is well-established and has enough to manage the fund effectively.</li> <li><strong>Liquidity</strong>: This refers to how easily the fund can convert its investments into cash to meet redemption requests. Funds with higher <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a> can accommodate investors coming into and out of the fund. A good indication of liquidity is if the fund invests primarily in large-cap stocks or high-quality bonds that can be bought and sold quickly without significantly impacting the fund’s performance.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Tax implications</strong>: If investing in a taxable account, consider tax-efficient funds that minimize turnover and distribute fewer capital gains.<span class="ql-inline-citation" data-cite="17"></span></li> </ol> <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"> Remember, there is no one-size-fits-all approach to selecting mutual funds. Your circumstances and goals should guide your investment decisions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_76-0"> <span class="mntl-sc-block-subheading__text"> 3. Select the Right Mutual Fund for You </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> Next, examine the fund’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prospectus.asp">prospectus</a>, which provides detailed information about the fund’s investment objectives, strategies, risks, and fees. Pay close attention to the fund sponsor’s reputation, the managers’ profiles, and the fund’s historical performance—but keep in mind that past performance doesn’t guarantee future results. </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"> After thoroughly researching potential mutual funds, select those that best align with your investment goals and risk tolerance while minimizing costs. Diversification is key to managing risk, so consider spreading your investments across various fund types, sectors, and locations. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-analysis/090316/asset-allocation-vs-security-selection-main-differences.asp">Asset allocation</a>, or the distribution of your investments among stocks, bonds, real estate, cash, and other assets, is crucial in building a well-balanced portfolio.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_81-0"> <span class="mntl-sc-block-subheading__text"> 4. Open an Investment Account </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> If you’re not acting through your employer, you’ll need to open an investment account with a brokerage firm or directly with a mutual fund company to invest in mutual funds. If you don’t already have one, here are a few types of investment accounts that you may be able to choose from: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> <li><strong>Taxable brokerage accounts</strong>: These accounts allow you to invest in a wide range of securities, including mutual funds, stocks, and bonds. They can be held as an individual, as a joint account with a spouse or partner, or as a custodial account held on behalf of minor dependents.</li> <li><strong>Retirement accounts</strong>: <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) plans and individual retirement accounts (IRAs)</a> offer tax advantages and are designed for long-term investing. Roth IRAs are a tax-exempt retirement account option where you can put dividend-paying mutual funds without triggering taxable events.<span class="ql-inline-citation" data-cite="32"></span></li> <li><strong>Education savings accounts</strong>: Accounts like <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/529plan.asp">529 plans</a> can help you save for future education expenses.</li> </ul> <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"> When opening a new account, you will provide personal information such as your name, address, Social Security number, and employment details. You will also need to fund your account by transferring money from your bank account or mailing a check. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_88-0"> <span class="mntl-sc-block-subheading__text"> 5. Place Orders and Make Contributions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> Once your investment account is set up and funded, you can start investing in mutual funds. You can invest a lump sum or make regular contributions over time—perhaps right out of your paycheck. Lump-sum investing involves investing a significant amount of money at once, which can be advantageous if you believe the market will rise. However, this approach also exposes you to greater market risk. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_91-0"> Another strategy is dollar-cost averaging, which involves investing a fixed amount of money at regular intervals, regardless of market conditions. This approach can help mitigate the impact of market volatility on your investments, as you buy more shares when prices are low and fewer shares when prices are high.<span class="ql-inline-citation" data-cite="33"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_92-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_93-0"> To place an order, log into your investment account and select the mutual fund you wish to buy. Specify the amount you want to invest and submit your order. Mutual fund orders are typically processed at the end of each trading day, with the price per share determined by the fund’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/04/032604.asp">net asset value (NAV)</a> at the close of the market.<span class="ql-inline-citation" data-cite="34"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_94-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_95-0"> The process for selling your mutual fund shares is similar. You place a sell order with the fund company or brokerage firm, and the order is executed at the next available NAV. The proceeds from the sale, minus any applicable fees or taxes, are then credited to your account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_96-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_97-0"><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_98-0"><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>Mutual fund shares are valued at their net asset value (NAV), which is calculated once per day after the stock market closes by dividing the fund’s total assets minus liabilities by the number of outstanding shares. When you buy or sell mutual fund shares, your transaction is processed at the next available NAV.<span class="ql-inline-citation" data-cite="34"></span></p></div></div></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"> 6. Monitor and Manage Your Portfolio </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_100-0"> Investing in mutual funds is not a one-time event; it requires ongoing monitoring and management to ensure your portfolio continues to align with your goals and risk tolerance. Regularly review your investments’ performance and compare them to relevant benchmarks and peer funds. If a fund consistently underperforms its benchmark or peers, it may be time to consider selling it and investing in a better-performing alternative. That said, “regularly” doesn’t mean giving yourself the stress of checking on your retirement savings every hour or every day when volatility might lead to temporary losses that you would never notice otherwise. </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"> As your investment goals or market conditions change, you may need to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/rebalance-your-portfolio-stay-on-track/">rebalance</a> your portfolio to maintain your desired asset allocation. Rebalancing involves selling investments that have become overweighted in your portfolio and buying investments that have become underweighted to bring your portfolio back in line with your target allocation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_104-0"> Additionally, stay informed about the mutual funds you own. Read the fund’s annual reports as they are sent to you and stay up to date on any changes to the fund’s investment strategy, management team, or fee structure. If a fund experiences significant changes that no longer align with your investment objectives, it may be necessary to sell your shares and invest elsewhere.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_105-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_106-0"> By following these steps and maintaining a long-term perspective, you can effectively invest in mutual funds and work toward achieving your financial goals. Remember, investing in mutual funds involves risk, and it’s essential to research your options thoroughly, understand the costs involved, and make informed decisions based on your circumstances. </p> <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-callout mntl-block" id="mntl-sc-block_108-0"><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_109-0"><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>Don’t hesitate to consult a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/finding-a-financial-advisor-6834423">financial advisor</a> who can help you develop a personalized investment plan, select suitable mutual funds, and provide ongoing guidance as your needs and market conditions evolve. It’s perhaps the first and most important decision of your investing life, so getting it right can pay dividends.</p></div></div></div> <span class="heading-toc" id="toc-risks-and-considerations-for-mutual-fund-investors"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_110-0"> <span class="mntl-sc-block-heading__text"> Risks and Considerations for Mutual Fund Investors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_111-0"> While mutual funds offer many benefits, such as diversification and professional management, they also have certain risks to be aware of. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_112-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_113-0"> <span class="mntl-sc-block-subheading__text"> Market Risk </span> </h3> <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/m/marketrisk.asp">Market risk</a> is the possibility that the value of a mutual fund’s investments will decline because of factors affecting the overall financial markets. This risk is inherent in all investments, including mutual funds, and cannot be eliminated. When the market experiences a downturn, the value of a mutual fund’s holdings may decrease, resulting in a lower NAV, potentially lowering your returns.<span class="ql-inline-citation" data-cite="25"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_115-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_116-0"> <span class="mntl-sc-block-subheading__text"> Inflation </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_117-0"> If a mutual fund’s returns do not keep pace with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/what-is-inflation-and-how-should-it-affect-investing/">inflation</a>, the real value of the investment may decline.<span class="ql-inline-citation" data-cite="25"></span> For example, if a mutual fund generates an annual return of 5%, but the inflation rate is 3%, the real return (adjusted for inflation) would be about 2%. Over an extended period, this difference can significantly affect your ability to meet your financial goals. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_118-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_119-0"> <span class="mntl-sc-block-subheading__text"> Cash and Fee Drags </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_120-0"> Cash drag refers to the potential negative effect on a mutual fund’s performance because of holding cash or cash equivalents, such as money market instruments or short-term bonds.<span class="ql-inline-citation" data-cite="35"></span> Mutual funds often keep a part of their assets in cash to meet redemption requests, take advantage of investment opportunities, or maintain liquidity. However, holding <em>too much</em> cash can be a drag on performance, especially during bull markets, when stocks are appreciating. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_121-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_122-0"> Fee drag refers to the negative impact of mutual fund fees and expenses on investor returns. Mutual funds charge various fees, such as expense ratios, sales loads, and redemption fees, which can eat into returns over time. Expense ratios, which cover the fund’s operating costs, are particularly important to consider. If a fund has an expense ratio of 1% and generates a 10% return before fees, the investor’s actual return would be 9% after accounting for the expense ratio. High fees and expense ratios can significantly alter returns, especially over long investment horizons.<span class="ql-inline-citation" data-cite="31"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_123-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_124-0"> <span class="mntl-sc-block-subheading__text"> Fund-Specific Risks </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_125-0"> In addition to market risk, mutual funds are subject to specific risks related to their investment strategies and holdings. For example: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_126-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_127-0"> <li><strong>Credit risk</strong>: Bond funds, particularly, are exposed to <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>, which is the possibility that fixed-income issuers may fail to make interest payments or repay principal when due. As credit risk increases, specific bond holdings may lose value.<span class="ql-inline-citation" data-cite="26"></span></li> <li><strong>Liquidity risk</strong>: Some mutual funds may invest in less liquid securities, such as small-cap stocks or emerging market bonds, which can be difficult to sell quickly without impacting the price.<span class="ql-inline-citation" data-cite="25"></span></li> <li><strong>Concentration risk</strong>: Sector or region-specific funds may be more vulnerable to events affecting those particular sectors or regions, leading to higher volatility and potential losses.<span class="ql-inline-citation" data-cite="36"></span></li> <li><strong>Currency risk</strong>: International funds or those that invest in foreign securities are subject to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currencyrisk.asp">currency risk</a>, as fluctuations in exchange rates can affect returns.<span class="ql-inline-citation" data-cite="37"></span></li> </ol> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_128-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_129-0"><span class="heading-toc" id="toc-what-are-some-benefits-of-investing-in-mutual-funds-compared-with-individual-stocks"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Some Benefits of Investing in Mutual Funds Compared with Individual Stocks?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Mutual funds offer several advantages over individual stocks, including professional management, diversification, convenience, and accessibility. With mutual funds, investors can access a wide range of securities and assets managed by experienced professionals, reducing the risk and effort of selecting individual stocks. Mutual funds also offer easier <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/importance-diversification/">diversification</a>, as they invest in many securities, which can help mitigate the impact of any single investment’s performance on the overall portfolio.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_130-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_131-0"><span class="heading-toc" id="toc-what-is-the-difference-between-mutual-funds-and-etfs"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between Mutual Funds and ETFs?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Mutual funds and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a> are both investment vehicles that pool money from many investors to buy a diversified portfolio of securities, such as stocks or bonds. The main difference is that mutual fund shares are bought and sold directly through the fund company at the end of each trading day, while ETF shares are traded on stock exchanges throughout the day like individual stocks. They also tend to have lower fees.<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_132-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_133-0"><span class="heading-toc" id="toc-how-are-returns-from-mutual-funds-calculated"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Are Returns from Mutual Funds Calculated?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Mutual fund returns are typically calculated using <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/totalreturn.asp">total return</a>, which includes both capital appreciation (increase in the fund’s share price) and income distributions (such as dividends or interest). The total return is usually expressed as a percentage change over a specific period, such as one year or five years.</p><p>It’s important to note that returns are net of the fund’s expenses, which can impact the overall performance.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_134-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_135-0"><span class="heading-toc" id="toc-can-you-lose-money-with-mutual-funds"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Lose Money with Mutual Funds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, it is possible to lose money investing in mutual funds. Like any investment, mutual funds carry risk, and the value of your investment can fluctuate based on market conditions and the performance of the fund’s underlying securities. If you sell your mutual fund shares when they are worth less than what you paid for them, you will realize a loss.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_136-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_137-0"><span class="heading-toc" id="toc-what-are-the-best-mutual-funds-for-beginners"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Best Mutual Funds for Beginners?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Starting with low-cost, diversified mutual funds that provide broad market exposure, such as index or target-date funds, is generally recommended for beginners. Index funds aim to track the performance of a specific market index, such as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/how-can-i-buy-sp-500-fund/">S&amp;P 500</a>, while target-date funds adjust their asset allocation over time based on a target year. These funds offer simplicity, diversification, and lower costs, making them a good starting point for new investors.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_138-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_139-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_140-0"> Investing in mutual funds is often an excellent way to grow your wealth over time. By setting clear investment goals, researching and selecting suitable funds, and regularly monitoring your investments, you can start to build a diversified portfolio that aligns with your financial objectives. Mutual funds are available to buy and sell through your brokerage firm or directly from mutual fund companies, so if you’re ready to dive into mutual funds, this guide can get you started. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_141-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_142-0"> As with any investment, it’s essential to understand the risks and considerations involved and make informed decisions based on your circumstances. You could also start off your research by seeking a qualified <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inv-100-top-financial-advisors-7556227">financial advisor</a>. </p></div>
[Mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) have long been a popular choice for first-time investors, and for good reason. These investment vehicles offer a simple, accessible, and diversified way to enter the investing world, making them a good option for many Americans. Given the many changes in the U.S. [economy](https://www.investopedia.com/terms/e/economy.asp) in recent decades, including the steep drop in the number of Americans with defined [pension plans](https://www.investopedia.com/terms/p/pensionplan.asp), mutual funds are frequently the vehicle of choice for long-term investing, with a majority—52%—of American households with money in them as of 2022, a vast increase from the 5.7% in 1980. They are now the backbone of middle America’s retirement savings. ### Key Takeaways * Mutual funds are a convenient way for individuals to invest in a diversified portfolio of securities. * Clearly determining your investment goals and understanding how much risk you can tolerate against the potential rewards are crucial before investing in mutual funds. * Different types of mutual funds, such as equity, bond, and balanced funds, are for different investment strategies. * It’s important to assess different mutual funds based on their performance, expense ratios, and fund manager experience. With over 9,000 mutual funds in the United States, you have many to choose from. Mutual funds pool money from many investors to purchase a diversified portfolio of securities, such as stocks and bonds. Established by [1940 legislation](https://www.investopedia.com/terms/i/investmentcompanyact.asp), these funds are meant to be relatively lower in risk. They were to pool the investment capital of many Americans and provide access to a broader range of assets and the safeguards of professional money management that otherwise would have been too costly to obtain on their own. A significant benefit of investing in mutual funds is [diversification](https://www.investopedia.com/terms/d/diversification.asp). By spreading your investment across a variety of securities, sectors, and locations, you reduce your [portfolio](https://www.investopedia.com/terms/p/portfolio.asp)’s overall risk. The performance of different investments is often different even in the same market conditions, so gains in another can offset losses in one. Mutual funds also cater to various investment goals and risk tolerances. There are over 9,000 mutual funds to choose from in the U.S. alone. Each has its own investment strategy and goals. Whether you’re looking for aggressive growth, steady income, or a balanced approach, there is likely a mutual fund that aligns with your needs. But how can you add mutual funds to your portfolios? Putting your money into mutual funds is done differently from trading stocks. Unlike stocks, which are traded throughout the day on stock exchanges, mutual fund shares are purchased and sold directly through the mutual fund company or a brokerage firm. Fund shares are priced once at the close of each trading day. Many people set money aside in mutual funds through their paychecks, some with [matching funds](https://www.investopedia.com/terms/m/matchingcontribution.asp) from their employer. But don’t let this overwhelm you. Owning mutual funds is easier than it sounds. Just read on to find out how. ## Type of Mutual Funds Understanding the different types of mutual funds can help you find the one that best aligns with your [financial goals](https://www.investopedia.com/articles/personal-finance/100516/setting-financial-goals/) and [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp). Here are some of the main types: ### Equity Funds Also known as stock funds, equity funds live up to their name by investing in publicly traded companies. Their goal is to increase the value of your investment by putting money into companies expected to grow. An essential factor to consider when evaluating equity funds is [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp), which refers to the total value of a company’s outstanding shares. Generally, larger companies tend to be more stable and less risky, while smaller companies may offer higher growth potential but also have increased [risk](https://www.investopedia.com/terms/r/risk.asp). They may be the next big thing or soon forgotten. Equity funds can be broken down by looking at these factors: * [**Market capitalization**](https://www.investopedia.com/investing/market-capitalization-defined/): Large-cap funds invest in companies with a market value exceeding $10 billion, which are ordinarily more established and less volatile. Midcap funds focus on companies worth $2 billion to $10 billion, offering a balance between growth and stability. Small-cap funds invest in companies with a market value below $2 billion, which may have higher growth potential and risk. * **Investment style**: Growth funds invest in companies with high growth potential, prioritizing capital appreciation over income through dividends. Value funds seek undervalued stocks believed to be trading below their true worth, aiming to benefit from a potential price increase. Blend funds provide a more balanced approach between the two. * **Geography**: Domestic funds focus on stocks of U.S. companies, while international funds invest in stocks outside the U.S. Some funds may also focus on a specific region, such as Europe or Asia. International funds can offer diversification benefits but may also be subject to additional risks, such as currency fluctuations and political instability. ### Bond Funds [Bond funds](https://www.investopedia.com/terms/b/bondfund.asp) invest primarily in fixed-income securities, such as corporate, government, and municipal bonds. They aim to provide regular income and add stability to a portfolio. Bond funds can be categorized based on the type of issuer or bonds in which they invest (e.g., government vs. corporate), the credit quality of the issuers (from investment-grade to [junk](https://www.investopedia.com/terms/j/junkbond.asp)), and the duration of the bonds (from short-term to long-term). ### Balanced Funds Also known as hybrid funds, [balanced funds](https://www.investopedia.com/terms/b/balancedfund.asp) invest in a mix of stocks and bonds to offer a balance of growth and income. The allocation between stocks and bonds depends on the fund’s investment strategy and risk profile, but the most common is 60% in stocks and 40% in bonds. These funds are suitable for investors seeking a single, diversified investment solution. ### Money Market Funds [Money market funds](https://www.investopedia.com/terms/m/money-marketfund.asp) invest in short-term, low-risk debt securities, such as Treasury bills, certificates of deposit (CDs), and commercial paper. They aim to maintain a stable value and provide a low-risk, liquid investment option. Money market funds are often used for short-term savings or as a temporary holding place for cash. They are more attractive when interest rates are high since they earn more interest. ### Index Funds [Index funds](https://www.investopedia.com/terms/i/indexfund.asp) and target-date funds are the most popular. Index funds passively track the performance of a specific market index, such as the S&P 500 or the Dow Jones Industrial Average. If that index performs well, so does the fund. ### Target-Date Funds [Target-date funds](https://www.investopedia.com/terms/t/target-date_fund.asp), also known as life cycle funds, are designed for investors with a specific retirement date in mind. Over 85% of 401(k) plans offer these funds, which automatically adjust their asset allocation over time, becoming more conservative as the target date approaches. This “set it and forget it” approach is great for investors who want a simple, long-term investment solution. ### Specialty Funds Specialty funds focus on specific investment strategies or asset classes beyond stocks and bonds. Here are some examples: * Sector funds invest in companies within a particular industry or sector, such as healthcare, energy, or technology. * [Socially responsible investment (SRI)](https://www.investopedia.com/articles/mutualfund/03/030503.asp) funds, also known as environmental, social, and governance (ESG) funds, invest in companies that meet specific social, environmental, or ethical criteria. * [Real estate funds](https://www.investopedia.com/ask/answers/012015/what-difference-between-reit-and-real-estate-fund.asp) invest in real estate investment trusts or buy their own real estate holdings. * Commodity funds invest in physical commodities like gold, oil, agricultural products, or commodity-linked derivatives. ### Active vs. Passive Funds [Actively managed](https://www.investopedia.com/terms/a/activemanagement.asp) mutual funds try to beat a benchmark index using professional managers to make investment decisions, typically leading to higher fees. [Passively managed](https://www.investopedia.com/terms/p/passivemanagement.asp) funds, like index funds, aim to match the performance of a market index by mirroring its composition and usually have lower fees. ## How to Invest in Mutual Funds, Step by Step ### 1. Set Your Investment Goals and Budget As with any investment, it’s important to set clear goals that align with your broader financial objectives, [time horizon](https://www.investopedia.com/terms/t/timehorizon.asp), and risk tolerance before investing in mutual funds. Determining your investment goals and budget is crucial before investing in mutual funds. Consider the following factors: * **Investment objectives**: Identify your reasons for investing, such as saving for retirement, buying a home, funding your child’s education, or building wealth over the long term. * **Time horizon**: Determine how long you plan to invest before you need to access your funds. This will help you choose the mutual fund that matches your timeline. * **Risk tolerance**: Assess your willingness to take on financial risk. Some investors are comfortable with the potential for higher returns despite increased volatility, while others prefer a more conservative approach. * **Financial situation**: Assess your current income, expenses, and debts to determine how much you can realistically afford to invest without compromising your financial stability. You can sort these out by answering a few questions: 1. What are my primary financial goals, and how can mutual funds help me achieve them? 2. How long do I plan to invest in this fund, and am I comfortable with the potential market ups and downs during that time? 3. Am I willing to accept more risk for potentially higher returns, or do I prefer a more stable investment approach? 4. How much can I afford to invest in mutual funds, and how often (e.g., one-time lump sum, or monthly contributions, or something else)? 5. What types of mutual funds best align with my goals and risk tolerance (e.g., equity, bond, and balanced funds)? 6. Do I prefer actively managed funds with higher fees or passively managed funds with lower costs? ### 2. Narrow Down Your Choices There are many, many mutual funds—more than 9,000—from scores of providers. With your goals and budget in mind, begin researching the mutual funds that match your answers to the above questions. If you choose your retirement plan through your employer, you might be given a catalog (virtual or a glossy version) detailing different funds offered there. However, these can be out of date—even a few months can matter—and produced by the [management companies pitching you to join them](https://www.investopedia.com/terms/g/growth-10k.asp). Even if they are scrupulous and have fair judgments about their own products, it’s best to see what outsiders think, too. Use your brokerage platform or reputable financial websites like Morningstar or Yahoo! Finance to compare funds and read expert analyses. You can also find helpful tools like mutual fund “screeners,” where you put what kind of fund you are looking for, and the results are narrowed down for you. As you [choose a mutual fund](https://www.investopedia.com/investing/how-pick-best-mutual-fund/), these items can act as your 10-point checklist. It looks like more work than it is—most details are found in the same places online: 1. **Fund type**: Choose funds that match your investment objectives, such as growth, income, or a combination of both. 2. **Investment style**: Consider whether you prefer actively managed funds that attempt to outperform the market or passively managed index funds that track market performance. 3. **Expense ratios:** Look for funds with low [expense ratios](https://www.investopedia.com/terms/e/expenseratio.asp), as high annual management costs can eat into your returns over time. Try to find the least expensive funds for your fund type and style, but don’t choose based on fees alone. 4. **Loads**: Be aware of any extra fees with mutual funds. Some funds carry sales charges, known as loads, that can eat into your investment returns. Front-end loads are charged when you first buy shares in the fund, while back-end loads are charged when you sell shares. 5. **Additional fees**: Look for no-load funds to avoid these charges. Additionally, pay attention to other fees, such as [redemption fees](https://www.investopedia.com/terms/r/redemptionfee.asp) and [12b-1 fees](https://www.investopedia.com/articles/mutualfund/13/12b1-understanding-mutual-fund-fees.asp), which are for marketing and distribution. These fees vary significantly among funds, so comparing them carefully and understanding their influence on your returns is essential. 7. **Minimum investment**: While some mutual funds do not have a minimum investment to start investing, some do. The upfront investment could be $100, $1,000, or more. These tend to be waived if you choose a fund through your employer. 8. **Fund manager experience**: To assess the fund manager’s track record, visit the mutual fund company’s website or review the fund’s prospectus. Look for the manager’s biography, including their investment philosophy, educational background, and previous experience managing funds. A manager who has been with the fund for several years, ideally five or more, may indicate a more stable management approach. 9. **Fund size**: The fund’s [assets under management (AUM)](https://www.investopedia.com/terms/a/aum.asp) can be found in the fund’s fact sheet or prospectus. A larger AUM, typically $100 million or more, suggests that the fund is well-established and has enough to manage the fund effectively. 10. **Liquidity**: This refers to how easily the fund can convert its investments into cash to meet redemption requests. Funds with higher [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) can accommodate investors coming into and out of the fund. A good indication of liquidity is if the fund invests primarily in large-cap stocks or high-quality bonds that can be bought and sold quickly without significantly impacting the fund’s performance. 12. **Tax implications**: If investing in a taxable account, consider tax-efficient funds that minimize turnover and distribute fewer capital gains. Remember, there is no one-size-fits-all approach to selecting mutual funds. Your circumstances and goals should guide your investment decisions. ### 3. Select the Right Mutual Fund for You Next, examine the fund’s [prospectus](https://www.investopedia.com/terms/p/prospectus.asp), which provides detailed information about the fund’s investment objectives, strategies, risks, and fees. Pay close attention to the fund sponsor’s reputation, the managers’ profiles, and the fund’s historical performance—but keep in mind that past performance doesn’t guarantee future results. After thoroughly researching potential mutual funds, select those that best align with your investment goals and risk tolerance while minimizing costs. Diversification is key to managing risk, so consider spreading your investments across various fund types, sectors, and locations. [Asset allocation](https://www.investopedia.com/articles/financial-analysis/090316/asset-allocation-vs-security-selection-main-differences.asp), or the distribution of your investments among stocks, bonds, real estate, cash, and other assets, is crucial in building a well-balanced portfolio. ### 4. Open an Investment Account If you’re not acting through your employer, you’ll need to open an investment account with a brokerage firm or directly with a mutual fund company to invest in mutual funds. If you don’t already have one, here are a few types of investment accounts that you may be able to choose from: * **Taxable brokerage accounts**: These accounts allow you to invest in a wide range of securities, including mutual funds, stocks, and bonds. They can be held as an individual, as a joint account with a spouse or partner, or as a custodial account held on behalf of minor dependents. * **Retirement accounts**: [401(k) plans and individual retirement accounts (IRAs)](https://www.investopedia.com/ask/answers/12/401k.asp) offer tax advantages and are designed for long-term investing. Roth IRAs are a tax-exempt retirement account option where you can put dividend-paying mutual funds without triggering taxable events. * **Education savings accounts**: Accounts like [529 plans](https://www.investopedia.com/terms/1/529plan.asp) can help you save for future education expenses. When opening a new account, you will provide personal information such as your name, address, Social Security number, and employment details. You will also need to fund your account by transferring money from your bank account or mailing a check. ### 5. Place Orders and Make Contributions Once your investment account is set up and funded, you can start investing in mutual funds. You can invest a lump sum or make regular contributions over time—perhaps right out of your paycheck. Lump-sum investing involves investing a significant amount of money at once, which can be advantageous if you believe the market will rise. However, this approach also exposes you to greater market risk. Another strategy is dollar-cost averaging, which involves investing a fixed amount of money at regular intervals, regardless of market conditions. This approach can help mitigate the impact of market volatility on your investments, as you buy more shares when prices are low and fewer shares when prices are high. To place an order, log into your investment account and select the mutual fund you wish to buy. Specify the amount you want to invest and submit your order. Mutual fund orders are typically processed at the end of each trading day, with the price per share determined by the fund’s [net asset value (NAV)](https://www.investopedia.com/ask/answers/04/032604.asp) at the close of the market. The process for selling your mutual fund shares is similar. You place a sell order with the fund company or brokerage firm, and the order is executed at the next available NAV. The proceeds from the sale, minus any applicable fees or taxes, are then credited to your account. ### Mutual fund shares are valued at their net asset value (NAV), which is calculated once per day after the stock market closes by dividing the fund’s total assets minus liabilities by the number of outstanding shares. When you buy or sell mutual fund shares, your transaction is processed at the next available NAV. ### 6. Monitor and Manage Your Portfolio Investing in mutual funds is not a one-time event; it requires ongoing monitoring and management to ensure your portfolio continues to align with your goals and risk tolerance. Regularly review your investments’ performance and compare them to relevant benchmarks and peer funds. If a fund consistently underperforms its benchmark or peers, it may be time to consider selling it and investing in a better-performing alternative. That said, “regularly” doesn’t mean giving yourself the stress of checking on your retirement savings every hour or every day when volatility might lead to temporary losses that you would never notice otherwise. As your investment goals or market conditions change, you may need to [rebalance](https://www.investopedia.com/investing/rebalance-your-portfolio-stay-on-track/) your portfolio to maintain your desired asset allocation. Rebalancing involves selling investments that have become overweighted in your portfolio and buying investments that have become underweighted to bring your portfolio back in line with your target allocation. Additionally, stay informed about the mutual funds you own. Read the fund’s annual reports as they are sent to you and stay up to date on any changes to the fund’s investment strategy, management team, or fee structure. If a fund experiences significant changes that no longer align with your investment objectives, it may be necessary to sell your shares and invest elsewhere. By following these steps and maintaining a long-term perspective, you can effectively invest in mutual funds and work toward achieving your financial goals. Remember, investing in mutual funds involves risk, and it’s essential to research your options thoroughly, understand the costs involved, and make informed decisions based on your circumstances. ### Don’t hesitate to consult a [financial advisor](https://www.investopedia.com/finding-a-financial-advisor-6834423) who can help you develop a personalized investment plan, select suitable mutual funds, and provide ongoing guidance as your needs and market conditions evolve. It’s perhaps the first and most important decision of your investing life, so getting it right can pay dividends. ## Risks and Considerations for Mutual Fund Investors While mutual funds offer many benefits, such as diversification and professional management, they also have certain risks to be aware of. ### Market Risk [Market risk](https://www.investopedia.com/terms/m/marketrisk.asp) is the possibility that the value of a mutual fund’s investments will decline because of factors affecting the overall financial markets. This risk is inherent in all investments, including mutual funds, and cannot be eliminated. When the market experiences a downturn, the value of a mutual fund’s holdings may decrease, resulting in a lower NAV, potentially lowering your returns. ### Inflation If a mutual fund’s returns do not keep pace with [inflation](https://www.investopedia.com/ask/answers/what-is-inflation-and-how-should-it-affect-investing/), the real value of the investment may decline. For example, if a mutual fund generates an annual return of 5%, but the inflation rate is 3%, the real return (adjusted for inflation) would be about 2%. Over an extended period, this difference can significantly affect your ability to meet your financial goals. ### Cash and Fee Drags Cash drag refers to the potential negative effect on a mutual fund’s performance because of holding cash or cash equivalents, such as money market instruments or short-term bonds. Mutual funds often keep a part of their assets in cash to meet redemption requests, take advantage of investment opportunities, or maintain liquidity. However, holding *too much* cash can be a drag on performance, especially during bull markets, when stocks are appreciating. Fee drag refers to the negative impact of mutual fund fees and expenses on investor returns. Mutual funds charge various fees, such as expense ratios, sales loads, and redemption fees, which can eat into returns over time. Expense ratios, which cover the fund’s operating costs, are particularly important to consider. If a fund has an expense ratio of 1% and generates a 10% return before fees, the investor’s actual return would be 9% after accounting for the expense ratio. High fees and expense ratios can significantly alter returns, especially over long investment horizons. ### Fund-Specific Risks In addition to market risk, mutual funds are subject to specific risks related to their investment strategies and holdings. For example: 1. **Credit risk**: Bond funds, particularly, are exposed to [credit risk](https://www.investopedia.com/terms/c/creditrisk.asp), which is the possibility that fixed-income issuers may fail to make interest payments or repay principal when due. As credit risk increases, specific bond holdings may lose value. 2. **Liquidity risk**: Some mutual funds may invest in less liquid securities, such as small-cap stocks or emerging market bonds, which can be difficult to sell quickly without impacting the price. 3. **Concentration risk**: Sector or region-specific funds may be more vulnerable to events affecting those particular sectors or regions, leading to higher volatility and potential losses. 4. **Currency risk**: International funds or those that invest in foreign securities are subject to [currency risk](https://www.investopedia.com/terms/c/currencyrisk.asp), as fluctuations in exchange rates can affect returns. ## What Are Some Benefits of Investing in Mutual Funds Compared with Individual Stocks? Mutual funds offer several advantages over individual stocks, including professional management, diversification, convenience, and accessibility. With mutual funds, investors can access a wide range of securities and assets managed by experienced professionals, reducing the risk and effort of selecting individual stocks. Mutual funds also offer easier [diversification](https://www.investopedia.com/investing/importance-diversification/), as they invest in many securities, which can help mitigate the impact of any single investment’s performance on the overall portfolio. ## What Is the Difference Between Mutual Funds and ETFs? Mutual funds and [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) are both investment vehicles that pool money from many investors to buy a diversified portfolio of securities, such as stocks or bonds. The main difference is that mutual fund shares are bought and sold directly through the fund company at the end of each trading day, while ETF shares are traded on stock exchanges throughout the day like individual stocks. They also tend to have lower fees. ## How Are Returns from Mutual Funds Calculated? Mutual fund returns are typically calculated using [total return](https://www.investopedia.com/terms/t/totalreturn.asp), which includes both capital appreciation (increase in the fund’s share price) and income distributions (such as dividends or interest). The total return is usually expressed as a percentage change over a specific period, such as one year or five years. It’s important to note that returns are net of the fund’s expenses, which can impact the overall performance. ## Can You Lose Money with Mutual Funds? Yes, it is possible to lose money investing in mutual funds. Like any investment, mutual funds carry risk, and the value of your investment can fluctuate based on market conditions and the performance of the fund’s underlying securities. If you sell your mutual fund shares when they are worth less than what you paid for them, you will realize a loss. ## What Are the Best Mutual Funds for Beginners? Starting with low-cost, diversified mutual funds that provide broad market exposure, such as index or target-date funds, is generally recommended for beginners. Index funds aim to track the performance of a specific market index, such as the [S&P 500](https://www.investopedia.com/ask/answers/how-can-i-buy-sp-500-fund/), while target-date funds adjust their asset allocation over time based on a target year. These funds offer simplicity, diversification, and lower costs, making them a good starting point for new investors. ## The Bottom Line Investing in mutual funds is often an excellent way to grow your wealth over time. By setting clear investment goals, researching and selecting suitable funds, and regularly monitoring your investments, you can start to build a diversified portfolio that aligns with your financial objectives. Mutual funds are available to buy and sell through your brokerage firm or directly from mutual fund companies, so if you’re ready to dive into mutual funds, this guide can get you started. As with any investment, it’s essential to understand the risks and considerations involved and make informed decisions based on your circumstances. You could also start off your research by seeking a qualified [financial advisor](https://www.investopedia.com/inv-100-top-financial-advisors-7556227).
Mutual funds have long been a popular choice for first-time investors, and for good reason. These investment vehicles offer a simple, accessible, and diversified way to enter the investing world, making them a good option for many Americans. Given the many changes in the U.S. economy in recent decades, including the steep drop in the number of Americans with defined pension plans, mutual funds are frequently the vehicle of choice for long-term investing, with a majority—52%—of American households with money in them as of 2022, a vast increase from the 5.7% in 1980. They are now the backbone of middle America’s retirement savings. Key Takeaways Mutual funds are a convenient way for individuals to invest in a diversified portfolio of securities.Clearly determining your investment goals and understanding how much risk you can tolerate against the potential rewards are crucial before investing in mutual funds.Different types of mutual funds, such as equity, bond, and balanced funds, are for different investment strategies.It’s important to assess different mutual funds based on their performance, expense ratios, and fund manager experience. With over 9,000 mutual funds in the United States, you have many to choose from. Mutual funds pool money from many investors to purchase a diversified portfolio of securities, such as stocks and bonds. Established by 1940 legislation, these funds are meant to be relatively lower in risk. They were to pool the investment capital of many Americans and provide access to a broader range of assets and the safeguards of professional money management that otherwise would have been too costly to obtain on their own. A significant benefit of investing in mutual funds is diversification. By spreading your investment across a variety of securities, sectors, and locations, you reduce your portfolio’s overall risk. The performance of different investments is often different even in the same market conditions, so gains in another can offset losses in one. Mutual funds also cater to various investment goals and risk tolerances. There are over 9,000 mutual funds to choose from in the U.S. alone. Each has its own investment strategy and goals. Whether you’re looking for aggressive growth, steady income, or a balanced approach, there is likely a mutual fund that aligns with your needs. But how can you add mutual funds to your portfolios? Putting your money into mutual funds is done differently from trading stocks. Unlike stocks, which are traded throughout the day on stock exchanges, mutual fund shares are purchased and sold directly through the mutual fund company or a brokerage firm. Fund shares are priced once at the close of each trading day. Many people set money aside in mutual funds through their paychecks, some with matching funds from their employer. But don’t let this overwhelm you. Owning mutual funds is easier than it sounds. Just read on to find out how. Type of Mutual Funds Understanding the different types of mutual funds can help you find the one that best aligns with your financial goals and risk tolerance. Here are some of the main types: Equity Funds Also known as stock funds, equity funds live up to their name by investing in publicly traded companies. Their goal is to increase the value of your investment by putting money into companies expected to grow. An essential factor to consider when evaluating equity funds is market capitalization, which refers to the total value of a company’s outstanding shares. Generally, larger companies tend to be more stable and less risky, while smaller companies may offer higher growth potential but also have increased risk. They may be the next big thing or soon forgotten. Equity funds can be broken down by looking at these factors: Market capitalization: Large-cap funds invest in companies with a market value exceeding $10 billion, which are ordinarily more established and less volatile. Midcap funds focus on companies worth $2 billion to $10 billion, offering a balance between growth and stability. Small-cap funds invest in companies with a market value below $2 billion, which may have higher growth potential and risk. Investment style: Growth funds invest in companies with high growth potential, prioritizing capital appreciation over income through dividends. Value funds seek undervalued stocks believed to be trading below their true worth, aiming to benefit from a potential price increase. Blend funds provide a more balanced approach between the two. Geography: Domestic funds focus on stocks of U.S. companies, while international funds invest in stocks outside the U.S. Some funds may also focus on a specific region, such as Europe or Asia. International funds can offer diversification benefits but may also be subject to additional risks, such as currency fluctuations and political instability. Bond Funds Bond funds invest primarily in fixed-income securities, such as corporate, government, and municipal bonds. They aim to provide regular income and add stability to a portfolio. Bond funds can be categorized based on the type of issuer or bonds in which they invest (e.g., government vs. corporate), the credit quality of the issuers (from investment-grade to junk), and the duration of the bonds (from short-term to long-term). Balanced Funds Also known as hybrid funds, balanced funds invest in a mix of stocks and bonds to offer a balance of growth and income. The allocation between stocks and bonds depends on the fund’s investment strategy and risk profile, but the most common is 60% in stocks and 40% in bonds. These funds are suitable for investors seeking a single, diversified investment solution. Money Market Funds Money market funds invest in short-term, low-risk debt securities, such as Treasury bills, certificates of deposit (CDs), and commercial paper. They aim to maintain a stable value and provide a low-risk, liquid investment option. Money market funds are often used for short-term savings or as a temporary holding place for cash. They are more attractive when interest rates are high since they earn more interest. Index Funds Index funds and target-date funds are the most popular. Index funds passively track the performance of a specific market index, such as the S&P 500 or the Dow Jones Industrial Average. If that index performs well, so does the fund. Target-Date Funds Target-date funds, also known as life cycle funds, are designed for investors with a specific retirement date in mind. Over 85% of 401(k) plans offer these funds, which automatically adjust their asset allocation over time, becoming more conservative as the target date approaches. This “set it and forget it” approach is great for investors who want a simple, long-term investment solution. Specialty Funds Specialty funds focus on specific investment strategies or asset classes beyond stocks and bonds. Here are some examples: Sector funds invest in companies within a particular industry or sector, such as healthcare, energy, or technology. Socially responsible investment (SRI) funds, also known as environmental, social, and governance (ESG) funds, invest in companies that meet specific social, environmental, or ethical criteria. Real estate funds invest in real estate investment trusts or buy their own real estate holdings. Commodity funds invest in physical commodities like gold, oil, agricultural products, or commodity-linked derivatives. Active vs. Passive Funds Actively managed mutual funds try to beat a benchmark index using professional managers to make investment decisions, typically leading to higher fees. Passively managed funds, like index funds, aim to match the performance of a market index by mirroring its composition and usually have lower fees. How to Invest in Mutual Funds, Step by Step 1. Set Your Investment Goals and Budget As with any investment, it’s important to set clear goals that align with your broader financial objectives, time horizon, and risk tolerance before investing in mutual funds. Determining your investment goals and budget is crucial before investing in mutual funds. Consider the following factors: Investment objectives: Identify your reasons for investing, such as saving for retirement, buying a home, funding your child’s education, or building wealth over the long term.Time horizon: Determine how long you plan to invest before you need to access your funds. This will help you choose the mutual fund that matches your timeline.Risk tolerance: Assess your willingness to take on financial risk. Some investors are comfortable with the potential for higher returns despite increased volatility, while others prefer a more conservative approach.Financial situation: Assess your current income, expenses, and debts to determine how much you can realistically afford to invest without compromising your financial stability. You can sort these out by answering a few questions: What are my primary financial goals, and how can mutual funds help me achieve them?How long do I plan to invest in this fund, and am I comfortable with the potential market ups and downs during that time?Am I willing to accept more risk for potentially higher returns, or do I prefer a more stable investment approach?How much can I afford to invest in mutual funds, and how often (e.g., one-time lump sum, or monthly contributions, or something else)?What types of mutual funds best align with my goals and risk tolerance (e.g., equity, bond, and balanced funds)?Do I prefer actively managed funds with higher fees or passively managed funds with lower costs? 2. Narrow Down Your Choices There are many, many mutual funds—more than 9,000—from scores of providers. With your goals and budget in mind, begin researching the mutual funds that match your answers to the above questions. If you choose your retirement plan through your employer, you might be given a catalog (virtual or a glossy version) detailing different funds offered there. However, these can be out of date—even a few months can matter—and produced by the management companies pitching you to join them. Even if they are scrupulous and have fair judgments about their own products, it’s best to see what outsiders think, too. Use your brokerage platform or reputable financial websites like Morningstar or Yahoo! Finance to compare funds and read expert analyses. You can also find helpful tools like mutual fund “screeners,” where you put what kind of fund you are looking for, and the results are narrowed down for you. As you choose a mutual fund, these items can act as your 10-point checklist. It looks like more work than it is—most details are found in the same places online: Fund type: Choose funds that match your investment objectives, such as growth, income, or a combination of both. Investment style: Consider whether you prefer actively managed funds that attempt to outperform the market or passively managed index funds that track market performance. Expense ratios: Look for funds with low expense ratios, as high annual management costs can eat into your returns over time. Try to find the least expensive funds for your fund type and style, but don’t choose based on fees alone. Loads: Be aware of any extra fees with mutual funds. Some funds carry sales charges, known as loads, that can eat into your investment returns. Front-end loads are charged when you first buy shares in the fund, while back-end loads are charged when you sell shares. Additional fees: Look for no-load funds to avoid these charges. Additionally, pay attention to other fees, such as redemption fees and 12b-1 fees, which are for marketing and distribution. These fees vary significantly among funds, so comparing them carefully and understanding their influence on your returns is essential. Minimum investment: While some mutual funds do not have a minimum investment to start investing, some do. The upfront investment could be $100, $1,000, or more. These tend to be waived if you choose a fund through your employer. Fund manager experience: To assess the fund manager’s track record, visit the mutual fund company’s website or review the fund’s prospectus. Look for the manager’s biography, including their investment philosophy, educational background, and previous experience managing funds. A manager who has been with the fund for several years, ideally five or more, may indicate a more stable management approach. Fund size: The fund’s assets under management (AUM) can be found in the fund’s fact sheet or prospectus. A larger AUM, typically $100 million or more, suggests that the fund is well-established and has enough to manage the fund effectively. Liquidity: This refers to how easily the fund can convert its investments into cash to meet redemption requests. Funds with higher liquidity can accommodate investors coming into and out of the fund. A good indication of liquidity is if the fund invests primarily in large-cap stocks or high-quality bonds that can be bought and sold quickly without significantly impacting the fund’s performance. Tax implications: If investing in a taxable account, consider tax-efficient funds that minimize turnover and distribute fewer capital gains. Remember, there is no one-size-fits-all approach to selecting mutual funds. Your circumstances and goals should guide your investment decisions. 3. Select the Right Mutual Fund for You Next, examine the fund’s prospectus, which provides detailed information about the fund’s investment objectives, strategies, risks, and fees. Pay close attention to the fund sponsor’s reputation, the managers’ profiles, and the fund’s historical performance—but keep in mind that past performance doesn’t guarantee future results. After thoroughly researching potential mutual funds, select those that best align with your investment goals and risk tolerance while minimizing costs. Diversification is key to managing risk, so consider spreading your investments across various fund types, sectors, and locations. Asset allocation, or the distribution of your investments among stocks, bonds, real estate, cash, and other assets, is crucial in building a well-balanced portfolio. 4. Open an Investment Account If you’re not acting through your employer, you’ll need to open an investment account with a brokerage firm or directly with a mutual fund company to invest in mutual funds. If you don’t already have one, here are a few types of investment accounts that you may be able to choose from: Taxable brokerage accounts: These accounts allow you to invest in a wide range of securities, including mutual funds, stocks, and bonds. They can be held as an individual, as a joint account with a spouse or partner, or as a custodial account held on behalf of minor dependents. Retirement accounts: 401(k) plans and individual retirement accounts (IRAs) offer tax advantages and are designed for long-term investing. Roth IRAs are a tax-exempt retirement account option where you can put dividend-paying mutual funds without triggering taxable events. Education savings accounts: Accounts like 529 plans can help you save for future education expenses. When opening a new account, you will provide personal information such as your name, address, Social Security number, and employment details. You will also need to fund your account by transferring money from your bank account or mailing a check. 5. Place Orders and Make Contributions Once your investment account is set up and funded, you can start investing in mutual funds. You can invest a lump sum or make regular contributions over time—perhaps right out of your paycheck. Lump-sum investing involves investing a significant amount of money at once, which can be advantageous if you believe the market will rise. However, this approach also exposes you to greater market risk. Another strategy is dollar-cost averaging, which involves investing a fixed amount of money at regular intervals, regardless of market conditions. This approach can help mitigate the impact of market volatility on your investments, as you buy more shares when prices are low and fewer shares when prices are high. To place an order, log into your investment account and select the mutual fund you wish to buy. Specify the amount you want to invest and submit your order. Mutual fund orders are typically processed at the end of each trading day, with the price per share determined by the fund’s net asset value (NAV) at the close of the market. The process for selling your mutual fund shares is similar. You place a sell order with the fund company or brokerage firm, and the order is executed at the next available NAV. The proceeds from the sale, minus any applicable fees or taxes, are then credited to your account. Mutual fund shares are valued at their net asset value (NAV), which is calculated once per day after the stock market closes by dividing the fund’s total assets minus liabilities by the number of outstanding shares. When you buy or sell mutual fund shares, your transaction is processed at the next available NAV. 6. Monitor and Manage Your Portfolio Investing in mutual funds is not a one-time event; it requires ongoing monitoring and management to ensure your portfolio continues to align with your goals and risk tolerance. Regularly review your investments’ performance and compare them to relevant benchmarks and peer funds. If a fund consistently underperforms its benchmark or peers, it may be time to consider selling it and investing in a better-performing alternative. That said, “regularly” doesn’t mean giving yourself the stress of checking on your retirement savings every hour or every day when volatility might lead to temporary losses that you would never notice otherwise. As your investment goals or market conditions change, you may need to rebalance your portfolio to maintain your desired asset allocation. Rebalancing involves selling investments that have become overweighted in your portfolio and buying investments that have become underweighted to bring your portfolio back in line with your target allocation. Additionally, stay informed about the mutual funds you own. Read the fund’s annual reports as they are sent to you and stay up to date on any changes to the fund’s investment strategy, management team, or fee structure. If a fund experiences significant changes that no longer align with your investment objectives, it may be necessary to sell your shares and invest elsewhere. By following these steps and maintaining a long-term perspective, you can effectively invest in mutual funds and work toward achieving your financial goals. Remember, investing in mutual funds involves risk, and it’s essential to research your options thoroughly, understand the costs involved, and make informed decisions based on your circumstances. Don’t hesitate to consult a financial advisor who can help you develop a personalized investment plan, select suitable mutual funds, and provide ongoing guidance as your needs and market conditions evolve. It’s perhaps the first and most important decision of your investing life, so getting it right can pay dividends. Risks and Considerations for Mutual Fund Investors While mutual funds offer many benefits, such as diversification and professional management, they also have certain risks to be aware of. Market Risk Market risk is the possibility that the value of a mutual fund’s investments will decline because of factors affecting the overall financial markets. This risk is inherent in all investments, including mutual funds, and cannot be eliminated. When the market experiences a downturn, the value of a mutual fund’s holdings may decrease, resulting in a lower NAV, potentially lowering your returns. Inflation If a mutual fund’s returns do not keep pace with inflation, the real value of the investment may decline. For example, if a mutual fund generates an annual return of 5%, but the inflation rate is 3%, the real return (adjusted for inflation) would be about 2%. Over an extended period, this difference can significantly affect your ability to meet your financial goals. Cash and Fee Drags Cash drag refers to the potential negative effect on a mutual fund’s performance because of holding cash or cash equivalents, such as money market instruments or short-term bonds. Mutual funds often keep a part of their assets in cash to meet redemption requests, take advantage of investment opportunities, or maintain liquidity. However, holding too much cash can be a drag on performance, especially during bull markets, when stocks are appreciating. Fee drag refers to the negative impact of mutual fund fees and expenses on investor returns. Mutual funds charge various fees, such as expense ratios, sales loads, and redemption fees, which can eat into returns over time. Expense ratios, which cover the fund’s operating costs, are particularly important to consider. If a fund has an expense ratio of 1% and generates a 10% return before fees, the investor’s actual return would be 9% after accounting for the expense ratio. High fees and expense ratios can significantly alter returns, especially over long investment horizons. Fund-Specific Risks In addition to market risk, mutual funds are subject to specific risks related to their investment strategies and holdings. For example: Credit risk: Bond funds, particularly, are exposed to credit risk, which is the possibility that fixed-income issuers may fail to make interest payments or repay principal when due. As credit risk increases, specific bond holdings may lose value. Liquidity risk: Some mutual funds may invest in less liquid securities, such as small-cap stocks or emerging market bonds, which can be difficult to sell quickly without impacting the price. Concentration risk: Sector or region-specific funds may be more vulnerable to events affecting those particular sectors or regions, leading to higher volatility and potential losses. Currency risk: International funds or those that invest in foreign securities are subject to currency risk, as fluctuations in exchange rates can affect returns. What Are Some Benefits of Investing in Mutual Funds Compared with Individual Stocks? Mutual funds offer several advantages over individual stocks, including professional management, diversification, convenience, and accessibility. With mutual funds, investors can access a wide range of securities and assets managed by experienced professionals, reducing the risk and effort of selecting individual stocks. Mutual funds also offer easier diversification, as they invest in many securities, which can help mitigate the impact of any single investment’s performance on the overall portfolio. What Is the Difference Between Mutual Funds and ETFs? Mutual funds and exchange-traded funds (ETFs) are both investment vehicles that pool money from many investors to buy a diversified portfolio of securities, such as stocks or bonds. The main difference is that mutual fund shares are bought and sold directly through the fund company at the end of each trading day, while ETF shares are traded on stock exchanges throughout the day like individual stocks. They also tend to have lower fees. How Are Returns from Mutual Funds Calculated? Mutual fund returns are typically calculated using total return, which includes both capital appreciation (increase in the fund’s share price) and income distributions (such as dividends or interest). The total return is usually expressed as a percentage change over a specific period, such as one year or five years.It’s important to note that returns are net of the fund’s expenses, which can impact the overall performance. Can You Lose Money with Mutual Funds? Yes, it is possible to lose money investing in mutual funds. Like any investment, mutual funds carry risk, and the value of your investment can fluctuate based on market conditions and the performance of the fund’s underlying securities. If you sell your mutual fund shares when they are worth less than what you paid for them, you will realize a loss. What Are the Best Mutual Funds for Beginners? Starting with low-cost, diversified mutual funds that provide broad market exposure, such as index or target-date funds, is generally recommended for beginners. Index funds aim to track the performance of a specific market index, such as the S&P 500, while target-date funds adjust their asset allocation over time based on a target year. These funds offer simplicity, diversification, and lower costs, making them a good starting point for new investors. The Bottom Line Investing in mutual funds is often an excellent way to grow your wealth over time. By setting clear investment goals, researching and selecting suitable funds, and regularly monitoring your investments, you can start to build a diversified portfolio that aligns with your financial objectives. Mutual funds are available to buy and sell through your brokerage firm or directly from mutual fund companies, so if you’re ready to dive into mutual funds, this guide can get you started. As with any investment, it’s essential to understand the risks and considerations involved and make informed decisions based on your circumstances. You could also start off your research by seeking a qualified financial advisor.
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https://www.investopedia.com/ask/answers/12/arbitrage-speculation-difference.asp
Arbitrage vs. Speculation: 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-arbitrage-vs-speculation-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"> Arbitrage vs. Speculation: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Investors are always doing what they can to make a profit in the market. After all, isn't that what trading is all about? Whether they are individuals or institutions, investors use a tailor-made financial strategy that works well for them. This strategy only comes after a lot of time, patience, and practice. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arbitrageur.asp">Arbitrage</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/speculation.asp">speculation</a> are two very different financial strategies, with differing degrees of risk. </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"> Arbitrage is fairly common among institutional investors and hedge funds and comes with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/09/credit-card-arbitrage.asp">a limited amount of risk</a>. This type of strategy involves a large position in a security that is traded in two different markets at different prices. The investor will buy it at a low price on one market and sell it for a slightly higher price on another, thereby profiting off the difference. Because of the nature of this strategy, it's generally not used by small, individual investors. </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"> Speculation, on the other hand, can be. This strategy doesn't need a sizable investment base and may not be based on market forces. It is based on assumptions and can involve any type of security including real estate. While arbitrage comes with a limited amount of risk, speculation does carry a greater chance of reward or loss. </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"> Below, we've outlined some of the key differences between these two financial strategies. </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>Arbitrage is a financial strategy that involves the purchase of a security on one market and the sale of the same security for a slightly higher price on another. </li><li>Speculation is based on assumptions and hunches.</li><li>Arbitrage involves a limited amount of risk, while the risk of loss and profit is greater with speculation. </li><li>Anyone can engage in speculation, but arbitrage is mainly used by large, institutional investors and hedge funds. </li></ul></div></div></div> <span class="heading-toc" id="toc-arbitrage"></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"> Arbitrage </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Arbitrage involves the simultaneous buying and selling of an asset in order to profit from small differences in price. Arbitrage is possible because of inefficiencies in the market. </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"> Arbitrageurs—those who use arbitrage as a strategy—often buy stock on one market such as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-market.asp">financial market</a> in the U.S. like the New York Stock Exchange (NYSE) while simultaneously selling the same stock on a different market like the London Stock Exchange (LSE). The stock would be traded in U.S. dollars in the United States, while in London, the stock would be traded in pounds. This usually happens very quickly, and once acted upon, the opportunity is gone. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> As each market for the same stock moves, market inefficiencies, pricing mismatches, and even dollar/pound exchange rates can affect the prices temporarily. Arbitrage is not limited to identical instruments. Instead, arbitrageurs can also take advantage of predictable relationships between similar financial instruments, such as gold <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a> and the underlying price of physical gold. </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"> Since arbitrage involves the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/013015/what-difference-between-arbitrage-and-hedging.asp">simultaneous buying and selling of an asset</a>, it is essentially a type of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp">hedge</a> and involves limited risk when executed properly. Keep in mind, limited doesn't necessarily mean minor. While there is a chance of losing out from small fluctuations in price, other risks can be much stronger such as the devaluation of a currency. Because arbitrage isn't exactly risk-free, traders need to tailor their situation so the odds of greater profitability increase. </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"> There is also the question of physical possession in arbitrage that does not come up in speculation. In some cases, arbitrageurs will take physical possession of the assets that they are trading, such as commodities, and must therefore factor into their costs storage costs. </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"> Arbitrageurs typically enter large positions since they are attempting to profit from very small price differences. Because of these large positions, individual investors usually don't engage in arbitrage. Instead, this strategy is used primarily by hedge funds and large, institutional investors. </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-speculation"></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"> Speculation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Speculation is a short-term buying and selling strategy. It involves a significant amount of risk of loss or gains. The reward is the main driver, so if there wasn't any expectation of gain, there would be no use for speculation. This strategy is generally driven by assumptions or hunches on the part of the trader, who attempts to profit from rising and falling prices. </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"> Speculation is a very important part of the market. Without it, there would be no liquidity. Participants would be limited to just those producers and companies. This would widen the bid-ask spread, making it harder to find buyers and sellers in the market. </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>Without speculation, there would be no liquidity in the markets, and market participants would be limited.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Unlike arbitrage, anyone can engage in speculation. You don't need to take large positions in a trade in order to speculate, so anyone can speculate on their trades, from individual investors to large, institutional ones. </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"> There is usually a fine line between investing and speculating. For example, someone may purchase a home as his dwelling. In this case, he may be considered to be investing his money. But if that person purchases a property with the express purpose of selling it quickly for a profit, he is engaging in speculation. </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"> Financial speculation is not limited in the types of securities involved. It can involve the trading of instruments such as bonds, commodities, currencies, and derivatives. It can even be used in the real estate market, as outlined in the example above. </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"> A trader, for example, may open a long (buy) position in a stock index <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futurescontract.asp">futures contract</a> with the expectation of profiting from rising prices. If the value of the index rises, the trader may close the trade for a profit. Conversely, if the value of the index falls, the trade might be closed for a loss. </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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/speculator.asp">Speculators</a> may also attempt to profit from a falling market by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortselling.asp">shorting</a> (selling short or simply selling) the instrument. If prices drop, the position will be profitable. If prices rise, however, the trade may be closed at a loss. </p></div>
## Arbitrage vs. Speculation: An Overview Investors are always doing what they can to make a profit in the market. After all, isn't that what trading is all about? Whether they are individuals or institutions, investors use a tailor-made financial strategy that works well for them. This strategy only comes after a lot of time, patience, and practice. [Arbitrage](https://www.investopedia.com/terms/a/arbitrageur.asp) and [speculation](https://www.investopedia.com/terms/s/speculation.asp) are two very different financial strategies, with differing degrees of risk. Arbitrage is fairly common among institutional investors and hedge funds and comes with [a limited amount of risk](https://www.investopedia.com/articles/pf/09/credit-card-arbitrage.asp). This type of strategy involves a large position in a security that is traded in two different markets at different prices. The investor will buy it at a low price on one market and sell it for a slightly higher price on another, thereby profiting off the difference. Because of the nature of this strategy, it's generally not used by small, individual investors. Speculation, on the other hand, can be. This strategy doesn't need a sizable investment base and may not be based on market forces. It is based on assumptions and can involve any type of security including real estate. While arbitrage comes with a limited amount of risk, speculation does carry a greater chance of reward or loss. Below, we've outlined some of the key differences between these two financial strategies. ### Key Takeaways * Arbitrage is a financial strategy that involves the purchase of a security on one market and the sale of the same security for a slightly higher price on another. * Speculation is based on assumptions and hunches. * Arbitrage involves a limited amount of risk, while the risk of loss and profit is greater with speculation. * Anyone can engage in speculation, but arbitrage is mainly used by large, institutional investors and hedge funds. ## Arbitrage Arbitrage involves the simultaneous buying and selling of an asset in order to profit from small differences in price. Arbitrage is possible because of inefficiencies in the market. Arbitrageurs—those who use arbitrage as a strategy—often buy stock on one market such as a [financial market](https://www.investopedia.com/terms/f/financial-market.asp) in the U.S. like the New York Stock Exchange (NYSE) while simultaneously selling the same stock on a different market like the London Stock Exchange (LSE). The stock would be traded in U.S. dollars in the United States, while in London, the stock would be traded in pounds. This usually happens very quickly, and once acted upon, the opportunity is gone. As each market for the same stock moves, market inefficiencies, pricing mismatches, and even dollar/pound exchange rates can affect the prices temporarily. Arbitrage is not limited to identical instruments. Instead, arbitrageurs can also take advantage of predictable relationships between similar financial instruments, such as gold [futures](https://www.investopedia.com/terms/f/futures.asp) and the underlying price of physical gold. Since arbitrage involves the [simultaneous buying and selling of an asset](https://www.investopedia.com/ask/answers/013015/what-difference-between-arbitrage-and-hedging.asp), it is essentially a type of [hedge](https://www.investopedia.com/terms/h/hedge.asp) and involves limited risk when executed properly. Keep in mind, limited doesn't necessarily mean minor. While there is a chance of losing out from small fluctuations in price, other risks can be much stronger such as the devaluation of a currency. Because arbitrage isn't exactly risk-free, traders need to tailor their situation so the odds of greater profitability increase. There is also the question of physical possession in arbitrage that does not come up in speculation. In some cases, arbitrageurs will take physical possession of the assets that they are trading, such as commodities, and must therefore factor into their costs storage costs. Arbitrageurs typically enter large positions since they are attempting to profit from very small price differences. Because of these large positions, individual investors usually don't engage in arbitrage. Instead, this strategy is used primarily by hedge funds and large, institutional investors. ## Speculation Speculation is a short-term buying and selling strategy. It involves a significant amount of risk of loss or gains. The reward is the main driver, so if there wasn't any expectation of gain, there would be no use for speculation. This strategy is generally driven by assumptions or hunches on the part of the trader, who attempts to profit from rising and falling prices. Speculation is a very important part of the market. Without it, there would be no liquidity. Participants would be limited to just those producers and companies. This would widen the bid-ask spread, making it harder to find buyers and sellers in the market. ### Without speculation, there would be no liquidity in the markets, and market participants would be limited. Unlike arbitrage, anyone can engage in speculation. You don't need to take large positions in a trade in order to speculate, so anyone can speculate on their trades, from individual investors to large, institutional ones. There is usually a fine line between investing and speculating. For example, someone may purchase a home as his dwelling. In this case, he may be considered to be investing his money. But if that person purchases a property with the express purpose of selling it quickly for a profit, he is engaging in speculation. Financial speculation is not limited in the types of securities involved. It can involve the trading of instruments such as bonds, commodities, currencies, and derivatives. It can even be used in the real estate market, as outlined in the example above. A trader, for example, may open a long (buy) position in a stock index [futures contract](https://www.investopedia.com/terms/f/futurescontract.asp) with the expectation of profiting from rising prices. If the value of the index rises, the trader may close the trade for a profit. Conversely, if the value of the index falls, the trade might be closed for a loss. [Speculators](https://www.investopedia.com/terms/s/speculator.asp) may also attempt to profit from a falling market by [shorting](https://www.investopedia.com/terms/s/shortselling.asp) (selling short or simply selling) the instrument. If prices drop, the position will be profitable. If prices rise, however, the trade may be closed at a loss.
Arbitrage vs. Speculation: An Overview Investors are always doing what they can to make a profit in the market. After all, isn't that what trading is all about? Whether they are individuals or institutions, investors use a tailor-made financial strategy that works well for them. This strategy only comes after a lot of time, patience, and practice. Arbitrage and speculation are two very different financial strategies, with differing degrees of risk. Arbitrage is fairly common among institutional investors and hedge funds and comes with a limited amount of risk. This type of strategy involves a large position in a security that is traded in two different markets at different prices. The investor will buy it at a low price on one market and sell it for a slightly higher price on another, thereby profiting off the difference. Because of the nature of this strategy, it's generally not used by small, individual investors. Speculation, on the other hand, can be. This strategy doesn't need a sizable investment base and may not be based on market forces. It is based on assumptions and can involve any type of security including real estate. While arbitrage comes with a limited amount of risk, speculation does carry a greater chance of reward or loss. Below, we've outlined some of the key differences between these two financial strategies. Key Takeaways Arbitrage is a financial strategy that involves the purchase of a security on one market and the sale of the same security for a slightly higher price on another. Speculation is based on assumptions and hunches.Arbitrage involves a limited amount of risk, while the risk of loss and profit is greater with speculation. Anyone can engage in speculation, but arbitrage is mainly used by large, institutional investors and hedge funds. Arbitrage Arbitrage involves the simultaneous buying and selling of an asset in order to profit from small differences in price. Arbitrage is possible because of inefficiencies in the market. Arbitrageurs—those who use arbitrage as a strategy—often buy stock on one market such as a financial market in the U.S. like the New York Stock Exchange (NYSE) while simultaneously selling the same stock on a different market like the London Stock Exchange (LSE). The stock would be traded in U.S. dollars in the United States, while in London, the stock would be traded in pounds. This usually happens very quickly, and once acted upon, the opportunity is gone. As each market for the same stock moves, market inefficiencies, pricing mismatches, and even dollar/pound exchange rates can affect the prices temporarily. Arbitrage is not limited to identical instruments. Instead, arbitrageurs can also take advantage of predictable relationships between similar financial instruments, such as gold futures and the underlying price of physical gold. Since arbitrage involves the simultaneous buying and selling of an asset, it is essentially a type of hedge and involves limited risk when executed properly. Keep in mind, limited doesn't necessarily mean minor. While there is a chance of losing out from small fluctuations in price, other risks can be much stronger such as the devaluation of a currency. Because arbitrage isn't exactly risk-free, traders need to tailor their situation so the odds of greater profitability increase. There is also the question of physical possession in arbitrage that does not come up in speculation. In some cases, arbitrageurs will take physical possession of the assets that they are trading, such as commodities, and must therefore factor into their costs storage costs. Arbitrageurs typically enter large positions since they are attempting to profit from very small price differences. Because of these large positions, individual investors usually don't engage in arbitrage. Instead, this strategy is used primarily by hedge funds and large, institutional investors. Speculation Speculation is a short-term buying and selling strategy. It involves a significant amount of risk of loss or gains. The reward is the main driver, so if there wasn't any expectation of gain, there would be no use for speculation. This strategy is generally driven by assumptions or hunches on the part of the trader, who attempts to profit from rising and falling prices. Speculation is a very important part of the market. Without it, there would be no liquidity. Participants would be limited to just those producers and companies. This would widen the bid-ask spread, making it harder to find buyers and sellers in the market. Without speculation, there would be no liquidity in the markets, and market participants would be limited. Unlike arbitrage, anyone can engage in speculation. You don't need to take large positions in a trade in order to speculate, so anyone can speculate on their trades, from individual investors to large, institutional ones. There is usually a fine line between investing and speculating. For example, someone may purchase a home as his dwelling. In this case, he may be considered to be investing his money. But if that person purchases a property with the express purpose of selling it quickly for a profit, he is engaging in speculation. Financial speculation is not limited in the types of securities involved. It can involve the trading of instruments such as bonds, commodities, currencies, and derivatives. It can even be used in the real estate market, as outlined in the example above. A trader, for example, may open a long (buy) position in a stock index futures contract with the expectation of profiting from rising prices. If the value of the index rises, the trader may close the trade for a profit. Conversely, if the value of the index falls, the trade might be closed for a loss. Speculators may also attempt to profit from a falling market by shorting (selling short or simply selling) the instrument. If prices drop, the position will be profitable. If prices rise, however, the trade may be closed at a loss.
[ [ "Arbitrage", "https://www.investopedia.com/terms/a/arbitrageur.asp" ], [ "speculation", "https://www.investopedia.com/terms/s/speculation.asp" ], [ "a limited amount of risk", "https://www.investopedia.com/articles/pf/09/credit-card-arbitrage.asp" ], [ "financial market", "https://www.investopedia.com/terms/f/financial-market.asp" ], [ "futures", "https://www.investopedia.com/terms/f/futures.asp" ], [ "simultaneous buying and selling of an asset", "https://www.investopedia.com/ask/answers/013015/what-difference-between-arbitrage-and-hedging.asp" ], [ "hedge", "https://www.investopedia.com/terms/h/hedge.asp" ], [ "futures contract", "https://www.investopedia.com/terms/f/futurescontract.asp" ], [ "Speculators", "https://www.investopedia.com/terms/s/speculator.asp" ], [ "shorting", "https://www.investopedia.com/terms/s/shortselling.asp" ] ]
https://www.investopedia.com/top-oil-futures-contract-adds-us-benchmark-7507202
World's Top Oil Futures Contract Now Includes U.S. Benchmark Prices
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> For the first time, the world's most liquid crude oil futures contract is being priced with U.S. oil. </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>Intercontinental Exchange's (ICE) Brent crude oil contracts now will incorporate West Texas Intermediate (WTI) crude into its price calculations.</li><li>It marks the first time Brent prices will consider oil from a non-North Sea source.</li><li>The change reflects declining trading volumes involving North Sea oil and rising volumes involving WTI.</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"> Crude oil futures contracts based on the ICE Brent Index include prices for West Texas Intermediate (WTI) Midland crude as of June 1.<span class="ql-inline-citation" data-cite="1"></span> The inclusion marks the first time <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brentblend.asp">Brent crude</a> prices, considered the benchmark for global oil markets, will account for the price of oil produced outside the North Sea. </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 data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wti.asp">WTI</a>, a light sweet crude similar to the five types of North Sea crude currently comprising the Brent basket, has served as the benchmark for domestic oil since U.S. oil futures began trading on the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nymex.asp">New York Mercantile Exchange</a> in 1983. </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"> Today, about 80% of all oil market transactions are priced as Brent crude. The inclusion of oil from the world's largest economy and largest oil producer should make Brent a truer measure of global oil prices.<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> <span class="heading-toc" id="toc-how-oil-futures-work"></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 Oil Futures Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Oil futures contracts play a key role in global markets and are based on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashmarket.asp">cash market</a> oil prices, meaning the price of physical oil being delivered to a certain destination. Oil futures allow suppliers and buyers of physical oil to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp">hedge</a> the cost of their deliveries, protecting them from price fluctuations. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> For instance, a crude oil producer in June can sell a futures contract for September delivery and receive immediate payment. In September, if the cash market price for crude oil exceeds the futures contract price received three months earlier, the producer can sell its physical oil to an unrelated cash market buyer, such as a refinery. </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 producer then can use the proceeds of the cash market sale to repurchase the futures contract it sold, closing out that trade and pocketing the difference between the two. </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"> However, if the cash market price in September falls short of the futures price at which the producer sold in June, the producer simply can deliver the oil according to the terms of the futures contract. </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"> Buyers of crude oil can hedge their expected oil needs in a similar fashion. Meanwhile, financial traders with no intention of selling or acquiring physical oil participate in the futures market, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/040615/introduction-trading-oil-futures.asp">buying and selling contracts for a profit</a>. In the process, they provide <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/07/liquidity.asp">liquidity</a> to both physical oil and futures markets. </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-reasons-for-the-change"></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"> Reasons for the Change </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Falling supplies of North Sea crude have made Brent prices less reflective of the entire global market. </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"> Daily trade volume of the five types of North Sea crude composing the Brent basket has fallen 18% in the past two-and-a-half years.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Meanwhile, Texas oil makes up more of the global oil trade than ever before. Russia's invasion of Ukraine and subsequent U.S. and European sanctions on Russian oil have boosted demand for U.S. oil. U.S. crude oil exports averaged 3.6 million barrels per day in 2022, a record high and a 22% increase from 2021.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> WTI crude delivered against Brent contracts will take into account the extra cost of shipping crude to Rotterdam, Holland—the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/delivery-point.asp">delivery point</a> for the contracts—from the U.S. Gulf Coast as opposed to the nearby North Sea. </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-unclear-price-impacts"></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"> Unclear Price Impacts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The impact of the change on both U.S. crude futures based on WTI and Brent futures remains unclear. </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"> Brent's global benchmark status means Brent futures typically trade at a premium to WTI futures, but that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spread.asp">spread</a> narrowed to its lowest level in a year, $2.76 per barrel for the nearest delivery date, in late April. </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"> Since then, the spread has widened again. The Brent contract for July delivery rose 2.4% Thursday to $74.32 per barrel, compared with a 2.3% gain to $70.10 for the comparable WTI contract. </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"> A narrowing spread usually discourages international buyers from considering WTI crude. Traders will eye whether its inclusion in the Brent price index alters that traditional relationship.<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>
For the first time, the world's most liquid crude oil futures contract is being priced with U.S. oil. ### Key Takeaways * Intercontinental Exchange's (ICE) Brent crude oil contracts now will incorporate West Texas Intermediate (WTI) crude into its price calculations. * It marks the first time Brent prices will consider oil from a non-North Sea source. * The change reflects declining trading volumes involving North Sea oil and rising volumes involving WTI. Crude oil futures contracts based on the ICE Brent Index include prices for West Texas Intermediate (WTI) Midland crude as of June 1. The inclusion marks the first time [Brent crude](https://www.investopedia.com/terms/b/brentblend.asp) prices, considered the benchmark for global oil markets, will account for the price of oil produced outside the North Sea. [WTI](https://www.investopedia.com/terms/w/wti.asp), a light sweet crude similar to the five types of North Sea crude currently comprising the Brent basket, has served as the benchmark for domestic oil since U.S. oil futures began trading on the [New York Mercantile Exchange](https://www.investopedia.com/terms/n/nymex.asp) in 1983. Today, about 80% of all oil market transactions are priced as Brent crude. The inclusion of oil from the world's largest economy and largest oil producer should make Brent a truer measure of global oil prices. ## How Oil Futures Work Oil futures contracts play a key role in global markets and are based on [cash market](https://www.investopedia.com/terms/c/cashmarket.asp) oil prices, meaning the price of physical oil being delivered to a certain destination. Oil futures allow suppliers and buyers of physical oil to [hedge](https://www.investopedia.com/terms/h/hedge.asp) the cost of their deliveries, protecting them from price fluctuations. For instance, a crude oil producer in June can sell a futures contract for September delivery and receive immediate payment. In September, if the cash market price for crude oil exceeds the futures contract price received three months earlier, the producer can sell its physical oil to an unrelated cash market buyer, such as a refinery. The producer then can use the proceeds of the cash market sale to repurchase the futures contract it sold, closing out that trade and pocketing the difference between the two. However, if the cash market price in September falls short of the futures price at which the producer sold in June, the producer simply can deliver the oil according to the terms of the futures contract. Buyers of crude oil can hedge their expected oil needs in a similar fashion. Meanwhile, financial traders with no intention of selling or acquiring physical oil participate in the futures market, [buying and selling contracts for a profit](https://www.investopedia.com/articles/active-trading/040615/introduction-trading-oil-futures.asp). In the process, they provide [liquidity](https://www.investopedia.com/articles/basics/07/liquidity.asp) to both physical oil and futures markets. ## Reasons for the Change Falling supplies of North Sea crude have made Brent prices less reflective of the entire global market. Daily trade volume of the five types of North Sea crude composing the Brent basket has fallen 18% in the past two-and-a-half years. Meanwhile, Texas oil makes up more of the global oil trade than ever before. Russia's invasion of Ukraine and subsequent U.S. and European sanctions on Russian oil have boosted demand for U.S. oil. U.S. crude oil exports averaged 3.6 million barrels per day in 2022, a record high and a 22% increase from 2021. WTI crude delivered against Brent contracts will take into account the extra cost of shipping crude to Rotterdam, Holland—the [delivery point](https://www.investopedia.com/terms/d/delivery-point.asp) for the contracts—from the U.S. Gulf Coast as opposed to the nearby North Sea. ## Unclear Price Impacts The impact of the change on both U.S. crude futures based on WTI and Brent futures remains unclear. Brent's global benchmark status means Brent futures typically trade at a premium to WTI futures, but that [spread](https://www.investopedia.com/terms/s/spread.asp) narrowed to its lowest level in a year, $2.76 per barrel for the nearest delivery date, in late April. Since then, the spread has widened again. The Brent contract for July delivery rose 2.4% Thursday to $74.32 per barrel, compared with a 2.3% gain to $70.10 for the comparable WTI contract. A narrowing spread usually discourages international buyers from considering WTI crude. Traders will eye whether its inclusion in the Brent price index alters that traditional relationship. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
For the first time, the world's most liquid crude oil futures contract is being priced with U.S. oil. Key Takeaways Intercontinental Exchange's (ICE) Brent crude oil contracts now will incorporate West Texas Intermediate (WTI) crude into its price calculations.It marks the first time Brent prices will consider oil from a non-North Sea source.The change reflects declining trading volumes involving North Sea oil and rising volumes involving WTI. Crude oil futures contracts based on the ICE Brent Index include prices for West Texas Intermediate (WTI) Midland crude as of June 1. The inclusion marks the first time Brent crude prices, considered the benchmark for global oil markets, will account for the price of oil produced outside the North Sea. WTI, a light sweet crude similar to the five types of North Sea crude currently comprising the Brent basket, has served as the benchmark for domestic oil since U.S. oil futures began trading on the New York Mercantile Exchange in 1983. Today, about 80% of all oil market transactions are priced as Brent crude. The inclusion of oil from the world's largest economy and largest oil producer should make Brent a truer measure of global oil prices. How Oil Futures Work Oil futures contracts play a key role in global markets and are based on cash market oil prices, meaning the price of physical oil being delivered to a certain destination. Oil futures allow suppliers and buyers of physical oil to hedge the cost of their deliveries, protecting them from price fluctuations. For instance, a crude oil producer in June can sell a futures contract for September delivery and receive immediate payment. In September, if the cash market price for crude oil exceeds the futures contract price received three months earlier, the producer can sell its physical oil to an unrelated cash market buyer, such as a refinery. The producer then can use the proceeds of the cash market sale to repurchase the futures contract it sold, closing out that trade and pocketing the difference between the two. However, if the cash market price in September falls short of the futures price at which the producer sold in June, the producer simply can deliver the oil according to the terms of the futures contract. Buyers of crude oil can hedge their expected oil needs in a similar fashion. Meanwhile, financial traders with no intention of selling or acquiring physical oil participate in the futures market, buying and selling contracts for a profit. In the process, they provide liquidity to both physical oil and futures markets. Reasons for the Change Falling supplies of North Sea crude have made Brent prices less reflective of the entire global market. Daily trade volume of the five types of North Sea crude composing the Brent basket has fallen 18% in the past two-and-a-half years. Meanwhile, Texas oil makes up more of the global oil trade than ever before. Russia's invasion of Ukraine and subsequent U.S. and European sanctions on Russian oil have boosted demand for U.S. oil. U.S. crude oil exports averaged 3.6 million barrels per day in 2022, a record high and a 22% increase from 2021. WTI crude delivered against Brent contracts will take into account the extra cost of shipping crude to Rotterdam, Holland—the delivery point for the contracts—from the U.S. Gulf Coast as opposed to the nearby North Sea. Unclear Price Impacts The impact of the change on both U.S. crude futures based on WTI and Brent futures remains unclear. Brent's global benchmark status means Brent futures typically trade at a premium to WTI futures, but that spread narrowed to its lowest level in a year, $2.76 per barrel for the nearest delivery date, in late April. Since then, the spread has widened again. The Brent contract for July delivery rose 2.4% Thursday to $74.32 per barrel, compared with a 2.3% gain to $70.10 for the comparable WTI contract. A narrowing spread usually discourages international buyers from considering WTI crude. Traders will eye whether its inclusion in the Brent price index alters that traditional relationship. Do you have a news tip for Investopedia reporters? Please email us at [email protected]
[ [ "Brent crude", "https://www.investopedia.com/terms/b/brentblend.asp" ], [ "WTI", "https://www.investopedia.com/terms/w/wti.asp" ], [ "New York Mercantile Exchange", "https://www.investopedia.com/terms/n/nymex.asp" ], [ "cash market", "https://www.investopedia.com/terms/c/cashmarket.asp" ], [ "hedge", "https://www.investopedia.com/terms/h/hedge.asp" ], [ "buying and selling contracts for a profit", "https://www.investopedia.com/articles/active-trading/040615/introduction-trading-oil-futures.asp" ], [ "liquidity", "https://www.investopedia.com/articles/basics/07/liquidity.asp" ], [ "delivery point", "https://www.investopedia.com/terms/d/delivery-point.asp" ], [ "spread", "https://www.investopedia.com/terms/s/spread.asp" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/ask/answers/051315/how-does-debt-affect-companys-beta.asp
How Does Debt Affect a Company's Beta?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> How debt affects a company's beta depends on which type of beta (a measure of risk) you mean. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt.asp">Debt</a> affects a company's levered beta in that increasing the total amount of a company's debt will increase the value of its levered beta. Debt does not affect a company's unlevered beta, which by its nature does not take debt or its effects into account. In this article, we'll review the difference between <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/050415/when-it-better-use-unlevered-beta-levered-beta.asp">levered and unlevered beta</a>, along with how a company's debt level impacts its beta. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A company's debt level impacts its beta, which is a calculation investors use to measure the volatility of a security or portfolio.</li><li>Because unlevered beta removes debt from the equation, the amount of debt a company has does not impact unlevered beta.</li><li>In contrast, the calculation for beta (also known as levered beta or equity beta) includes the impact debt has on the volatility of a company's stock.</li><li>If a company increases its debt to the point where its levered beta is greater than 1, the company's stock is more volatile than the market.</li><li>If a company decreases its debt to the point where its levered beta is less than 1, the company's stock is less volatile than the market.</li></ul></div></div></div> <span class="heading-toc" id="toc-levered-beta-vs-unlevered-beta"></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"> Levered Beta vs. Unlevered Beta </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beta.asp#investor-use-of-beta">Beta</a> is a calculation investors use to measure the volatility of a security or a portfolio compared to the market as a whole. Beta measures <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/systematicrisk.asp">systematic risk</a>, which is the risk inherent to the market or market segment. Investors use a stock's beta to estimate how much risk the stock might potentially add or subtract from a diversified portfolio. </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"> Beta is also referred to as levered beta or equity beta. When <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/102115/what-beta-and-how-calculate-beta-excel.asp">evaluating a company's risk</a>, both debt and equity are factored into the equation to calculate beta. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unleveredbeta.asp">Unlevered beta</a> removes debt from the equation in order to measure the risk due solely to a company's assets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-how-to-calculate-levered-beta"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> How to Calculate Levered Beta </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The equation for a company's levered beta is as follows: </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"> <span data-value="\text{Beta levered} = \text{Beta unlevered}*\left( 1 + \frac{\left( 1-\text{tax rate} \right )*\text{Debt}}{\text{Equity}} \right )"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mtext> Beta levered </mtext> <mo> = </mo> <mtext> Beta unlevered </mtext> <mo> ∗ </mo> <mrow> <mo> ( </mo> <mn> 1 </mn> <mo> + </mo> <mfrac> <mrow> <mrow> <mo> ( </mo> <mn> 1 </mn> <mo> − </mo> <mtext> tax rate </mtext> <mo> ) </mo> </mrow> <mo> ∗ </mo> <mtext> Debt </mtext> </mrow> <mrow> <mtext> Equity </mtext> </mrow> </mfrac> <mo> ) </mo> </mrow> </mrow> <annotation encoding="application/x-tex"> \text{Beta levered} = \text{Beta unlevered}*\left( 1 + \frac{\left( 1-\text{tax rate} \right )*\text{Debt}}{\text{Equity}} \right ) </annotation> </semantics> </math></span><span class="katex-html"><span class="strut"></span><span class="strut bottom"></span><span class="base"><span class="mord text"><span class="mord mathrm">Beta levered</span></span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">Beta unlevered</span></span><span class="mbin">∗</span><span class="minner"><span class="mopen delimcenter"><span class="delimsizing size2">(</span></span><span class="mord mathrm">1</span><span class="mbin">+</span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord text mtight"><span class="mord mathrm mtight">Equity</span></span></span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="minner mtight"><span class="mopen mtight delimcenter"><span class="mtight">(</span></span><span class="mord mathrm mtight">1</span><span class="mbin mtight">−</span><span class="mord text mtight"><span class="mord mathrm mtight">tax rate</span></span><span class="mclose mtight delimcenter"><span class="mtight">)</span></span></span><span class="mbin mtight">∗</span><span class="mord text mtight"><span class="mord mathrm mtight">Debt</span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mclose delimcenter"><span class="delimsizing size2">)</span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> If a company increases its debt to the point where its levered beta is greater than 1, the company's stock is more volatile than the market. If a company decreases its debt to the point where its levered beta is less than 1, the company's stock is less volatile than the market. If a company has no debt, its unlevered beta and levered beta would be equal. </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-high-debt-and-stock-volatility"></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"> High Debt and Stock Volatility </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Both unlevered beta and levered beta measure the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> of a stock in relation to movements in the overall market. However, only levered beta shows that the more debt a company has, the more volatile it will be in relation to market movements. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp">Leverage</a> is the amount of debt a company incurs to fund its assets and growth. For example, a company may borrow money to undertake a project, build a new manufacturing plant, or make an investment it hopes will increase its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rateofreturn.asp">rate of return</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> If a company has more debt than equity, then it's considered to be highly leveraged. If the company continues to use debt as a funding source, its levered beta could grow to be greater than 1, which would then indicate the company's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102714/how-do-you-calculate-beta-excel.asp">stock is more volatile</a> compared to the market. High volatility means the price of the stock could swing dramatically in either direction over a short time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Investors can also evaluate market volatility through the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/vix.asp">Volatility Index or VIX</a>, which the Chicago Board Options Exchange created to gauge the 30-day expected volatility of the U.S. stock market.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-subheading__text"> Evaluating Companies </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> While a company's levered beta shows the amount of volatility that can be associated with its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalstructure.asp">capital structure</a>, it is ineffective when comparing the volatility of two different companies. Since capital structures vary across different companies, it doesn't make sense to compare the levered betas of two companies. </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"> Instead, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102714/why-do-i-need-unlever-beta-when-making-wacc-calculations.asp">use the unlevered beta</a> to compare the betas of two different companies. If you want to understand the volatility of a specific company, including its capital structure, use the levered beta. </p></div>
How debt affects a company's beta depends on which type of beta (a measure of risk) you mean. [Debt](https://www.investopedia.com/terms/d/debt.asp) affects a company's levered beta in that increasing the total amount of a company's debt will increase the value of its levered beta. Debt does not affect a company's unlevered beta, which by its nature does not take debt or its effects into account. In this article, we'll review the difference between [levered and unlevered beta](https://www.investopedia.com/ask/answers/050415/when-it-better-use-unlevered-beta-levered-beta.asp), along with how a company's debt level impacts its beta. ### Key Takeaways * A company's debt level impacts its beta, which is a calculation investors use to measure the volatility of a security or portfolio. * Because unlevered beta removes debt from the equation, the amount of debt a company has does not impact unlevered beta. * In contrast, the calculation for beta (also known as levered beta or equity beta) includes the impact debt has on the volatility of a company's stock. * If a company increases its debt to the point where its levered beta is greater than 1, the company's stock is more volatile than the market. * If a company decreases its debt to the point where its levered beta is less than 1, the company's stock is less volatile than the market. ## Levered Beta vs. Unlevered Beta [Beta](https://www.investopedia.com/terms/b/beta.asp#investor-use-of-beta) is a calculation investors use to measure the volatility of a security or a portfolio compared to the market as a whole. Beta measures [systematic risk](https://www.investopedia.com/terms/s/systematicrisk.asp), which is the risk inherent to the market or market segment. Investors use a stock's beta to estimate how much risk the stock might potentially add or subtract from a diversified portfolio. Beta is also referred to as levered beta or equity beta. When [evaluating a company's risk](https://www.investopedia.com/articles/investing/102115/what-beta-and-how-calculate-beta-excel.asp), both debt and equity are factored into the equation to calculate beta. [Unlevered beta](https://www.investopedia.com/terms/u/unleveredbeta.asp) removes debt from the equation in order to measure the risk due solely to a company's assets. ## How to Calculate Levered Beta The equation for a company's levered beta is as follows:  Beta levered = Beta unlevered ∗ ( 1 + ( 1 − tax rate ) ∗ Debt Equity ) \text{Beta levered} = \text{Beta unlevered}\*\left( 1 + \frac{\left( 1-\text{tax rate} \right )\*\text{Debt}}{\text{Equity}} \right ) Beta levered=Beta unlevered∗(1+Equity(1−tax rate)∗Debt​) If a company increases its debt to the point where its levered beta is greater than 1, the company's stock is more volatile than the market. If a company decreases its debt to the point where its levered beta is less than 1, the company's stock is less volatile than the market. If a company has no debt, its unlevered beta and levered beta would be equal. ## High Debt and Stock Volatility Both unlevered beta and levered beta measure the [volatility](https://www.investopedia.com/terms/v/volatility.asp) of a stock in relation to movements in the overall market. However, only levered beta shows that the more debt a company has, the more volatile it will be in relation to market movements. [Leverage](https://www.investopedia.com/terms/l/leverage.asp) is the amount of debt a company incurs to fund its assets and growth. For example, a company may borrow money to undertake a project, build a new manufacturing plant, or make an investment it hopes will increase its [rate of return](https://www.investopedia.com/terms/r/rateofreturn.asp). If a company has more debt than equity, then it's considered to be highly leveraged. If the company continues to use debt as a funding source, its levered beta could grow to be greater than 1, which would then indicate the company's [stock is more volatile](https://www.investopedia.com/ask/answers/102714/how-do-you-calculate-beta-excel.asp) compared to the market. High volatility means the price of the stock could swing dramatically in either direction over a short time. ### Investors can also evaluate market volatility through the [Volatility Index or VIX](https://www.investopedia.com/terms/v/vix.asp), which the Chicago Board Options Exchange created to gauge the 30-day expected volatility of the U.S. stock market. ### Evaluating Companies While a company's levered beta shows the amount of volatility that can be associated with its [capital structure](https://www.investopedia.com/terms/c/capitalstructure.asp), it is ineffective when comparing the volatility of two different companies. Since capital structures vary across different companies, it doesn't make sense to compare the levered betas of two companies. Instead, [use the unlevered beta](https://www.investopedia.com/ask/answers/102714/why-do-i-need-unlever-beta-when-making-wacc-calculations.asp) to compare the betas of two different companies. If you want to understand the volatility of a specific company, including its capital structure, use the levered beta.
How debt affects a company's beta depends on which type of beta (a measure of risk) you mean. Debt affects a company's levered beta in that increasing the total amount of a company's debt will increase the value of its levered beta. Debt does not affect a company's unlevered beta, which by its nature does not take debt or its effects into account. In this article, we'll review the difference between levered and unlevered beta, along with how a company's debt level impacts its beta. Key Takeaways A company's debt level impacts its beta, which is a calculation investors use to measure the volatility of a security or portfolio.Because unlevered beta removes debt from the equation, the amount of debt a company has does not impact unlevered beta.In contrast, the calculation for beta (also known as levered beta or equity beta) includes the impact debt has on the volatility of a company's stock.If a company increases its debt to the point where its levered beta is greater than 1, the company's stock is more volatile than the market.If a company decreases its debt to the point where its levered beta is less than 1, the company's stock is less volatile than the market. Levered Beta vs. Unlevered Beta Beta is a calculation investors use to measure the volatility of a security or a portfolio compared to the market as a whole. Beta measures systematic risk, which is the risk inherent to the market or market segment. Investors use a stock's beta to estimate how much risk the stock might potentially add or subtract from a diversified portfolio. Beta is also referred to as levered beta or equity beta. When evaluating a company's risk, both debt and equity are factored into the equation to calculate beta. Unlevered beta removes debt from the equation in order to measure the risk due solely to a company's assets. How to Calculate Levered Beta The equation for a company's levered beta is as follows:  Beta levered = Beta unlevered ∗ ( 1 + ( 1 − tax rate ) ∗ Debt Equity ) \text{Beta levered} = \text{Beta unlevered}*\left( 1 + \frac{\left( 1-\text{tax rate} \right )*\text{Debt}}{\text{Equity}} \right ) Beta levered=Beta unlevered∗(1+Equity(1−tax rate)∗Debt​) If a company increases its debt to the point where its levered beta is greater than 1, the company's stock is more volatile than the market. If a company decreases its debt to the point where its levered beta is less than 1, the company's stock is less volatile than the market. If a company has no debt, its unlevered beta and levered beta would be equal. High Debt and Stock Volatility Both unlevered beta and levered beta measure the volatility of a stock in relation to movements in the overall market. However, only levered beta shows that the more debt a company has, the more volatile it will be in relation to market movements. Leverage is the amount of debt a company incurs to fund its assets and growth. For example, a company may borrow money to undertake a project, build a new manufacturing plant, or make an investment it hopes will increase its rate of return. If a company has more debt than equity, then it's considered to be highly leveraged. If the company continues to use debt as a funding source, its levered beta could grow to be greater than 1, which would then indicate the company's stock is more volatile compared to the market. High volatility means the price of the stock could swing dramatically in either direction over a short time. Investors can also evaluate market volatility through the Volatility Index or VIX, which the Chicago Board Options Exchange created to gauge the 30-day expected volatility of the U.S. stock market. Evaluating Companies While a company's levered beta shows the amount of volatility that can be associated with its capital structure, it is ineffective when comparing the volatility of two different companies. Since capital structures vary across different companies, it doesn't make sense to compare the levered betas of two companies. Instead, use the unlevered beta to compare the betas of two different companies. If you want to understand the volatility of a specific company, including its capital structure, use the levered beta.
[ [ "Debt", "https://www.investopedia.com/terms/d/debt.asp" ], [ "levered and unlevered beta", "https://www.investopedia.com/ask/answers/050415/when-it-better-use-unlevered-beta-levered-beta.asp" ], [ "Beta", "https://www.investopedia.com/terms/b/beta.asp#investor-use-of-beta" ], [ "systematic risk", "https://www.investopedia.com/terms/s/systematicrisk.asp" ], [ "evaluating a company's risk", "https://www.investopedia.com/articles/investing/102115/what-beta-and-how-calculate-beta-excel.asp" ], [ "Unlevered beta", "https://www.investopedia.com/terms/u/unleveredbeta.asp" ], [ "volatility", "https://www.investopedia.com/terms/v/volatility.asp" ], [ "Leverage", "https://www.investopedia.com/terms/l/leverage.asp" ], [ "rate of return", "https://www.investopedia.com/terms/r/rateofreturn.asp" ], [ "stock is more volatile", "https://www.investopedia.com/ask/answers/102714/how-do-you-calculate-beta-excel.asp" ], [ "Volatility Index or VIX", "https://www.investopedia.com/terms/v/vix.asp" ], [ "capital structure", "https://www.investopedia.com/terms/c/capitalstructure.asp" ], [ "use the unlevered beta", "https://www.investopedia.com/ask/answers/102714/why-do-i-need-unlever-beta-when-making-wacc-calculations.asp" ] ]
https://www.investopedia.com/best-identity-theft-protection-services-5025069
Best Identity Theft Protection Services
<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"> Protecting your identity can seem complicated in our increasingly technological world, but thankfully, the best identity theft protection services are here to help. There are two types of services that aim to combat fraudulent activity: prevention and recovery. Beyond these categories, there are many features and options to consider when deciding how to best protect your information from identity theft. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-1"> To help narrow down the choices, we researched a dozen companies. We evaluated their reputations, their length of time in the industry, and their customer service offerings. We also considered plan options, how their alerts functioned, and other features. These identity theft protection services presented here offer different types of protection, a variety of plans to choose from, and features like automatic alerts. </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 Identity Theft Protection Services of 2024 </h2> <ul class="summary-list__content"> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best Overall:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://identityguard.y8uw.net/c/2104074/635383/8563" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Identity Guard</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best Guarantee:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="sid=${REQUEST_ID}-${DOC_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://www.tkqlhce.com/click-100173779-13851712" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> LifeLock</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 Child Protection Features:</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.idwatchdog.com/home/" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> ID Watchdog</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 Mobile Attack Protection:</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://secure.identityforce.com/sales_landing?offer=investopediaus&amp;ASID=INVESTOPEDIA&amp;SSAID=5025069&amp;pushtoplans=true" rel="nofollow noopener sponsored nocaes" target="_blank"> IdentityForce</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 Pricing:</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.completeid.com/" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Complete ID</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 Improving Your Credit Score:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="afftrack=${DOC_ID}-${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://shareasale.com/r.cfm?b=1309044&amp;u=2366409&amp;m=41089&amp;urllink=" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> myFICO</a><!-- end: summary-list__item-top-pick --> </span> </li> </ul> </div><!-- end: comp js-toc-appear product-roundup-content__summary-list summary-list--finance summary-list--roundup summary-list --> <div class="comp mntl-sc-page--commerce post-intro prm-sc-page mntl-sc-page mntl-block" id="post-intro_1-0"></div><!-- end: comp mntl-sc-page--commerce post-intro prm-sc-page mntl-sc-page mntl-block --> </div> <div class="article-body"> <div class="loc article-left-nav article-body__left-nav product-roundup__left-nav js-sticky-container"> <div class="comp sticky-toc-widget sticky-toc--finance product-roundup__toc sticky-toc--finance-roundup sticky-toc--roundup sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="product-roundup__toc_1-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="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 Identity Theft Protection Services</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 Identity Theft Protection Services" 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 Identity Theft Protection Services</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-Identity Guard" 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-Identity Guard" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-overall-identity-guard" rel="nocaes"> <span class="link__wrapper">Identity Guard</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-LifeLock" 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-LifeLock" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-guarantee-lifelock" rel="nocaes"> <span class="link__wrapper">LifeLock</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-ID Watchdog" 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-ID Watchdog" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-child-protection-features-id-watchdog" rel="nocaes"> <span class="link__wrapper">ID Watchdog</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-IdentityForce" 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-IdentityForce" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-mobile-attack-protection-identityforce" rel="nocaes"> <span class="link__wrapper">IdentityForce</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item nested-toc-item--additional mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item nested-toc-item--additional mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Complete ID" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_2-0-4"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Complete ID" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-pricing-complete-id" rel="nocaes"> <span class="link__wrapper">Complete ID</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item nested-toc-item--additional mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item nested-toc-item--additional mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-myFICO" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__list-item_2-0-5"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-myFICO" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-improving-your-credit-score-myfico" rel="nocaes"> <span class="link__wrapper">myFICO</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 (3)</li><!-- end: comp toc-items__chop mntl-text-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-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-Compare Providers" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-compare-the-best-identity-theft-protection-services" id="mntl-toc__list-item-link_1-0-1" rel="nocaes"><span class="link__wrapper">Compare Providers</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-FAQ" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-faq-5050121b-801b-4f30-82f9-d915b3cbcc3b" 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-overall-identity-guard"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best Overall</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Identity Guard</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-3x2 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: 547px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Identity Guard" 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/WEhwQnYH7wG3XAvaeZt-iFSXNa8=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/identity-guard-8ac404306f534606b85eb233dff85b5b.png" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Identity Guard" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/WEhwQnYH7wG3XAvaeZt-iFSXNa8=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/identity-guard-8ac404306f534606b85eb233dff85b5b.png" 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>Identity Guard</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-3x2 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-1"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="with Identity Guard" data-retailer-type="other" data-tracking-container="true" href="https://identityguard.y8uw.net/c/2104074/635383/8563" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-2"> <li><strong>Pricing:</strong> $7.50 to $25 per month</li><li><strong>Types of Protection Offered:</strong> Personal, financial, online, and child </li><li><strong>24/7 Customer Service:</strong> No </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-4"> Identity Guard earned our best overall spot because of its reputation and unique <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.ibm.com/watson">IBM® Watson™</a> partnership. The company uses artificial intelligence technology for monitoring services. This allows for faster <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fraud.asp">fraud</a> alerts, which may allow you to minimize identity theft damage.<br/> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-6"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Fast fraud alerts</p></li> <li><p>IBM® Watson™ artificial intelligence</p></li> <li><p>Two plans offer monitoring for all three <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditbureau.asp">credit bureaus</a></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>More costly than competitors</p></li> <li><p>Doesn’t offer 24/7 customer service</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-8"> Identity Guard, owned by Aura, is an industry pioneer with over 47 million customers. The Burlington, Massachusetts-based company has been in business since 1996 and uses state-of-the-art technology to protect customers. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-9"> Identity Guard protects customers by combining traditional scanning with IBM® Watson™ artificial intelligence. The company sends prompt alerts via their mobile app or email when it detects fraudulent activity, and Identity Guard’s U.S.-based support team is available by phone six days a week. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-10"> Plans for individuals include Value ($7.50 per month), Total ($16.67 per month), and Ultra ($25.00 per month). Family plans range from $12.50 to $33.33 per family. The Ultra plan provides extra value with premium credit protection. This includes a monthly TransUnion credit score and monitoring of all three credit bureaus.    </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="4"> <span class="tabbed-sc-block__text">Plan Services</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>$1 million identity theft insurance through its subsidiaries or affiliates (American International Group, Inc.)</li> <li>Monitoring for all three credit bureaus </li> <li>Annual <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit reports</a> from all three bureaus and monthly TransUnion credit score (for educational purposes only)</li> <li>Risk management and social media reporting</li> <li>Notifications for data breaches</li> <li>Dark web monitoring</li> <li>Safe browsing tool</li> <li>Bank, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit card</a>, and high-risk transaction monitoring</li> <li>401(k) and investment account monitoring</li> <li>Criminal and sex offender monitoring</li> <li>USPS address change and home title monitoring</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-guarantee-lifelock"></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 Guarantee</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> LifeLock</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="Lifelock by norton" 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/88KT3_ZFDjnPWWr2GCNZQxQWsjk=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/LifeLockbyNorton-Horizontal-Light-RGB-Web2-1f571435c61f465bbfb8cd040854eb6d.png" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-1" width="1500"/> <noscript> <img alt="Lifelock by norton" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/88KT3_ZFDjnPWWr2GCNZQxQWsjk=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/LifeLockbyNorton-Horizontal-Light-RGB-Web2-1f571435c61f465bbfb8cd040854eb6d.png" width="1500"/> </noscript> </div> </div> </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"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-14"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-1"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="sid=${REQUEST_ID}-${DOC_ID}" data-click-action="OffPageClick - External" data-retailer-caption="with LifeLock" data-retailer-type="other" data-tracking-container="true" href="https://www.tkqlhce.com/click-100173779-13851712" id="button_1-0-1" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-15"> <li><strong>Pricing:</strong> $8.99 to $23.99 per month (raises after first year) </li><li><strong>Types of Protection Offered:</strong> Personal and financial </li><li><strong>24/7 Customer Service:</strong> Yes </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-17"> LifeLock’s 60-day guarantee stands out as the best among other identity theft protection services we reviewed. The company is more expensive than competitors, but the guarantee may offer a sense of trust to discerning customers. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-19"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>24/7 customer service</p></li> <li><p>Multiple plan options</p></li> <li><p>60-day money-back guarantee for annual plans</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>More costly than competitors</p></li> <li><p>Price increase after the first year</p></li> <li><p>Only one plan offers monitoring for all three credit bureaus.</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <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_3-0-21"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>LifeLock's reputation is far from perfect. In 2015, the company had to pay the Federal Trade Commission $100 million for failing to follow a 2010 court order. LifeLock violated the order to stop deceptive advertising and secure consumers' personal information, but the company has since adjusted its practices to comply.<span class="ql-inline-citation" data-cite="4"></span></p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-warning mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-22"> LifeLock is an industry leader with nearly 50 million customers, according to the company's website. Founded in 2005, the Tempe, Arizona-based company offers a full suite of <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> services.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-23"> LifeLock uses Norton antivirus software to block cyber threats. The company also monitors identity threats and sends alerts by phone, text, email, or mobile app. LifeLock has a U.S.-based team that works to fix identity theft issues and may reimburse you $25,000 to $1 million for stolen funds. The company offers 24/7 member support online, via phone, chat, or LifeLock's mobile app, all with a 60-day money-back guarantee. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-24"> Plans include Standard ($8.99 per month), Advantage ($17.99 per month), and Ultimate Plus ($23.99 per month). Prices increase after the first year, ranging from $11.99 to $34.99 for the same plans. It also offers three plans that include Norton 360, which cost between $8.26 and $24.99 per month. </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="4"> <span class="tabbed-sc-block__text">Plan Services</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_3-0-26"> <li>$1 million identity theft insurance</li> <li>Identity and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssn.asp">Social Security number</a> alerts</li> <li>Credit monitoring for one to three bureaus</li> <li>Security for five to unlimited devices</li> <li>VPN for five to unlimited devices</li> <li>Bank and credit card alerts</li> <li>Alerts for crimes in your name</li> <li>Annual credit reports from all three bureaus plus credit scores</li> <li>Alerts for 401(k) and investment activity</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_1-0-2"> <span class="heading-toc" id="toc-best-for-child-protection-features-id-watchdog"></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 Child Protection Features</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> ID Watchdog</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_3-0-27" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="ID Watchdog" 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/hq15JV2XM_Zv7jdBc54ZVRCJN0s=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/id-watchdog-34f1ea20a7b04a77a4a57cf77f6e054f.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-2" width="1500"/> <noscript> <img alt="ID Watchdog" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/hq15JV2XM_Zv7jdBc54ZVRCJN0s=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/id-watchdog-34f1ea20a7b04a77a4a57cf77f6e054f.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>ID Watchdog</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"> <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_3-0-28"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-2"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-click-action="OffPageClick - External" data-retailer-caption="with ID Watchdog" data-retailer-type="other" data-tracking-container="true" href="https://www.idwatchdog.com/home/" id="button_1-0-2" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-29"> <li><strong>Pricing:</strong> $14.95 to $34.95 per month </li><li><strong>Types of Protection Offered:</strong> Personal, financial, online, and child </li><li><strong>24/7 Customer Service:</strong> Yes </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-31"> In 2017, over 1 million children were victims of identity theft.<span class="ql-inline-citation" data-cite="16"></span> ID Watchdog works to combat this by offering more features to protect minors than any other provider, making them our top pick in this review for child protection. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-33"> <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>24/7 customer service</p></li> <li><p>Child protection features</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>Fewer regular features than competitors</p></li> <li><p>Only one plan offers monitoring for all three credit bureaus.</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-35"> Owned by Equifax, ID Watchdog is a well-established company for identity theft protection services. The Denver, Colorado-based company has been around since 2005 and has earned recognition through Javelin Strategy &amp; Research’s annual Identity Protection Service Provider Scorecard.<span class="ql-inline-citation" data-cite="6"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-36"> The Platinum plan offers a few premium features. These include credit monitoring for three bureaus, Equifax VantageScore tracking, financial accounts monitoring, and $1 million stolen fund reimbursement for retirement and health savings accounts.  </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"> ID Watchdog sends alerts through the company’s mobile app. You can reach customer service 24/7 through the app or by phone. ID Watchdog offers special features for families, including child <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-lock-your-credit-5075538">credit lock</a>, social media alerts to identify cyberbullying, registered sex offender reporting, and more.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-38"> Plans for individuals include ID Watchdog Plus ($14.95 per month) and ID Watchdog Platinum ($21.95 per month). Both are also available as family plans, ranging from $23.95 to $34.95 per month. </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="4"> <span class="tabbed-sc-block__text">Plan Services</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_3-0-40"> <li>$1 million identity theft insurance</li><li>Dark web monitoring</li><li>High-risk transactions monitoring</li><li>Subprime loan monitoring</li><li>Identity profile report</li><li>Reporting for registered sex offenders</li><li>Public records and USPS change of address monitoring</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-mobile-attack-protection-identityforce"></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 Mobile Attack Protection</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> IdentityForce</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-3"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-3"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-3"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-2x1 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0-41" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="IdentityForce TransUnion" 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/Bh30b6wJQ-7V2Gn_efaK7FTNl9Y=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Identityforce-d49e2992c7ad42d09d21890058b69c42.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-3" width="1500"/> <noscript> <img alt="IdentityForce TransUnion" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/Bh30b6wJQ-7V2Gn_efaK7FTNl9Y=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Identityforce-d49e2992c7ad42d09d21890058b69c42.jpg" width="1500"/> </noscript> </div> </div> </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"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-42"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-3"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-click-action="OffPageClick - External" data-retailer-caption="with IdentityForce" data-retailer-type="skimlinks" data-tracking-container="true" href="https://secure.identityforce.com/sales_landing?offer=investopediaus&amp;ASID=INVESTOPEDIA&amp;SSAID=5025069&amp;pushtoplans=true" id="button_1-0-3" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-43"> <li><strong>Pricing:</strong> $17.99 to $35.90 per month </li><li><strong>Types of Protection Offered:</strong> Personal, financial, online, and child </li><li><strong>24/7 Customer Service:</strong> Yes </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-45"> IdentityForce announced Mobile Attack Control in late 2019, which included a fresh interface for the company’s mobile app. These features help make IdentityForce your best choice as more consumers become vulnerable to mobile cyber attacks.   </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-47"> <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>24/7 customer service</p></li> <li><p>Mobile attack protection</p></li> <li><p>Free 30-day trial</p></li> <li><p>Competitive pricing</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>Limited plan options</p></li> <li><p>Less transparency on family plans</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-49"> IdentityForce, a company owned by Sontiq, has been in business since 1978. The Framingham, Massachusetts-based company has received multiple awards, including recognition in Javelin Strategy &amp; Research’s 2019 Identity Protection Service Provider Awards.<span class="ql-inline-citation" data-cite="6"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-50"> The UltraSecure+Credit plan is a great premium option<strong> </strong>with extensive credit monitoring features. These include monitoring and scores for all three credit bureaus, a credit score tracker, and a credit simulator. One feature that stands out is IdentityForce’s Mobile Attack Control, which offers alerts for various mobile threats. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-51"> IdentityForce protects customers by sending alerts via text, mobile app alerts, or email. The company offers access by phone (877-694-3367) to Certified Protection Experts, who can restore your identity for you 24/7. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-52"> Plans for individuals include UltraSecure ($17.99 per month or $179.90 per year) and UltraSecure+Credit ($24.90 per month or $249.00 per year). Both are offered for families as well, ranging from $23.99 to $35.90 per month (or $239.90 to $359.00 per year). </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="4"> <span class="tabbed-sc-block__text">Plan Services</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_3-0-54"> <li>$1 million identity theft insurance</li><li>Advanced fraud monitoring</li><li>Social media monitoring</li><li>Dark web monitoring</li><li>Online computer protection tools</li><li>Bank and credit card monitoring</li><li>Investment account alerts</li><li>Court records and sex offender monitoring</li><li>Change of address monitoring</li><li>Mobile attack control</li><li>Fully managed restoration</li><li>Junk mail opt-out</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_1-0-4"> <span class="heading-toc" id="toc-best-for-pricing-complete-id"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0-4"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best for Pricing</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Complete ID</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-4"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-4"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-4"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-2x1 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0-55" style="--imgWidth: 115px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Complete ID" 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/E49XYX_B30GQyjst-PRWhRvnVKU=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/complete-id-00d8ecaae8a443c3b1dbe5bf89ec4bc1.png" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-4" width="1500"/> <noscript> <img alt="Complete ID" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/E49XYX_B30GQyjst-PRWhRvnVKU=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/complete-id-00d8ecaae8a443c3b1dbe5bf89ec4bc1.png" 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>Complete ID</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-2x1 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-56"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-4"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-click-action="OffPageClick - External" data-retailer-caption="with Complete ID" data-retailer-type="other" data-tracking-container="true" href="https://www.completeid.com/" id="button_1-0-4" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-57"> <li><strong>Pricing:</strong> $8.99 to $13.99 per month</li><li><strong>Types of Protection Offered:</strong> Personal, financial, and online </li><li><strong>24/7 Customer Service:</strong> Yes </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-59"> If you’re already a Costco customer, Complete ID offers an unbeatable price. Complete ID's protection plans, which include monitoring for all three credit bureaus and a dedicated representative, are the best price option on our list. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-61"> <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>24/7 customer service</p></li> <li><p>Monitoring for all three credit bureaus</p></li> <li><p>Competitive pricing</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Must be a Costco member</p></li> <li><p>Fewer features than some competitors</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-63"> Complete ID, a company owned by Experian, is one of the country’s biggest identity theft protection providers. You must be a Costco member to sign up for Complete ID. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-64"> Complete ID offers eight types of alerts through the company’s mobile app. The company’s U.S.-based support team is available 24/7, and you can work with a dedicated restoration specialist. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-65"> Plans are available for Executive members ($8.99 per month) and Business and Gold Star members ($13.99 per month). Users can also add protection for up to five children for $2.99 to $3.99 per month. </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="4"> <span class="tabbed-sc-block__text">Plan Services</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_3-0-67"> <li>$1 million identity theft insurance</li><li>Monitoring for all three credit bureaus</li><li>Credit alerts</li><li>Dark web surveillance</li><li>Financial account takeover protection</li><li>Non-credit identity monitoring</li><li>Social Security number monitoring</li><li>Payday loan monitoring</li><li>Monitoring for criminal records</li><li>Designated credit restoration specialist</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_1-0-5"> <span class="heading-toc" id="toc-best-for-improving-your-credit-score-myfico"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0-5"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best for Improving Your Credit Score</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> myFICO</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-5"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-5"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-5"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-2x1 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0-68" style="--imgWidth: 447px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="myFICO" 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/h_90J2LEnUrk2O3CYVGNdOjicrg=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/myFICO-cf715fd5b8eb4d23b4ced9888ea53693.png" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-5" width="1500"/> <noscript> <img alt="myFICO" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/h_90J2LEnUrk2O3CYVGNdOjicrg=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/myFICO-cf715fd5b8eb4d23b4ced9888ea53693.png" 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>myFICO</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-2x1 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-69"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-5"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="afftrack=${DOC_ID}-${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="with myFICO" data-retailer-type="other" data-tracking-container="true" href="https://shareasale.com/r.cfm?b=1309044&amp;u=2366409&amp;m=41089&amp;urllink=" id="button_1-0-5" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Sign Up Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-70"> <li><strong>Pricing:</strong> $19.95 to $39.95 per month </li><li><strong>Types of Protection Offered:</strong> Financial </li><li><strong>24/7 Customer Service:</strong> Yes </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-72"> Because FICO is the country’s leading scoring model, it’s critical to stay on top of your FICO scores. myFICO offers credit simulator tools to see what may be hurting your FICO scores—and how to make improvements. Such focus and expertise make myFICO best in our review for improving your credit score. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-74"> <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>24/7 customer service</p></li> <li><p>Transparent summary of benefits</p></li> <li><p>Extensive credit reporting</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>More costly than competitors</p></li> <li><p>Fewer features compared to competitors</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-76"> As the consumer division of FICO, myFICO offers a service that focuses on credit reporting. Most lenders, including 75% of mortgage loan originators, use different versions of your FICO scores to make decisions; myFICO offers access to all 28 versions. If you’re planning to make a big purchase, like a new car or a home, myFICO allows you to monitor the exact score 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_3-0-77"> The Premier plan offers coverage for all three credit bureaus and monthly updates. Access to monthly reports from all three credit bureaus (rather than just the one per year you're entitled to because of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/facta.asp">FACTA</a>) offers a complete, ongoing picture of your credit profile. This makes it easier to keep an eye on all activity, including fraud or other errors on your reports.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-78"> The company’s products and education tools help you focus on improving your FICO score over time. myFICO offers alerts by phone, mobile app, or email. If an issue comes up, the company’s support team is available six days a week to help restore your identity. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-79"> Plans include Basic ($19.95 per month), Advanced ($29.95 per month), and Premier ($39.95 per month). </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="4"> <span class="tabbed-sc-block__text">Plan Services</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_3-0-81"> <li>$1 million identity theft insurance</li><li>One- or three-bureau coverage</li><li>Updates every month or every three months</li><li>FICO scores</li><li>Scores for mortgages, car loans, and more</li><li>Credit reports</li><li>Credit score and monitoring</li><li>Identity monitoring and restoration</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"> Identity Guard is our best overall pick for identity theft protection services thanks to its reputation, technology for monitoring tools, fraud alerts, and affordable pricing. Customers can get a plan as low as $7.50 per month, and Identity Guard monitors their personal and financial information with fast alerts to minimize damage. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-compare-the-best-identity-theft-protection-services"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-2"> <span class="mntl-sc-block-heading__text"> Compare the Best Identity Theft Protection Services </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="PRM Roundup | Table Block" id="mntl-sc-block_4-0-3"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>Company</b></td> <td><b>Pricing</b></td> <td><b>Types of Protection Offered</b></td> <td><b>24/7 Customer Service</b></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://identityguard.y8uw.net/c/2104074/635383/8563" rel="sponsored nofollow">Identity Guard</a> <br/><b>Best Overall</b></td> <td>$7.50 to $25 per month</td> <td>Personal, financial, online, and child</td> <td>No</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sid=${REQUEST_ID}-${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.tkqlhce.com/click-100173779-13851712" rel="sponsored nofollow">LifeLock</a> <br/><b>Best Guarantee</b></td> <td>$8.99 to $23.99 per month (raises after first year)</td> <td>Personal and financial</td> <td>Yes</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.idwatchdog.com/home/" rel="sponsored nofollow">ID Watchdog</a> <br/><b>Best for Child Protection Features</b></td> <td>$14.95 to $34.95 per month</td> <td>Personal, financial, online, and child</td> <td>Yes</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://secure.identityforce.com/sales_landing?offer=investopediaus&amp;ASID=INVESTOPEDIA&amp;SSAID=5025069&amp;pushtoplans=true" rel="sponsored nofollow">IdentityForce</a> <br/><b>Best for Mobile Attack Protection</b></td> <td>$17.99 to $35.90 per month</td> <td>Personal, financial, online, and child</td> <td>Yes</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.completeid.com/" rel="sponsored nofollow">Complete ID</a> <br/><b>Best for Pricing</b></td> <td>$8.99 to $13.99 per month</td> <td>Personal, financial, and online</td> <td>Yes</td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="afftrack=${DOC_ID}-${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://shareasale.com/r.cfm?b=1309044&amp;u=2366409&amp;m=41089&amp;urllink=" rel="sponsored nofollow">myFICO</a> <br/><b>Best for Improving Your Credit Score</b></td> <td>$19.95 to $39.95 per month</td> <td>Financial</td> <td>Yes</td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <div class="comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block" data-click-action="OnPageClick - FAQ Header" data-tracking-container="true" data-tracking-id="PRM Roundup | FAQ" id="mntl-sc-block_4-0-4"> <span class="heading-toc" id="toc-faq-5050121b-801b-4f30-82f9-d915b3cbcc3b"></span> <h2 class="comp mntl-sc-block-faq__title mntl-text-block" id="mntl-sc-block-faq__title_1-0"> Frequently Asked Questions</h2><!-- end: comp mntl-sc-block-faq__title mntl-text-block --> <ul class="comp mntl-sc-block-faq__content mntl-accordion" id="mntl-sc-block-faq__content_1-0"> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-0" tabindex="-1"> <h3 class="accordion__title">What Is Identity Theft Protection?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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>Companies offer two types of identity theft protection services: monitoring and recovery. Monitoring services watch for identity thieves and fraudulent activity, but no company can guarantee identity theft won't happen. If someone steals your identity, recovery services help you deal with its impact on your life.</p><p>Most companies also offer identity theft insurance, which may help pay for the costs of reclaiming your identity.<span class="ql-inline-citation" data-cite="11"></span> </p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-1" tabindex="-1"> <h3 class="accordion__title">Are Identity Theft Protection Services Worth It?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-1"> <div class="faq-accordion__item-answer"> <p>Identity theft protection services may be worthwhile if you have limited time. But many companies offer features you can access for free—like annual credit reports or the ability to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-freeze.asp">freeze your credit</a>. You may even recover your identity on your own with free resources from <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.identitytheft.gov/">IdentityTheft.gov</a>. If it feels like too much to tackle on your own, one of these services <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-monitoring-services-4846982">could be worth it</a>.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-2" tabindex="-1"> <h3 class="accordion__title">Do Credit Cards Offer Identity Theft Protection?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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 banks offer cardholders free or paid access to identity theft protection services. For example, Mastercard has a free program that includes guidance on preventing and resolving identity theft.<span class="ql-inline-citation" data-cite="12"></span></p><p>Some of the company's premium cards—which require an annual fee—offer more comprehensive, hands-off resolution services. The premium service is similar to what you may see from other paid identity theft protection services.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-3" tabindex="-1"> <h3 class="accordion__title">What Do Identity Theft Protection Services Cost?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-3"> <div class="faq-accordion__item-answer"> <p>Based on our research, the pricing for identity theft protection services can be anywhere from $8.99 to $39.95 per month, depending on the plan. Complete ID also requires a Costco membership, which costs from $60 to $120 per year.<span class="ql-inline-citation" data-cite="14"></span></p><p>These plans offer a range of identity theft protection services, including insurance, monitoring, resolution, and more. Basic plans typically include $1 million of identity theft insurance and monitoring of at least one credit bureau.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> </ul><!-- end: comp mntl-sc-block-faq__content mntl-accordion --> <!--end accordion --> </div><!-- end: comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-5"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-6"> To find the best identity theft protection services, we looked at each company’s reputation and history in the identity theft protection business. We compared them based on plan options, special features, and how their monitoring alerts work. We also reviewed each provider’s claims process and customer service availability. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp mntl-sc-page--commerce structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block --> </div> <figure class="comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image" id="primary-image--roundup_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:66.8%;"> <img alt="Digital fingerprint scanning verification process for identity theft protection" class="primary-image__image mntl-primary-image--blurry" height="1003" onload="(function(e){e.classList.add('loaded')})(this)" sizes="750px" src="https://www.investopedia.com/thmb/HUCtGjgE7mtMCTH8Hk5JzvCCNvc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-identity-theft-protection-services-5025069-069629f59c6a43f892243fef44458f5a.jpg" srcset="https://www.investopedia.com/thmb/dfEn1RypwaUgn-1IWe0KNgA9BDU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-identity-theft-protection-services-5025069-069629f59c6a43f892243fef44458f5a.jpg 750w" style="--blurry: url('data:image/gif;charset=utf-8;base64,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')" width="1500"/> <noscript> <img alt="Digital fingerprint scanning verification process for identity theft protection" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="1003" sizes="750px" src="https://www.investopedia.com/thmb/HUCtGjgE7mtMCTH8Hk5JzvCCNvc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-identity-theft-protection-services-5025069-069629f59c6a43f892243fef44458f5a.jpg" srcset="https://www.investopedia.com/thmb/dfEn1RypwaUgn-1IWe0KNgA9BDU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-identity-theft-protection-services-5025069-069629f59c6a43f892243fef44458f5a.jpg 750w" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_1-0"> <span class="figure-article-caption-owner"><p>Andriy Onufriyenko / Getty Images</p></span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image --> </div> </div> </div><!-- end: comp product-roundup-content--finance product-roundup--base product-roundup--base --> </div> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-16"><p>Javelin Strategy &amp; Research. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.javelinstrategy.com/coverage-area/2018-child-identity-fraud-study">2018 Child Identity Fraud Study</a>."</p></li> <li class="mntl-sources__source" id="citation-6"><p>Javelin Strategy &amp; Research. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.javelinstrategy.com/coverage-area/2019-identity-protection-service-provider-scorecard">2019 Identity Protection Service Scorecard</a>."</p></li> </ol> </div> </div></div> <div class="comp prm-recirc related-recirc-section--articles mntl-block" data-tracking-container="true" id="prm-recirc_1-0"><section class="comp related-articles" data-tracking-container="true" id="related-articles_1-0"> <span class="related-articles__header type--camel"> Related Articles </span> <div class="loc recirc-content"><div class="comp related-articles__card-list-1 card-list--related-articles mntl-document-card-list mntl-card-list mntl-block" data-chunk="36" id="related-articles__card-list-1_1-0"><a class="comp mntl-card-list-items mntl-document-card mntl-card related-articles__link card" data-cta="Read Now ▸" data-doc-id="4843898" data-ordinal="1" data-tax-levels="" 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Protecting your identity can seem complicated in our increasingly technological world, but thankfully, the best identity theft protection services are here to help. There are two types of services that aim to combat fraudulent activity: prevention and recovery. Beyond these categories, there are many features and options to consider when deciding how to best protect your information from identity theft. To help narrow down the choices, we researched a dozen companies. We evaluated their reputations, their length of time in the industry, and their customer service offerings. We also considered plan options, how their alerts functioned, and other features. These identity theft protection services presented here offer different types of protection, a variety of plans to choose from, and features like automatic alerts. ## Best Identity Theft Protection Services of 2024 * **Best Overall:** [Identity Guard](https://identityguard.y8uw.net/c/2104074/635383/8563) * **Best Guarantee:** [LifeLock](https://www.tkqlhce.com/click-100173779-13851712) * **Best for Child Protection Features:** [ID Watchdog](https://www.idwatchdog.com/home/) * **Best for Mobile Attack Protection:** [IdentityForce](https://secure.identityforce.com/sales_landing?offer=investopediaus&ASID=INVESTOPEDIA&SSAID=5025069&pushtoplans=true) * **Best for Pricing:** [Complete ID](https://www.completeid.com/) * **Best for Improving Your Credit Score:** [myFICO](https://shareasale.com/r.cfm?b=1309044&u=2366409&m=41089&urllink=) Best Identity Theft Protection Services Expand Best Identity Theft Protection Services * [Our Top Picks](#summary-list) * [Identity Guard](#toc-best-overall-identity-guard) * [LifeLock](#toc-best-guarantee-lifelock) * [ID Watchdog](#toc-best-for-child-protection-features-id-watchdog) * [IdentityForce](#toc-best-for-mobile-attack-protection-identityforce) * [Complete ID](#toc-best-for-pricing-complete-id) * [myFICO](#toc-best-for-improving-your-credit-score-myfico) * See More (3) * [Final Verdict](#toc-final-verdict) * [Compare Providers](#toc-compare-the-best-identity-theft-protection-services) * [FAQ](#toc-faq-5050121b-801b-4f30-82f9-d915b3cbcc3b) * [Methodology](#toc-methodology) ### Best Overall : Identity Guard --- ![Identity Guard]() ![Identity Guard](https://www.investopedia.com/thmb/WEhwQnYH7wG3XAvaeZt-iFSXNa8=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/identity-guard-8ac404306f534606b85eb233dff85b5b.png) Identity Guard [Sign Up Now](https://identityguard.y8uw.net/c/2104074/635383/8563) * **Pricing:** $7.50 to $25 per month * **Types of Protection Offered:** Personal, financial, online, and child * **24/7 Customer Service:** No Why We Chose It Identity Guard earned our best overall spot because of its reputation and unique [IBM® Watson™](https://www.ibm.com/watson) partnership. The company uses artificial intelligence technology for monitoring services. This allows for faster [fraud](https://www.investopedia.com/terms/f/fraud.asp) alerts, which may allow you to minimize identity theft damage. Pros & Cons Pros * Fast fraud alerts * IBM® Watson™ artificial intelligence * Two plans offer monitoring for all three [credit bureaus](https://www.investopedia.com/terms/c/creditbureau.asp) Cons * More costly than competitors * Doesn’t offer 24/7 customer service Overview Identity Guard, owned by Aura, is an industry pioneer with over 47 million customers. The Burlington, Massachusetts-based company has been in business since 1996 and uses state-of-the-art technology to protect customers. Identity Guard protects customers by combining traditional scanning with IBM® Watson™ artificial intelligence. The company sends prompt alerts via their mobile app or email when it detects fraudulent activity, and Identity Guard’s U.S.-based support team is available by phone six days a week. Plans for individuals include Value ($7.50 per month), Total ($16.67 per month), and Ultra ($25.00 per month). Family plans range from $12.50 to $33.33 per family. The Ultra plan provides extra value with premium credit protection. This includes a monthly TransUnion credit score and monitoring of all three credit bureaus.    Plan Services * $1 million identity theft insurance through its subsidiaries or affiliates (American International Group, Inc.) * Monitoring for all three credit bureaus * Annual [credit reports](https://www.investopedia.com/terms/c/creditreport.asp) from all three bureaus and monthly TransUnion credit score (for educational purposes only) * Risk management and social media reporting * Notifications for data breaches * Dark web monitoring * Safe browsing tool * Bank, [credit card](https://www.investopedia.com/terms/c/creditcard.asp), and high-risk transaction monitoring * 401(k) and investment account monitoring * Criminal and sex offender monitoring * USPS address change and home title monitoring ### Best Guarantee : LifeLock --- ![Lifelock by norton]() ![Lifelock by norton](https://www.investopedia.com/thmb/88KT3_ZFDjnPWWr2GCNZQxQWsjk=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/LifeLockbyNorton-Horizontal-Light-RGB-Web2-1f571435c61f465bbfb8cd040854eb6d.png) [Sign Up Now](https://www.tkqlhce.com/click-100173779-13851712) * **Pricing:** $8.99 to $23.99 per month (raises after first year) * **Types of Protection Offered:** Personal and financial * **24/7 Customer Service:** Yes Why We Chose It LifeLock’s 60-day guarantee stands out as the best among other identity theft protection services we reviewed. The company is more expensive than competitors, but the guarantee may offer a sense of trust to discerning customers. Pros & Cons Pros * 24/7 customer service * Multiple plan options * 60-day money-back guarantee for annual plans Cons * More costly than competitors * Price increase after the first year * Only one plan offers monitoring for all three credit bureaus. Overview LifeLock's reputation is far from perfect. In 2015, the company had to pay the Federal Trade Commission $100 million for failing to follow a 2010 court order. LifeLock violated the order to stop deceptive advertising and secure consumers' personal information, but the company has since adjusted its practices to comply. LifeLock is an industry leader with nearly 50 million customers, according to the company's website. Founded in 2005, the Tempe, Arizona-based company offers a full suite of [identity theft](https://www.investopedia.com/terms/i/identitytheft.asp) services.  LifeLock uses Norton antivirus software to block cyber threats. The company also monitors identity threats and sends alerts by phone, text, email, or mobile app. LifeLock has a U.S.-based team that works to fix identity theft issues and may reimburse you $25,000 to $1 million for stolen funds. The company offers 24/7 member support online, via phone, chat, or LifeLock's mobile app, all with a 60-day money-back guarantee. Plans include Standard ($8.99 per month), Advantage ($17.99 per month), and Ultimate Plus ($23.99 per month). Prices increase after the first year, ranging from $11.99 to $34.99 for the same plans. It also offers three plans that include Norton 360, which cost between $8.26 and $24.99 per month. Plan Services * $1 million identity theft insurance * Identity and [Social Security number](https://www.investopedia.com/terms/s/ssn.asp) alerts * Credit monitoring for one to three bureaus * Security for five to unlimited devices * VPN for five to unlimited devices * Bank and credit card alerts * Alerts for crimes in your name * Annual credit reports from all three bureaus plus credit scores * Alerts for 401(k) and investment activity ### Best for Child Protection Features : ID Watchdog --- ![ID Watchdog]() ![ID Watchdog](https://www.investopedia.com/thmb/hq15JV2XM_Zv7jdBc54ZVRCJN0s=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/id-watchdog-34f1ea20a7b04a77a4a57cf77f6e054f.jpg) ID Watchdog [Sign Up Now](https://www.idwatchdog.com/home/) * **Pricing:** $14.95 to $34.95 per month * **Types of Protection Offered:** Personal, financial, online, and child * **24/7 Customer Service:** Yes Why We Chose It In 2017, over 1 million children were victims of identity theft. ID Watchdog works to combat this by offering more features to protect minors than any other provider, making them our top pick in this review for child protection. Pros & Cons Pros * 24/7 customer service * Child protection features Cons * Fewer regular features than competitors * Only one plan offers monitoring for all three credit bureaus. Overview Owned by Equifax, ID Watchdog is a well-established company for identity theft protection services. The Denver, Colorado-based company has been around since 2005 and has earned recognition through Javelin Strategy & Research’s annual Identity Protection Service Provider Scorecard. The Platinum plan offers a few premium features. These include credit monitoring for three bureaus, Equifax VantageScore tracking, financial accounts monitoring, and $1 million stolen fund reimbursement for retirement and health savings accounts.  ID Watchdog sends alerts through the company’s mobile app. You can reach customer service 24/7 through the app or by phone. ID Watchdog offers special features for families, including child [credit lock](https://www.investopedia.com/how-to-lock-your-credit-5075538), social media alerts to identify cyberbullying, registered sex offender reporting, and more.  Plans for individuals include ID Watchdog Plus ($14.95 per month) and ID Watchdog Platinum ($21.95 per month). Both are also available as family plans, ranging from $23.95 to $34.95 per month. Plan Services * $1 million identity theft insurance * Dark web monitoring * High-risk transactions monitoring * Subprime loan monitoring * Identity profile report * Reporting for registered sex offenders * Public records and USPS change of address monitoring ### Best for Mobile Attack Protection : IdentityForce --- ![IdentityForce TransUnion]() ![IdentityForce TransUnion](https://www.investopedia.com/thmb/Bh30b6wJQ-7V2Gn_efaK7FTNl9Y=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Identityforce-d49e2992c7ad42d09d21890058b69c42.jpg) [Sign Up Now](https://secure.identityforce.com/sales_landing?offer=investopediaus&ASID=INVESTOPEDIA&SSAID=5025069&pushtoplans=true) * **Pricing:** $17.99 to $35.90 per month * **Types of Protection Offered:** Personal, financial, online, and child * **24/7 Customer Service:** Yes Why We Chose It IdentityForce announced Mobile Attack Control in late 2019, which included a fresh interface for the company’s mobile app. These features help make IdentityForce your best choice as more consumers become vulnerable to mobile cyber attacks.   Pros & Cons Pros * 24/7 customer service * Mobile attack protection * Free 30-day trial * Competitive pricing Cons * Limited plan options * Less transparency on family plans Overview IdentityForce, a company owned by Sontiq, has been in business since 1978. The Framingham, Massachusetts-based company has received multiple awards, including recognition in Javelin Strategy & Research’s 2019 Identity Protection Service Provider Awards. The UltraSecure+Credit plan is a great premium optionwith extensive credit monitoring features. These include monitoring and scores for all three credit bureaus, a credit score tracker, and a credit simulator. One feature that stands out is IdentityForce’s Mobile Attack Control, which offers alerts for various mobile threats. IdentityForce protects customers by sending alerts via text, mobile app alerts, or email. The company offers access by phone (877-694-3367) to Certified Protection Experts, who can restore your identity for you 24/7. Plans for individuals include UltraSecure ($17.99 per month or $179.90 per year) and UltraSecure+Credit ($24.90 per month or $249.00 per year). Both are offered for families as well, ranging from $23.99 to $35.90 per month (or $239.90 to $359.00 per year). Plan Services * $1 million identity theft insurance * Advanced fraud monitoring * Social media monitoring * Dark web monitoring * Online computer protection tools * Bank and credit card monitoring * Investment account alerts * Court records and sex offender monitoring * Change of address monitoring * Mobile attack control * Fully managed restoration * Junk mail opt-out ### Best for Pricing : Complete ID --- ![Complete ID]() ![Complete ID](https://www.investopedia.com/thmb/E49XYX_B30GQyjst-PRWhRvnVKU=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/complete-id-00d8ecaae8a443c3b1dbe5bf89ec4bc1.png) Complete ID [Sign Up Now](https://www.completeid.com/) * **Pricing:** $8.99 to $13.99 per month * **Types of Protection Offered:** Personal, financial, and online * **24/7 Customer Service:** Yes Why We Chose It If you’re already a Costco customer, Complete ID offers an unbeatable price. Complete ID's protection plans, which include monitoring for all three credit bureaus and a dedicated representative, are the best price option on our list. Pros & Cons Pros * 24/7 customer service * Monitoring for all three credit bureaus * Competitive pricing Cons * Must be a Costco member * Fewer features than some competitors Overview Complete ID, a company owned by Experian, is one of the country’s biggest identity theft protection providers. You must be a Costco member to sign up for Complete ID. Complete ID offers eight types of alerts through the company’s mobile app. The company’s U.S.-based support team is available 24/7, and you can work with a dedicated restoration specialist. Plans are available for Executive members ($8.99 per month) and Business and Gold Star members ($13.99 per month). Users can also add protection for up to five children for $2.99 to $3.99 per month. Plan Services * $1 million identity theft insurance * Monitoring for all three credit bureaus * Credit alerts * Dark web surveillance * Financial account takeover protection * Non-credit identity monitoring * Social Security number monitoring * Payday loan monitoring * Monitoring for criminal records * Designated credit restoration specialist ### Best for Improving Your Credit Score : myFICO --- ![myFICO]() ![myFICO](https://www.investopedia.com/thmb/h_90J2LEnUrk2O3CYVGNdOjicrg=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/myFICO-cf715fd5b8eb4d23b4ced9888ea53693.png) myFICO [Sign Up Now](https://shareasale.com/r.cfm?b=1309044&u=2366409&m=41089&urllink=) * **Pricing:** $19.95 to $39.95 per month * **Types of Protection Offered:** Financial * **24/7 Customer Service:** Yes Why We Chose It Because FICO is the country’s leading scoring model, it’s critical to stay on top of your FICO scores. myFICO offers credit simulator tools to see what may be hurting your FICO scores—and how to make improvements. Such focus and expertise make myFICO best in our review for improving your credit score. Pros & Cons Pros * 24/7 customer service * Transparent summary of benefits * Extensive credit reporting Cons * More costly than competitors * Fewer features compared to competitors Overview As the consumer division of FICO, myFICO offers a service that focuses on credit reporting. Most lenders, including 75% of mortgage loan originators, use different versions of your FICO scores to make decisions; myFICO offers access to all 28 versions. If you’re planning to make a big purchase, like a new car or a home, myFICO allows you to monitor the exact score you need. The Premier plan offers coverage for all three credit bureaus and monthly updates. Access to monthly reports from all three credit bureaus (rather than just the one per year you're entitled to because of [FACTA](https://www.investopedia.com/terms/f/facta.asp)) offers a complete, ongoing picture of your credit profile. This makes it easier to keep an eye on all activity, including fraud or other errors on your reports.  The company’s products and education tools help you focus on improving your FICO score over time. myFICO offers alerts by phone, mobile app, or email. If an issue comes up, the company’s support team is available six days a week to help restore your identity. Plans include Basic ($19.95 per month), Advanced ($29.95 per month), and Premier ($39.95 per month). Plan Services * $1 million identity theft insurance * One- or three-bureau coverage * Updates every month or every three months * FICO scores * Scores for mortgages, car loans, and more * Credit reports * Credit score and monitoring * Identity monitoring and restoration ## Final Verdict Identity Guard is our best overall pick for identity theft protection services thanks to its reputation, technology for monitoring tools, fraud alerts, and affordable pricing. Customers can get a plan as low as $7.50 per month, and Identity Guard monitors their personal and financial information with fast alerts to minimize damage. ## Compare the Best Identity Theft Protection Services | **Company** | **Pricing** | **Types of Protection Offered** | **24/7 Customer Service** | | --- | --- | --- | --- | | [Identity Guard](https://identityguard.y8uw.net/c/2104074/635383/8563) **Best Overall** | $7.50 to $25 per month | Personal, financial, online, and child | No | | [LifeLock](https://www.tkqlhce.com/click-100173779-13851712) **Best Guarantee** | $8.99 to $23.99 per month (raises after first year) | Personal and financial | Yes | | [ID Watchdog](https://www.idwatchdog.com/home/) **Best for Child Protection Features** | $14.95 to $34.95 per month | Personal, financial, online, and child | Yes | | [IdentityForce](https://secure.identityforce.com/sales_landing?offer=investopediaus&ASID=INVESTOPEDIA&SSAID=5025069&pushtoplans=true) **Best for Mobile Attack Protection** | $17.99 to $35.90 per month | Personal, financial, online, and child | Yes | | [Complete ID](https://www.completeid.com/) **Best for Pricing** | $8.99 to $13.99 per month | Personal, financial, and online | Yes | | [myFICO](https://shareasale.com/r.cfm?b=1309044&u=2366409&m=41089&urllink=) **Best for Improving Your Credit Score** | $19.95 to $39.95 per month | Financial | Yes | ## Frequently Asked Questions * ### What Is Identity Theft Protection? Companies offer two types of identity theft protection services: monitoring and recovery. Monitoring services watch for identity thieves and fraudulent activity, but no company can guarantee identity theft won't happen. If someone steals your identity, recovery services help you deal with its impact on your life. Most companies also offer identity theft insurance, which may help pay for the costs of reclaiming your identity. * ### Are Identity Theft Protection Services Worth It? Identity theft protection services may be worthwhile if you have limited time. But many companies offer features you can access for free—like annual credit reports or the ability to [freeze your credit](https://www.investopedia.com/terms/c/credit-freeze.asp). You may even recover your identity on your own with free resources from [IdentityTheft.gov](https://www.identitytheft.gov/). If it feels like too much to tackle on your own, one of these services [could be worth it](https://www.investopedia.com/best-credit-monitoring-services-4846982). * ### Do Credit Cards Offer Identity Theft Protection? Some banks offer cardholders free or paid access to identity theft protection services. For example, Mastercard has a free program that includes guidance on preventing and resolving identity theft. Some of the company's premium cards—which require an annual fee—offer more comprehensive, hands-off resolution services. The premium service is similar to what you may see from other paid identity theft protection services. * ### What Do Identity Theft Protection Services Cost? Based on our research, the pricing for identity theft protection services can be anywhere from $8.99 to $39.95 per month, depending on the plan. Complete ID also requires a Costco membership, which costs from $60 to $120 per year. These plans offer a range of identity theft protection services, including insurance, monitoring, resolution, and more. Basic plans typically include $1 million of identity theft insurance and monitoring of at least one credit bureau. ## Methodology To find the best identity theft protection services, we looked at each company’s reputation and history in the identity theft protection business. We compared them based on plan options, special features, and how their monitoring alerts work. We also reviewed each provider’s claims process and customer service availability. ![Digital fingerprint scanning verification process for identity theft protection](https://www.investopedia.com/thmb/HUCtGjgE7mtMCTH8Hk5JzvCCNvc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-identity-theft-protection-services-5025069-069629f59c6a43f892243fef44458f5a.jpg) ![Digital fingerprint scanning verification process for identity theft protection](https://www.investopedia.com/thmb/HUCtGjgE7mtMCTH8Hk5JzvCCNvc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-identity-theft-protection-services-5025069-069629f59c6a43f892243fef44458f5a.jpg) Andriy Onufriyenko / 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. Javelin Strategy & Research. "[2018 Child Identity Fraud Study](https://www.javelinstrategy.com/coverage-area/2018-child-identity-fraud-study)." 2. Javelin Strategy & Research. "[2019 Identity Protection Service Scorecard](https://www.javelinstrategy.com/coverage-area/2019-identity-protection-service-provider-scorecard)." 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Protecting your identity can seem complicated in our increasingly technological world, but thankfully, the best identity theft protection services are here to help. There are two types of services that aim to combat fraudulent activity: prevention and recovery. Beyond these categories, there are many features and options to consider when deciding how to best protect your information from identity theft. To help narrow down the choices, we researched a dozen companies. We evaluated their reputations, their length of time in the industry, and their customer service offerings. We also considered plan options, how their alerts functioned, and other features. These identity theft protection services presented here offer different types of protection, a variety of plans to choose from, and features like automatic alerts. Best Identity Theft Protection Services of 2024 Best Overall: Identity Guard Best Guarantee: LifeLock Best for Child Protection Features: ID Watchdog Best for Mobile Attack Protection: IdentityForce Best for Pricing: Complete ID Best for Improving Your Credit Score: myFICO Best Identity Theft Protection Services Expand Best Identity Theft Protection Services Our Top Picks Identity Guard LifeLock ID Watchdog IdentityForce Complete ID myFICO See More (3) Final Verdict Compare Providers FAQ Methodology Best Overall : Identity Guard Identity Guard Sign Up Now Pricing: $7.50 to $25 per monthTypes of Protection Offered: Personal, financial, online, and child 24/7 Customer Service: No Why We Chose It Identity Guard earned our best overall spot because of its reputation and unique IBM® Watson™ partnership. The company uses artificial intelligence technology for monitoring services. This allows for faster fraud alerts, which may allow you to minimize identity theft damage. Pros & Cons Pros Fast fraud alerts IBM® Watson™ artificial intelligence Two plans offer monitoring for all three credit bureaus Cons More costly than competitors Doesn’t offer 24/7 customer service Overview Identity Guard, owned by Aura, is an industry pioneer with over 47 million customers. The Burlington, Massachusetts-based company has been in business since 1996 and uses state-of-the-art technology to protect customers. Identity Guard protects customers by combining traditional scanning with IBM® Watson™ artificial intelligence. The company sends prompt alerts via their mobile app or email when it detects fraudulent activity, and Identity Guard’s U.S.-based support team is available by phone six days a week. Plans for individuals include Value ($7.50 per month), Total ($16.67 per month), and Ultra ($25.00 per month). Family plans range from $12.50 to $33.33 per family. The Ultra plan provides extra value with premium credit protection. This includes a monthly TransUnion credit score and monitoring of all three credit bureaus.    Plan Services $1 million identity theft insurance through its subsidiaries or affiliates (American International Group, Inc.) Monitoring for all three credit bureaus  Annual credit reports from all three bureaus and monthly TransUnion credit score (for educational purposes only) Risk management and social media reporting Notifications for data breaches Dark web monitoring Safe browsing tool Bank, credit card, and high-risk transaction monitoring 401(k) and investment account monitoring Criminal and sex offender monitoring USPS address change and home title monitoring Best Guarantee : LifeLock Sign Up Now Pricing: $8.99 to $23.99 per month (raises after first year) Types of Protection Offered: Personal and financial 24/7 Customer Service: Yes Why We Chose It LifeLock’s 60-day guarantee stands out as the best among other identity theft protection services we reviewed. The company is more expensive than competitors, but the guarantee may offer a sense of trust to discerning customers. Pros & Cons Pros 24/7 customer service Multiple plan options 60-day money-back guarantee for annual plans Cons More costly than competitors Price increase after the first year Only one plan offers monitoring for all three credit bureaus. Overview LifeLock's reputation is far from perfect. In 2015, the company had to pay the Federal Trade Commission $100 million for failing to follow a 2010 court order. LifeLock violated the order to stop deceptive advertising and secure consumers' personal information, but the company has since adjusted its practices to comply. LifeLock is an industry leader with nearly 50 million customers, according to the company's website. Founded in 2005, the Tempe, Arizona-based company offers a full suite of identity theft services.  LifeLock uses Norton antivirus software to block cyber threats. The company also monitors identity threats and sends alerts by phone, text, email, or mobile app. LifeLock has a U.S.-based team that works to fix identity theft issues and may reimburse you $25,000 to $1 million for stolen funds. The company offers 24/7 member support online, via phone, chat, or LifeLock's mobile app, all with a 60-day money-back guarantee. Plans include Standard ($8.99 per month), Advantage ($17.99 per month), and Ultimate Plus ($23.99 per month). Prices increase after the first year, ranging from $11.99 to $34.99 for the same plans. It also offers three plans that include Norton 360, which cost between $8.26 and $24.99 per month. Plan Services $1 million identity theft insurance Identity and Social Security number alerts Credit monitoring for one to three bureaus Security for five to unlimited devices VPN for five to unlimited devices Bank and credit card alerts Alerts for crimes in your name Annual credit reports from all three bureaus plus credit scores Alerts for 401(k) and investment activity Best for Child Protection Features : ID Watchdog ID Watchdog Sign Up Now Pricing: $14.95 to $34.95 per month Types of Protection Offered: Personal, financial, online, and child 24/7 Customer Service: Yes Why We Chose It In 2017, over 1 million children were victims of identity theft. ID Watchdog works to combat this by offering more features to protect minors than any other provider, making them our top pick in this review for child protection. Pros & Cons Pros 24/7 customer service Child protection features Cons Fewer regular features than competitors Only one plan offers monitoring for all three credit bureaus. Overview Owned by Equifax, ID Watchdog is a well-established company for identity theft protection services. The Denver, Colorado-based company has been around since 2005 and has earned recognition through Javelin Strategy & Research’s annual Identity Protection Service Provider Scorecard. The Platinum plan offers a few premium features. These include credit monitoring for three bureaus, Equifax VantageScore tracking, financial accounts monitoring, and $1 million stolen fund reimbursement for retirement and health savings accounts.  ID Watchdog sends alerts through the company’s mobile app. You can reach customer service 24/7 through the app or by phone. ID Watchdog offers special features for families, including child credit lock, social media alerts to identify cyberbullying, registered sex offender reporting, and more.  Plans for individuals include ID Watchdog Plus ($14.95 per month) and ID Watchdog Platinum ($21.95 per month). Both are also available as family plans, ranging from $23.95 to $34.95 per month. Plan Services $1 million identity theft insuranceDark web monitoringHigh-risk transactions monitoringSubprime loan monitoringIdentity profile reportReporting for registered sex offendersPublic records and USPS change of address monitoring Best for Mobile Attack Protection : IdentityForce Sign Up Now Pricing: $17.99 to $35.90 per month Types of Protection Offered: Personal, financial, online, and child 24/7 Customer Service: Yes Why We Chose It IdentityForce announced Mobile Attack Control in late 2019, which included a fresh interface for the company’s mobile app. These features help make IdentityForce your best choice as more consumers become vulnerable to mobile cyber attacks.   Pros & Cons Pros 24/7 customer service Mobile attack protection Free 30-day trial Competitive pricing Cons Limited plan options Less transparency on family plans Overview IdentityForce, a company owned by Sontiq, has been in business since 1978. The Framingham, Massachusetts-based company has received multiple awards, including recognition in Javelin Strategy & Research’s 2019 Identity Protection Service Provider Awards. The UltraSecure+Credit plan is a great premium option with extensive credit monitoring features. These include monitoring and scores for all three credit bureaus, a credit score tracker, and a credit simulator. One feature that stands out is IdentityForce’s Mobile Attack Control, which offers alerts for various mobile threats. IdentityForce protects customers by sending alerts via text, mobile app alerts, or email. The company offers access by phone (877-694-3367) to Certified Protection Experts, who can restore your identity for you 24/7. Plans for individuals include UltraSecure ($17.99 per month or $179.90 per year) and UltraSecure+Credit ($24.90 per month or $249.00 per year). Both are offered for families as well, ranging from $23.99 to $35.90 per month (or $239.90 to $359.00 per year). Plan Services $1 million identity theft insuranceAdvanced fraud monitoringSocial media monitoringDark web monitoringOnline computer protection toolsBank and credit card monitoringInvestment account alertsCourt records and sex offender monitoringChange of address monitoringMobile attack controlFully managed restorationJunk mail opt-out Best for Pricing : Complete ID Complete ID Sign Up Now Pricing: $8.99 to $13.99 per monthTypes of Protection Offered: Personal, financial, and online 24/7 Customer Service: Yes Why We Chose It If you’re already a Costco customer, Complete ID offers an unbeatable price. Complete ID's protection plans, which include monitoring for all three credit bureaus and a dedicated representative, are the best price option on our list. Pros & Cons Pros 24/7 customer service Monitoring for all three credit bureaus Competitive pricing Cons Must be a Costco member Fewer features than some competitors Overview Complete ID, a company owned by Experian, is one of the country’s biggest identity theft protection providers. You must be a Costco member to sign up for Complete ID. Complete ID offers eight types of alerts through the company’s mobile app. The company’s U.S.-based support team is available 24/7, and you can work with a dedicated restoration specialist. Plans are available for Executive members ($8.99 per month) and Business and Gold Star members ($13.99 per month). Users can also add protection for up to five children for $2.99 to $3.99 per month. Plan Services $1 million identity theft insuranceMonitoring for all three credit bureausCredit alertsDark web surveillanceFinancial account takeover protectionNon-credit identity monitoringSocial Security number monitoringPayday loan monitoringMonitoring for criminal recordsDesignated credit restoration specialist Best for Improving Your Credit Score : myFICO myFICO Sign Up Now Pricing: $19.95 to $39.95 per month Types of Protection Offered: Financial 24/7 Customer Service: Yes Why We Chose It Because FICO is the country’s leading scoring model, it’s critical to stay on top of your FICO scores. myFICO offers credit simulator tools to see what may be hurting your FICO scores—and how to make improvements. Such focus and expertise make myFICO best in our review for improving your credit score. Pros & Cons Pros 24/7 customer service Transparent summary of benefits Extensive credit reporting Cons More costly than competitors Fewer features compared to competitors Overview As the consumer division of FICO, myFICO offers a service that focuses on credit reporting. Most lenders, including 75% of mortgage loan originators, use different versions of your FICO scores to make decisions; myFICO offers access to all 28 versions. If you’re planning to make a big purchase, like a new car or a home, myFICO allows you to monitor the exact score you need. The Premier plan offers coverage for all three credit bureaus and monthly updates. Access to monthly reports from all three credit bureaus (rather than just the one per year you're entitled to because of FACTA) offers a complete, ongoing picture of your credit profile. This makes it easier to keep an eye on all activity, including fraud or other errors on your reports.  The company’s products and education tools help you focus on improving your FICO score over time. myFICO offers alerts by phone, mobile app, or email. If an issue comes up, the company’s support team is available six days a week to help restore your identity. Plans include Basic ($19.95 per month), Advanced ($29.95 per month), and Premier ($39.95 per month). Plan Services $1 million identity theft insuranceOne- or three-bureau coverageUpdates every month or every three monthsFICO scoresScores for mortgages, car loans, and moreCredit reportsCredit score and monitoringIdentity monitoring and restoration Final Verdict Identity Guard is our best overall pick for identity theft protection services thanks to its reputation, technology for monitoring tools, fraud alerts, and affordable pricing. Customers can get a plan as low as $7.50 per month, and Identity Guard monitors their personal and financial information with fast alerts to minimize damage. Compare the Best Identity Theft Protection Services Company Pricing Types of Protection Offered 24/7 Customer Service Identity Guard Best Overall $7.50 to $25 per month Personal, financial, online, and child No LifeLock Best Guarantee $8.99 to $23.99 per month (raises after first year) Personal and financial Yes ID Watchdog Best for Child Protection Features $14.95 to $34.95 per month Personal, financial, online, and child Yes IdentityForce Best for Mobile Attack Protection $17.99 to $35.90 per month Personal, financial, online, and child Yes Complete ID Best for Pricing $8.99 to $13.99 per month Personal, financial, and online Yes myFICO Best for Improving Your Credit Score $19.95 to $39.95 per month Financial Yes Frequently Asked Questions What Is Identity Theft Protection? Companies offer two types of identity theft protection services: monitoring and recovery. Monitoring services watch for identity thieves and fraudulent activity, but no company can guarantee identity theft won't happen. If someone steals your identity, recovery services help you deal with its impact on your life.Most companies also offer identity theft insurance, which may help pay for the costs of reclaiming your identity.  Are Identity Theft Protection Services Worth It? Identity theft protection services may be worthwhile if you have limited time. But many companies offer features you can access for free—like annual credit reports or the ability to freeze your credit. You may even recover your identity on your own with free resources from IdentityTheft.gov. If it feels like too much to tackle on your own, one of these services could be worth it. Do Credit Cards Offer Identity Theft Protection? Some banks offer cardholders free or paid access to identity theft protection services. For example, Mastercard has a free program that includes guidance on preventing and resolving identity theft.Some of the company's premium cards—which require an annual fee—offer more comprehensive, hands-off resolution services. The premium service is similar to what you may see from other paid identity theft protection services. What Do Identity Theft Protection Services Cost? Based on our research, the pricing for identity theft protection services can be anywhere from $8.99 to $39.95 per month, depending on the plan. Complete ID also requires a Costco membership, which costs from $60 to $120 per year.These plans offer a range of identity theft protection services, including insurance, monitoring, resolution, and more. Basic plans typically include $1 million of identity theft insurance and monitoring of at least one credit bureau. Methodology To find the best identity theft protection services, we looked at each company’s reputation and history in the identity theft protection business. We compared them based on plan options, special features, and how their monitoring alerts work. We also reviewed each provider’s claims process and customer service availability. Andriy Onufriyenko / 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. Javelin Strategy & Research. "2018 Child Identity Fraud Study." Javelin Strategy & Research. "2019 Identity Protection Service Scorecard." Related Articles Best Credit Repair Companies for May 2024 Best Credit Monitoring Services The Credit People Credit Repair Review Lexington Law Credit Repair Review Best Debit Cards for Kids and Teens for May 2024 CreditRepair.com Credit Repair Review Related Terms What Is Identity Theft? Types and Examples Identity theft occurs when your personal or financial information is stolen and used by someone to commit fraud. Learn how to recognize it and protect yourself from it. more Credit Monitoring Service: What it is, How it Works, FAQs A credit monitoring service is a system that monitors a consumer’s credit reports for signs of possible fraud. more Identity Fraud Reimbursement Program An Identity Fraud Reimbursement Program is insurance coverage for losses due to fraudulent use of personal financial information. more What Is a Bloomberg Terminal? Functions, Costs, and Alternatives A Bloomberg terminal is a computer system offering access to Bloomberg's investment data service, news feeds, messaging, and trade execution services. more Medical Identity Theft: What It Is, How It Works Medical identity theft involves the use of another person's health information for gain of benefits or fraudulent reimbursement. more What Is a Checking Account? Here's Everything You Need To Know A checking account is an account held at a financial institution that allows deposits and withdrawals. Learn how checking accounts work and how to get one. more
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https://www.investopedia.com/help-older-people-protect-assets-5025200
How to Help Older People Protect Their Assets
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> After a lifetime of work, many older Americans have built up a substantial sum in assets. At the same time, they’re unlikely to accumulate much additional wealth. For that reason, protecting the assets they already have becomes especially important. </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>Some retirement accounts are protected from creditors, while others are more vulnerable.</li><li>Older people who still have mortgages on their homes can risk losing them through foreclosure if they miss multiple payments.</li><li>Having adequate homeowners and liability coverage can help protect an older person’s home and other assets.</li><li>To become eligible for Medicaid, older people often have to spend most of their assets.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-big-picture"></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 Big Picture </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Once they reach a certain age, people tend to have their wealth spread across a variety of assets. They may have retirement accounts, like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">IRAs</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pensionplan.asp">pensions</a>, as well as money in non-retirement accounts. They may own a home or other real estate and have valuable possessions, such as art, antiques, or collectibles. </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"> All of these assets can benefit from some sort of protection—against lawsuits, foreclosures, and sometimes the people themselves. This article discusses the two most significant assets many older people have—their finances and their homes—along with some ways to protect them. </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-protecting-finances"></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"> Protecting Finances </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <strong>Retirement accounts</strong>. Many older people have the bulk of their wealth in retirement accounts. That is a good thing from a safety standpoint. Assets held in retirement accounts are protected from creditors in many cases, although the rules <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/040716/which-retirement-funds-are-protected-creditors.asp">vary according to the type of plan</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"> Generally speaking, money that’s still in an employer plan, 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>, is off-limits to most creditors, while money controlled by the individual, such as an individual retirement account (IRA), has fewer protections. However, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/090115/can-creditors-garnish-my-ira.asp">rules differ from state to state</a>, with some states shielding IRAs from most creditors as well. </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"> <strong>Other kinds of accounts</strong>. Money that’s kept in non-retirement accounts, such as regular brokerage and bank accounts, is more vulnerable. If an older person is sued, for example, that money could be at risk. One way to provide some protection is to make sure that they are adequately insured. This means checking that any automobile and homeowners policies that they have carry an adequate amount of liability coverage.  </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"> An easy and relatively inexpensive option is to add an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/umbrella-insurance-policy.asp">umbrella policy</a> to provide additional liability coverage of $1 million or more. By bundling automobile and homeowners policies with the same insurer and adding an umbrella policy from that insurer, you can coordinate the coverage provided by all three policies. </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"> <strong>Qualifying for Medicaid</strong>. Sometimes confused with Medicare, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicaid.asp">Medicaid</a> is the joint federal and state health insurance program for low-income individuals, including older people. </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"> Unlike Medicare, Medicaid helps pay for most custodial care, which many people will need toward the end of their lives. Custodial care refers to help with everyday activities, such as bathing and dressing, in contrast to medical care, which Medicare does cover to some extent.<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_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The catch is that to qualify for Medicaid, beneficiaries must meet both income and asset requirements. That often means having to spend down their assets to a relatively low level. Certain assets (such as a portion of home equity and one car) are exempt, but others, including most bank and investment accounts, are considered “countable.” </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"> While the limits vary from state to state, in most states, a single individual must have no more than $2,000 in countable assets and married couples can retain $3,000.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Given the high cost of nursing home care, people without a lot of assets may become eligible relatively quickly, at which point Medicaid takes over. Elderly people with significantly more assets, or who hope to preserve an estate for their heirs, may want to consult a knowledgeable elder-law attorney, who can explain some more sophisticated strategies, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/110514/asset-protection-trusts-help-seniors.asp">asset protection trusts</a>.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-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 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>Long-term care insurance can help cover nursing home bills and other expenses, but it’s costly, and many older people with preexisting conditions are already uninsurable.<span class="ql-inline-citation" data-cite="9"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> <strong>Long-term care insurance</strong>. For people who<strong> </strong>are unlikely to qualify for Medicaid or who don’t want to deplete their assets to become eligible, buying long-term care insurance is another option. A comprehensive <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/ltcinsurance.asp">long-term care policy</a> will cover many of the costs associated with in-home and nursing home care. </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, by the time older people are truly older, they may be uninsurable due to preexisting conditions, such as using a walker or needing help with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/senior-care-4427723">activities of daily living</a>.<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_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> In the 2023 Milliman Long Term Care Insurance Survey for 2022 numbers, the actuarial and consulting firm reported that 45.1% of people ages 70 to 74—and 36.9% ages 65 to 69—were declined or deferred when applying for long-term care insurance.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> While those statistics may argue for buying a policy earlier in life, that is also a gamble. People who buy policies in their 50s, for example, face years of annual premiums, which could become unaffordable by the time they need the insurance—if, indeed, they ever do. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <strong>Financial scams</strong>. Another threat to older people’s wealth is, of course, scams. Scam artists <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/020415/what-are-top-social-security-scams-targeted-elderly.asp">like to prey on them</a> because that’s where the money is—and age-related cognitive decline can be a factor as well. </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"> To help your loved ones avoid financial scams, it’s worth having an occasional conversation about the topic if you’re comfortable doing that. This is obviously a touchy subject; some people will consider it patronizing and intrusive. </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"> Even if they discover that they’ve been taken advantage of, older people will often try to hide the fact out of embarrassment. If you believe that someone you care about is especially vulnerable to financial fraud, a lawyer can walk you through your legal options, such as obtaining a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/powerofattorney.asp">power of attorney</a>.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_45-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_46-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>If an older person hasn’t checked the coverage limits on their homeowners' insurance in a while, now would be a good time to review them and make sure that they’re high enough to cover today’s repair and rebuilding costs.</p></div></div></div> <span class="heading-toc" id="toc-protecting-homes"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> Protecting Homes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Especially if they’ve lived in it for a long time, a home may be an older person’s largest single asset. As such, it deserves special protection.  </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"> <strong>Ensuring insurance</strong>. As mentioned above, making sure an older person has sufficient liability coverage in the event of an accident at their home, or involving their car, is one crucial line of defense. An adequate homeowners policy will also protect them against unmanageable home repair costs <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fires-and-reverse-mortgages-5224780">in case of a fire</a> or other covered calamity. If a homeowner hasn’t checked the coverage limits on their policy in recent years, now would be a good time to do so. </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"> <strong>Factoring in mortgage debt</strong>. Paying off the mortgage before retirement was once a common goal for Americans. But many people today reach retirement age with years to go on their loans. The danger is that if a financial emergency strikes—such as a big, unexpected medical bill—they may fall behind in their mortgage payments and run the risk of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreclosure.asp">foreclosure</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> In a foreclosure, the lender can seize the property and sell it. So, if an older person has a lot of mortgage debt and few other assets to draw on in an emergency, it could make sense to pay off the mortgage as soon as possible—or downsize to a less expensive home without a mortgage. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> If someone periodically misses mortgage payments out of forgetfulness, setting up automatic bill payments through their bank could be an easy fix. That’s true for other regular bills as well. </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"> <strong>The reverse mortgage option—and risks</strong>. Often advertised on late-night TV, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/reverse-mortgage/">reverse mortgages</a> are pitched as a way for people ages 62 and older to draw on the equity they’ve accumulated in their homes without having to pack up and move out. Mortgagees receive monthly income or a lump sum, and the lender gets its money back, with interest, by selling the home after the owner leaves it permanently.<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_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> While a reverse mortgage lender can’t foreclose due to missed payments (because there aren’t any), the homeowner is required to keep the home in good repair and to pay the property taxes. If those bills become too burdensome, there’s a risk that the owner could lose their home. And when they die, a surviving <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/reverse-mortgage-could-widow-lose-the-house-5223466">spouse could lose the home</a> if care wasn’t taken to protect their rights.<span class="ql-inline-citation" data-cite="12"></span><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_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> For that reason, among others, reverse mortgages shouldn’t be entered into without a careful analysis. Scam artists have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/reverse-mortgage/scams/">also discovered the reverse mortgage</a>—another reason to move carefully when considering one. </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"> <strong>Medicaid estate recovery</strong>.<strong> </strong>In general, a person can keep their home while receiving Medicaid benefits, but after they die, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/072215/quick-guide-medicaid-and-nursing-home-rules.asp#estate-recovery">Medicaid may attempt to recover</a> a portion of what it paid for their care. Typically, however, their spouse (if they have one) can remain in the home until their death. These rules, like many involving Medicaid, can vary from state to state.<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_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> You can learn more about a particular state’s program at its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.medicaid.gov/resources-for-states/index.html" rel="sponsored nofollow">Medicaid website</a> or through the federal <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.benefits.gov/categories/Healthcare%20and%20Medical%20Assistance">Benefits.gov</a> website.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_68-0"><span class="heading-toc" id="toc-why-is-it-good-to-have-much-of-your-wealth-in-retirement-accounts"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Is It Good to Have Much of Your Wealth in Retirement Accounts?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>These assets are protected from lawsuits, in many cases. Note that 401(k) assets have more protections than individual retirement accounts (IRAs). The rules differ depending on the state where you live.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_70-0"><span class="heading-toc" id="toc-how-long-can-an-older-person-not-live-in-their-home-and-still-keep-their-reverse-mortgage"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Can an Older Person Not Live in Their Home and Still Keep Their Reverse Mortgage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If they stop living in their home <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/reverse-mortgage-equity-requirements-5224642">for 12 consecutive months</a>, the reverse mortgage comes due. Be aware of these rules if a medical condition means that the homeowner has to go into a rehabilitation facility or nursing home for a period of time.<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_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-should-someone-do-if-they-think-theyve-been-scammed"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Should Someone Do if They Think They’ve Been Scammed?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>They should listen to their suspicions, gather evidence, and report it to the authorities <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/071514/omg-i-think-ive-been-scammed.asp">if someone thinks a scam happened</a>. The U.S. Department of Justice’s Office for Victims of Crime has a special National Elder Fraud Hotline, (833) 372-8311, to report abuses and scams.<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_73-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_74-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Ideally, a person’s later years should be a time to enjoy life, and not to worry unduly over financial matters. By being aware of these potential dangers and taking smart steps now to avoid them, you can help the older people in your life—or yourself—keep crucial assets safe and sound. </p></div>
After a lifetime of work, many older Americans have built up a substantial sum in assets. At the same time, they’re unlikely to accumulate much additional wealth. For that reason, protecting the assets they already have becomes especially important. ### Key Takeaways * Some retirement accounts are protected from creditors, while others are more vulnerable. * Older people who still have mortgages on their homes can risk losing them through foreclosure if they miss multiple payments. * Having adequate homeowners and liability coverage can help protect an older person’s home and other assets. * To become eligible for Medicaid, older people often have to spend most of their assets. ## The Big Picture Once they reach a certain age, people tend to have their wealth spread across a variety of assets. They may have retirement accounts, like [IRAs](https://www.investopedia.com/terms/i/ira.asp) or [pensions](https://www.investopedia.com/terms/p/pensionplan.asp), as well as money in non-retirement accounts. They may own a home or other real estate and have valuable possessions, such as art, antiques, or collectibles. All of these assets can benefit from some sort of protection—against lawsuits, foreclosures, and sometimes the people themselves. This article discusses the two most significant assets many older people have—their finances and their homes—along with some ways to protect them. ## Protecting Finances **Retirement accounts**. Many older people have the bulk of their wealth in retirement accounts. That is a good thing from a safety standpoint. Assets held in retirement accounts are protected from creditors in many cases, although the rules [vary according to the type of plan](https://www.investopedia.com/articles/personal-finance/040716/which-retirement-funds-are-protected-creditors.asp). Generally speaking, money that’s still in an employer plan, such as a [401(k)](https://www.investopedia.com/terms/1/401kplan.asp), is off-limits to most creditors, while money controlled by the individual, such as an individual retirement account (IRA), has fewer protections. However, the [rules differ from state to state](https://www.investopedia.com/ask/answers/090115/can-creditors-garnish-my-ira.asp), with some states shielding IRAs from most creditors as well. **Other kinds of accounts**. Money that’s kept in non-retirement accounts, such as regular brokerage and bank accounts, is more vulnerable. If an older person is sued, for example, that money could be at risk. One way to provide some protection is to make sure that they are adequately insured. This means checking that any automobile and homeowners policies that they have carry an adequate amount of liability coverage.  An easy and relatively inexpensive option is to add an [umbrella policy](https://www.investopedia.com/terms/u/umbrella-insurance-policy.asp) to provide additional liability coverage of $1 million or more. By bundling automobile and homeowners policies with the same insurer and adding an umbrella policy from that insurer, you can coordinate the coverage provided by all three policies. **Qualifying for Medicaid**. Sometimes confused with Medicare, [Medicaid](https://www.investopedia.com/terms/m/medicaid.asp) is the joint federal and state health insurance program for low-income individuals, including older people. Unlike Medicare, Medicaid helps pay for most custodial care, which many people will need toward the end of their lives. Custodial care refers to help with everyday activities, such as bathing and dressing, in contrast to medical care, which Medicare does cover to some extent. The catch is that to qualify for Medicaid, beneficiaries must meet both income and asset requirements. That often means having to spend down their assets to a relatively low level. Certain assets (such as a portion of home equity and one car) are exempt, but others, including most bank and investment accounts, are considered “countable.” While the limits vary from state to state, in most states, a single individual must have no more than $2,000 in countable assets and married couples can retain $3,000. Given the high cost of nursing home care, people without a lot of assets may become eligible relatively quickly, at which point Medicaid takes over. Elderly people with significantly more assets, or who hope to preserve an estate for their heirs, may want to consult a knowledgeable elder-law attorney, who can explain some more sophisticated strategies, including [asset protection trusts](https://www.investopedia.com/articles/personal-finance/110514/asset-protection-trusts-help-seniors.asp).  ### Note Long-term care insurance can help cover nursing home bills and other expenses, but it’s costly, and many older people with preexisting conditions are already uninsurable. **Long-term care insurance**. For people whoare unlikely to qualify for Medicaid or who don’t want to deplete their assets to become eligible, buying long-term care insurance is another option. A comprehensive [long-term care policy](https://www.investopedia.com/terms/l/ltcinsurance.asp) will cover many of the costs associated with in-home and nursing home care. However, by the time older people are truly older, they may be uninsurable due to preexisting conditions, such as using a walker or needing help with the [activities of daily living](https://www.investopedia.com/senior-care-4427723). In the 2023 Milliman Long Term Care Insurance Survey for 2022 numbers, the actuarial and consulting firm reported that 45.1% of people ages 70 to 74—and 36.9% ages 65 to 69—were declined or deferred when applying for long-term care insurance. While those statistics may argue for buying a policy earlier in life, that is also a gamble. People who buy policies in their 50s, for example, face years of annual premiums, which could become unaffordable by the time they need the insurance—if, indeed, they ever do. **Financial scams**. Another threat to older people’s wealth is, of course, scams. Scam artists [like to prey on them](https://www.investopedia.com/ask/answers/020415/what-are-top-social-security-scams-targeted-elderly.asp) because that’s where the money is—and age-related cognitive decline can be a factor as well. To help your loved ones avoid financial scams, it’s worth having an occasional conversation about the topic if you’re comfortable doing that. This is obviously a touchy subject; some people will consider it patronizing and intrusive. Even if they discover that they’ve been taken advantage of, older people will often try to hide the fact out of embarrassment. If you believe that someone you care about is especially vulnerable to financial fraud, a lawyer can walk you through your legal options, such as obtaining a [power of attorney](https://www.investopedia.com/terms/p/powerofattorney.asp).  ### If an older person hasn’t checked the coverage limits on their homeowners' insurance in a while, now would be a good time to review them and make sure that they’re high enough to cover today’s repair and rebuilding costs. ## Protecting Homes Especially if they’ve lived in it for a long time, a home may be an older person’s largest single asset. As such, it deserves special protection.  **Ensuring insurance**. As mentioned above, making sure an older person has sufficient liability coverage in the event of an accident at their home, or involving their car, is one crucial line of defense. An adequate homeowners policy will also protect them against unmanageable home repair costs [in case of a fire](https://www.investopedia.com/fires-and-reverse-mortgages-5224780) or other covered calamity. If a homeowner hasn’t checked the coverage limits on their policy in recent years, now would be a good time to do so. **Factoring in mortgage debt**. Paying off the mortgage before retirement was once a common goal for Americans. But many people today reach retirement age with years to go on their loans. The danger is that if a financial emergency strikes—such as a big, unexpected medical bill—they may fall behind in their mortgage payments and run the risk of [foreclosure](https://www.investopedia.com/terms/f/foreclosure.asp). In a foreclosure, the lender can seize the property and sell it. So, if an older person has a lot of mortgage debt and few other assets to draw on in an emergency, it could make sense to pay off the mortgage as soon as possible—or downsize to a less expensive home without a mortgage. If someone periodically misses mortgage payments out of forgetfulness, setting up automatic bill payments through their bank could be an easy fix. That’s true for other regular bills as well. **The reverse mortgage option—and risks**. Often advertised on late-night TV, [reverse mortgages](https://www.investopedia.com/mortgage/reverse-mortgage/) are pitched as a way for people ages 62 and older to draw on the equity they’ve accumulated in their homes without having to pack up and move out. Mortgagees receive monthly income or a lump sum, and the lender gets its money back, with interest, by selling the home after the owner leaves it permanently. While a reverse mortgage lender can’t foreclose due to missed payments (because there aren’t any), the homeowner is required to keep the home in good repair and to pay the property taxes. If those bills become too burdensome, there’s a risk that the owner could lose their home. And when they die, a surviving [spouse could lose the home](https://www.investopedia.com/reverse-mortgage-could-widow-lose-the-house-5223466) if care wasn’t taken to protect their rights. For that reason, among others, reverse mortgages shouldn’t be entered into without a careful analysis. Scam artists have [also discovered the reverse mortgage](https://www.investopedia.com/mortgage/reverse-mortgage/scams/)—another reason to move carefully when considering one. **Medicaid estate recovery**.In general, a person can keep their home while receiving Medicaid benefits, but after they die, [Medicaid may attempt to recover](https://www.investopedia.com/articles/personal-finance/072215/quick-guide-medicaid-and-nursing-home-rules.asp#estate-recovery) a portion of what it paid for their care. Typically, however, their spouse (if they have one) can remain in the home until their death. These rules, like many involving Medicaid, can vary from state to state. You can learn more about a particular state’s program at its [Medicaid website](https://www.medicaid.gov/resources-for-states/index.html) or through the federal [Benefits.gov](https://www.benefits.gov/categories/Healthcare%20and%20Medical%20Assistance) website.  ## Why Is It Good to Have Much of Your Wealth in Retirement Accounts? These assets are protected from lawsuits, in many cases. Note that 401(k) assets have more protections than individual retirement accounts (IRAs). The rules differ depending on the state where you live. ## How Long Can an Older Person Not Live in Their Home and Still Keep Their Reverse Mortgage? If they stop living in their home [for 12 consecutive months](https://www.investopedia.com/reverse-mortgage-equity-requirements-5224642), the reverse mortgage comes due. Be aware of these rules if a medical condition means that the homeowner has to go into a rehabilitation facility or nursing home for a period of time. ## What Should Someone Do if They Think They’ve Been Scammed? They should listen to their suspicions, gather evidence, and report it to the authorities [if someone thinks a scam happened](https://www.investopedia.com/articles/investing/071514/omg-i-think-ive-been-scammed.asp). The U.S. Department of Justice’s Office for Victims of Crime has a special National Elder Fraud Hotline, (833) 372-8311, to report abuses and scams. ## The Bottom Line Ideally, a person’s later years should be a time to enjoy life, and not to worry unduly over financial matters. By being aware of these potential dangers and taking smart steps now to avoid them, you can help the older people in your life—or yourself—keep crucial assets safe and sound.
After a lifetime of work, many older Americans have built up a substantial sum in assets. At the same time, they’re unlikely to accumulate much additional wealth. For that reason, protecting the assets they already have becomes especially important. Key Takeaways Some retirement accounts are protected from creditors, while others are more vulnerable.Older people who still have mortgages on their homes can risk losing them through foreclosure if they miss multiple payments.Having adequate homeowners and liability coverage can help protect an older person’s home and other assets.To become eligible for Medicaid, older people often have to spend most of their assets. The Big Picture Once they reach a certain age, people tend to have their wealth spread across a variety of assets. They may have retirement accounts, like IRAs or pensions, as well as money in non-retirement accounts. They may own a home or other real estate and have valuable possessions, such as art, antiques, or collectibles. All of these assets can benefit from some sort of protection—against lawsuits, foreclosures, and sometimes the people themselves. This article discusses the two most significant assets many older people have—their finances and their homes—along with some ways to protect them. Protecting Finances Retirement accounts. Many older people have the bulk of their wealth in retirement accounts. That is a good thing from a safety standpoint. Assets held in retirement accounts are protected from creditors in many cases, although the rules vary according to the type of plan. Generally speaking, money that’s still in an employer plan, such as a 401(k), is off-limits to most creditors, while money controlled by the individual, such as an individual retirement account (IRA), has fewer protections. However, the rules differ from state to state, with some states shielding IRAs from most creditors as well. Other kinds of accounts. Money that’s kept in non-retirement accounts, such as regular brokerage and bank accounts, is more vulnerable. If an older person is sued, for example, that money could be at risk. One way to provide some protection is to make sure that they are adequately insured. This means checking that any automobile and homeowners policies that they have carry an adequate amount of liability coverage.  An easy and relatively inexpensive option is to add an umbrella policy to provide additional liability coverage of $1 million or more. By bundling automobile and homeowners policies with the same insurer and adding an umbrella policy from that insurer, you can coordinate the coverage provided by all three policies. Qualifying for Medicaid. Sometimes confused with Medicare, Medicaid is the joint federal and state health insurance program for low-income individuals, including older people. Unlike Medicare, Medicaid helps pay for most custodial care, which many people will need toward the end of their lives. Custodial care refers to help with everyday activities, such as bathing and dressing, in contrast to medical care, which Medicare does cover to some extent. The catch is that to qualify for Medicaid, beneficiaries must meet both income and asset requirements. That often means having to spend down their assets to a relatively low level. Certain assets (such as a portion of home equity and one car) are exempt, but others, including most bank and investment accounts, are considered “countable.” While the limits vary from state to state, in most states, a single individual must have no more than $2,000 in countable assets and married couples can retain $3,000. Given the high cost of nursing home care, people without a lot of assets may become eligible relatively quickly, at which point Medicaid takes over. Elderly people with significantly more assets, or who hope to preserve an estate for their heirs, may want to consult a knowledgeable elder-law attorney, who can explain some more sophisticated strategies, including asset protection trusts.  Note Long-term care insurance can help cover nursing home bills and other expenses, but it’s costly, and many older people with preexisting conditions are already uninsurable. Long-term care insurance. For people who are unlikely to qualify for Medicaid or who don’t want to deplete their assets to become eligible, buying long-term care insurance is another option. A comprehensive long-term care policy will cover many of the costs associated with in-home and nursing home care. However, by the time older people are truly older, they may be uninsurable due to preexisting conditions, such as using a walker or needing help with the activities of daily living. In the 2023 Milliman Long Term Care Insurance Survey for 2022 numbers, the actuarial and consulting firm reported that 45.1% of people ages 70 to 74—and 36.9% ages 65 to 69—were declined or deferred when applying for long-term care insurance. While those statistics may argue for buying a policy earlier in life, that is also a gamble. People who buy policies in their 50s, for example, face years of annual premiums, which could become unaffordable by the time they need the insurance—if, indeed, they ever do. Financial scams. Another threat to older people’s wealth is, of course, scams. Scam artists like to prey on them because that’s where the money is—and age-related cognitive decline can be a factor as well. To help your loved ones avoid financial scams, it’s worth having an occasional conversation about the topic if you’re comfortable doing that. This is obviously a touchy subject; some people will consider it patronizing and intrusive. Even if they discover that they’ve been taken advantage of, older people will often try to hide the fact out of embarrassment. If you believe that someone you care about is especially vulnerable to financial fraud, a lawyer can walk you through your legal options, such as obtaining a power of attorney.  If an older person hasn’t checked the coverage limits on their homeowners' insurance in a while, now would be a good time to review them and make sure that they’re high enough to cover today’s repair and rebuilding costs. Protecting Homes Especially if they’ve lived in it for a long time, a home may be an older person’s largest single asset. As such, it deserves special protection.  Ensuring insurance. As mentioned above, making sure an older person has sufficient liability coverage in the event of an accident at their home, or involving their car, is one crucial line of defense. An adequate homeowners policy will also protect them against unmanageable home repair costs in case of a fire or other covered calamity. If a homeowner hasn’t checked the coverage limits on their policy in recent years, now would be a good time to do so. Factoring in mortgage debt. Paying off the mortgage before retirement was once a common goal for Americans. But many people today reach retirement age with years to go on their loans. The danger is that if a financial emergency strikes—such as a big, unexpected medical bill—they may fall behind in their mortgage payments and run the risk of foreclosure. In a foreclosure, the lender can seize the property and sell it. So, if an older person has a lot of mortgage debt and few other assets to draw on in an emergency, it could make sense to pay off the mortgage as soon as possible—or downsize to a less expensive home without a mortgage. If someone periodically misses mortgage payments out of forgetfulness, setting up automatic bill payments through their bank could be an easy fix. That’s true for other regular bills as well. The reverse mortgage option—and risks. Often advertised on late-night TV, reverse mortgages are pitched as a way for people ages 62 and older to draw on the equity they’ve accumulated in their homes without having to pack up and move out. Mortgagees receive monthly income or a lump sum, and the lender gets its money back, with interest, by selling the home after the owner leaves it permanently. While a reverse mortgage lender can’t foreclose due to missed payments (because there aren’t any), the homeowner is required to keep the home in good repair and to pay the property taxes. If those bills become too burdensome, there’s a risk that the owner could lose their home. And when they die, a surviving spouse could lose the home if care wasn’t taken to protect their rights. For that reason, among others, reverse mortgages shouldn’t be entered into without a careful analysis. Scam artists have also discovered the reverse mortgage—another reason to move carefully when considering one. Medicaid estate recovery. In general, a person can keep their home while receiving Medicaid benefits, but after they die, Medicaid may attempt to recover a portion of what it paid for their care. Typically, however, their spouse (if they have one) can remain in the home until their death. These rules, like many involving Medicaid, can vary from state to state. You can learn more about a particular state’s program at its Medicaid website or through the federal Benefits.gov website.  Why Is It Good to Have Much of Your Wealth in Retirement Accounts? These assets are protected from lawsuits, in many cases. Note that 401(k) assets have more protections than individual retirement accounts (IRAs). The rules differ depending on the state where you live. How Long Can an Older Person Not Live in Their Home and Still Keep Their Reverse Mortgage? If they stop living in their home for 12 consecutive months, the reverse mortgage comes due. Be aware of these rules if a medical condition means that the homeowner has to go into a rehabilitation facility or nursing home for a period of time. What Should Someone Do if They Think They’ve Been Scammed? They should listen to their suspicions, gather evidence, and report it to the authorities if someone thinks a scam happened. The U.S. Department of Justice’s Office for Victims of Crime has a special National Elder Fraud Hotline, (833) 372-8311, to report abuses and scams. The Bottom Line Ideally, a person’s later years should be a time to enjoy life, and not to worry unduly over financial matters. By being aware of these potential dangers and taking smart steps now to avoid them, you can help the older people in your life—or yourself—keep crucial assets safe and sound.
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https://www.investopedia.com/terms/m/mortgage_rate_lock.asp
Mortgage Rate Lock: Definition, How It Works, Periods, and Fees
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-mortgage-rate-lock"></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 Mortgage Rate Lock? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A mortgage rate lock is an agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage for a specified time period at the prevailing market interest rate. A loan lock provides the borrower with protection against a rise in interest rates during the lock period. </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 lender may charge a lock fee, which the borrower must pay if they do not lock the interest rate. Alternatively, the lender may charge a marginally higher interest rate to begin with, just in case the borrower chooses not to lock the interest rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-advisorinsight" 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 mortgage rate lock guarantees the current rate of interest on a home loan through the purchase and closing process.</li><li>A rate lock protects you from the potential of rising interest rates during the home buying process.</li><li>Some rate locks will also grant a float-down provision that will allow you to take advantage of lower rates in the market.</li><li>A rate lock period will typically be 30 to 60 days.</li></ul></div></div></div> <span class="heading-toc" id="toc-explaining-a-mortgage-rate-lock"></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"> Explaining a Mortgage Rate Lock </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> When a borrower locks in an interest rate on a mortgage, it is binding for both the borrower and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-mortgage-lenders-5076852">mortgage lender</a>. The interest rate is locked for the period from the offer of the loan to its closing. The rate will stay consistent, regardless of market changes, as long as there are no changes to the application for the loan during the closing period.<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"> If there is new or corrected information on your income or credit score, or if the loan amount changes, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">mortgage interest rate</a> could be affected regardless. Furthermore, if you change the type of mortgage you are seeking or if the appraisal of the home is lower or higher than anticipated, the interest rate may change. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--mortgage-loan-calculator" id="mntl-sc-block_13-0"><div class="comp mortgage-loan-calculator mntl-block" data-defer="load" id="mortgage-loan-calculator_1-0"></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> If rates go down, you may have the option to withdraw from the agreement. The probability of such a withdrawal is known as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fallout-risk.asp">fallout risk</a> for the lender. You ensure that the lock agreement allows for withdrawal.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> In cases where prevailing rates decline during the lock period, you may have the option to take advantage of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage_rate_lock_float_down.asp">float-down provision</a> to lock in a new, lower rate. As with any feature that increases interest-rate risk to the lender, a float-down provision generally entails an additional cost. </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"> Mortgage locks generally last for 30 to 60 days. At a minimum they should cover the period necessary for the lender to process your loan application. An example of a short lock period is one that expires shortly after completion of the loan-approval process. In some cases this lock period can be as short as a few days.<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> <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>You can negotiate the terms of a loan lock and often extend the term of the lock for a fee or slightly higher rate.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-risks-of-taking-on-a-mortgage-rate-lock"></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"> Risks of Taking on a Mortgage Rate Lock </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> A downside, for the borrower, is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/should-i-lock-my-mortgage-rate-today-5223338">mortgage rate lock</a> would prevent them from taking advantage of lower rates that may occur during the lock period. Conversely the lender cannot take advantage of rises in interest rates. </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 borrowers walk away from the agreement if interest rates fall. And unscrupulous lenders have been known to let <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lock-period.asp">lock periods</a> expire if interest rates rise under the excuse that the borrower could not process the necessary paperwork in time. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage_rate_lock_deposit.asp">lock deposit</a> requirement indicates that both the borrower and the lender intend to keep the agreement. A rate lock may be issued in conjunction with a loan estimate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> A mortgage rate lock period could be an interval of 10, 30, 45, or 60 days. If the period is longer, you may have a higher interest rate. Essentially the rate lock would be lower on shorter intervals till the close because there is less risk of fluctuation in the market. If the lock period expires and the mortgage has not closed, it may be possible to request an extension to the rate lock. </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-callout mntl-block" id="mntl-sc-block_32-0"><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_33-0"><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 an extension is not granted, then the mortgage will be subject to the going market rates.<br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Even with a rate lock and a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage_rate_lock_float_down.asp">mortgage rate lock float down</a>, it is possible to end up paying a higher interest rate than the rate that you agreed to when you signed for the lock. This occurs because many lenders include a "cap" with the lock agreement. The cap permits the guaranteed rate to rise if interest rates rise before settlement. Because the cap sets a limit on the amount the rate can rise, it does provide some protection against rising interest rates.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_36-0"><span class="heading-toc" id="toc-what-if-i-lock-in-a-rate-and-it-goes-down"></span> <h2 class="mntl-sc-block-questionandanswer__question">What if I Lock in a Rate and it Goes Down?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you lock in a rate, you can only take advantage of a lower interest rate if you have a float down provision that allows you take the lower of the two interest rates. Otherwise, you will have to take the rate you locked in with the lender or withdraw from the agreement.</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-do-you-include-a-float-down-provision-in-a-rate-lock"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Include a Float Down Provision in a Rate Lock?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can include a float down provision when you lock-in a mortgage rate by paying any associated fees with this benefit. The fee will vary by lender but can be up to about 1% of the loan.<span class="ql-inline-citation" data-cite="3"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-can-you-negotiate-your-loan-terms-at-closing"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Negotiate Your Loan Terms at Closing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can negotiate the terms of your loan until you officially close the loan by signing the documents. You can also negotiate the costs of the mortgage up until that point. Keep in mind lenders are not obliged to make changes to the agreed-upon terms.<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_41-0"></div> <span class="heading-toc" id="toc-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"> Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> A mortgage rate lock can be valuable in a mortgage application process, especially when interest rates are rising. With this feature, you can secure one interest rate for your loan even if interest rates increase with broader market trends before your mortgage closes. Consider the current interest market rate trends and your financial situation to determine if a mortgage rate lock is right for you.<br> </br></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 a Mortgage Rate Lock? A mortgage rate lock is an agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage for a specified time period at the prevailing market interest rate. A loan lock provides the borrower with protection against a rise in interest rates during the lock period. The lender may charge a lock fee, which the borrower must pay if they do not lock the interest rate. Alternatively, the lender may charge a marginally higher interest rate to begin with, just in case the borrower chooses not to lock the interest rate. ### Key Takeaways * A mortgage rate lock guarantees the current rate of interest on a home loan through the purchase and closing process. * A rate lock protects you from the potential of rising interest rates during the home buying process. * Some rate locks will also grant a float-down provision that will allow you to take advantage of lower rates in the market. * A rate lock period will typically be 30 to 60 days. ## Explaining a Mortgage Rate Lock When a borrower locks in an interest rate on a mortgage, it is binding for both the borrower and the [mortgage lender](https://www.investopedia.com/best-mortgage-lenders-5076852). The interest rate is locked for the period from the offer of the loan to its closing. The rate will stay consistent, regardless of market changes, as long as there are no changes to the application for the loan during the closing period. If there is new or corrected information on your income or credit score, or if the loan amount changes, the [mortgage interest rate](https://www.investopedia.com/mortgage-rates-5094943) could be affected regardless. Furthermore, if you change the type of mortgage you are seeking or if the appraisal of the home is lower or higher than anticipated, the interest rate may change. If rates go down, you may have the option to withdraw from the agreement. The probability of such a withdrawal is known as a [fallout risk](https://www.investopedia.com/terms/f/fallout-risk.asp) for the lender. You ensure that the lock agreement allows for withdrawal. In cases where prevailing rates decline during the lock period, you may have the option to take advantage of a [float-down provision](https://www.investopedia.com/terms/m/mortgage_rate_lock_float_down.asp) to lock in a new, lower rate. As with any feature that increases interest-rate risk to the lender, a float-down provision generally entails an additional cost. Mortgage locks generally last for 30 to 60 days. At a minimum they should cover the period necessary for the lender to process your loan application. An example of a short lock period is one that expires shortly after completion of the loan-approval process. In some cases this lock period can be as short as a few days. ### You can negotiate the terms of a loan lock and often extend the term of the lock for a fee or slightly higher rate. ## Risks of Taking on a Mortgage Rate Lock A downside, for the borrower, is a [mortgage rate lock](https://www.investopedia.com/should-i-lock-my-mortgage-rate-today-5223338) would prevent them from taking advantage of lower rates that may occur during the lock period. Conversely the lender cannot take advantage of rises in interest rates. Some borrowers walk away from the agreement if interest rates fall. And unscrupulous lenders have been known to let [lock periods](https://www.investopedia.com/terms/l/lock-period.asp) expire if interest rates rise under the excuse that the borrower could not process the necessary paperwork in time. A [lock deposit](https://www.investopedia.com/terms/m/mortgage_rate_lock_deposit.asp) requirement indicates that both the borrower and the lender intend to keep the agreement. A rate lock may be issued in conjunction with a loan estimate. A mortgage rate lock period could be an interval of 10, 30, 45, or 60 days. If the period is longer, you may have a higher interest rate. Essentially the rate lock would be lower on shorter intervals till the close because there is less risk of fluctuation in the market. If the lock period expires and the mortgage has not closed, it may be possible to request an extension to the rate lock. ### If an extension is not granted, then the mortgage will be subject to the going market rates. Even with a rate lock and a [mortgage rate lock float down](https://www.investopedia.com/terms/m/mortgage_rate_lock_float_down.asp), it is possible to end up paying a higher interest rate than the rate that you agreed to when you signed for the lock. This occurs because many lenders include a "cap" with the lock agreement. The cap permits the guaranteed rate to rise if interest rates rise before settlement. Because the cap sets a limit on the amount the rate can rise, it does provide some protection against rising interest rates. ## What if I Lock in a Rate and it Goes Down? If you lock in a rate, you can only take advantage of a lower interest rate if you have a float down provision that allows you take the lower of the two interest rates. Otherwise, you will have to take the rate you locked in with the lender or withdraw from the agreement. ## How Do You Include a Float Down Provision in a Rate Lock? You can include a float down provision when you lock-in a mortgage rate by paying any associated fees with this benefit. The fee will vary by lender but can be up to about 1% of the loan. ## Can You Negotiate Your Loan Terms at Closing? You can negotiate the terms of your loan until you officially close the loan by signing the documents. You can also negotiate the costs of the mortgage up until that point. Keep in mind lenders are not obliged to make changes to the agreed-upon terms. ## Bottom Line A mortgage rate lock can be valuable in a mortgage application process, especially when interest rates are rising. With this feature, you can secure one interest rate for your loan even if interest rates increase with broader market trends before your mortgage closes. Consider the current interest market rate trends and your financial situation to determine if a mortgage rate lock is right for you.
What Is a Mortgage Rate Lock? A mortgage rate lock is an agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage for a specified time period at the prevailing market interest rate. A loan lock provides the borrower with protection against a rise in interest rates during the lock period. The lender may charge a lock fee, which the borrower must pay if they do not lock the interest rate. Alternatively, the lender may charge a marginally higher interest rate to begin with, just in case the borrower chooses not to lock the interest rate. Key Takeaways A mortgage rate lock guarantees the current rate of interest on a home loan through the purchase and closing process.A rate lock protects you from the potential of rising interest rates during the home buying process.Some rate locks will also grant a float-down provision that will allow you to take advantage of lower rates in the market.A rate lock period will typically be 30 to 60 days. Explaining a Mortgage Rate Lock When a borrower locks in an interest rate on a mortgage, it is binding for both the borrower and the mortgage lender. The interest rate is locked for the period from the offer of the loan to its closing. The rate will stay consistent, regardless of market changes, as long as there are no changes to the application for the loan during the closing period. If there is new or corrected information on your income or credit score, or if the loan amount changes, the mortgage interest rate could be affected regardless. Furthermore, if you change the type of mortgage you are seeking or if the appraisal of the home is lower or higher than anticipated, the interest rate may change. If rates go down, you may have the option to withdraw from the agreement. The probability of such a withdrawal is known as a fallout risk for the lender. You ensure that the lock agreement allows for withdrawal. In cases where prevailing rates decline during the lock period, you may have the option to take advantage of a float-down provision to lock in a new, lower rate. As with any feature that increases interest-rate risk to the lender, a float-down provision generally entails an additional cost. Mortgage locks generally last for 30 to 60 days. At a minimum they should cover the period necessary for the lender to process your loan application. An example of a short lock period is one that expires shortly after completion of the loan-approval process. In some cases this lock period can be as short as a few days. You can negotiate the terms of a loan lock and often extend the term of the lock for a fee or slightly higher rate. Risks of Taking on a Mortgage Rate Lock A downside, for the borrower, is a mortgage rate lock would prevent them from taking advantage of lower rates that may occur during the lock period. Conversely the lender cannot take advantage of rises in interest rates. Some borrowers walk away from the agreement if interest rates fall. And unscrupulous lenders have been known to let lock periods expire if interest rates rise under the excuse that the borrower could not process the necessary paperwork in time. A lock deposit requirement indicates that both the borrower and the lender intend to keep the agreement. A rate lock may be issued in conjunction with a loan estimate. A mortgage rate lock period could be an interval of 10, 30, 45, or 60 days. If the period is longer, you may have a higher interest rate. Essentially the rate lock would be lower on shorter intervals till the close because there is less risk of fluctuation in the market. If the lock period expires and the mortgage has not closed, it may be possible to request an extension to the rate lock. If an extension is not granted, then the mortgage will be subject to the going market rates. Even with a rate lock and a mortgage rate lock float down, it is possible to end up paying a higher interest rate than the rate that you agreed to when you signed for the lock. This occurs because many lenders include a "cap" with the lock agreement. The cap permits the guaranteed rate to rise if interest rates rise before settlement. Because the cap sets a limit on the amount the rate can rise, it does provide some protection against rising interest rates. What if I Lock in a Rate and it Goes Down? If you lock in a rate, you can only take advantage of a lower interest rate if you have a float down provision that allows you take the lower of the two interest rates. Otherwise, you will have to take the rate you locked in with the lender or withdraw from the agreement. How Do You Include a Float Down Provision in a Rate Lock? You can include a float down provision when you lock-in a mortgage rate by paying any associated fees with this benefit. The fee will vary by lender but can be up to about 1% of the loan. Can You Negotiate Your Loan Terms at Closing? You can negotiate the terms of your loan until you officially close the loan by signing the documents. You can also negotiate the costs of the mortgage up until that point. Keep in mind lenders are not obliged to make changes to the agreed-upon terms. Bottom Line A mortgage rate lock can be valuable in a mortgage application process, especially when interest rates are rising. With this feature, you can secure one interest rate for your loan even if interest rates increase with broader market trends before your mortgage closes. Consider the current interest market rate trends and your financial situation to determine if a mortgage rate lock is right for you.
[ [ "mortgage lender", "https://www.investopedia.com/best-mortgage-lenders-5076852" ], [ "mortgage interest rate", "https://www.investopedia.com/mortgage-rates-5094943" ], [ "fallout risk", "https://www.investopedia.com/terms/f/fallout-risk.asp" ], [ "float-down provision", "https://www.investopedia.com/terms/m/mortgage_rate_lock_float_down.asp" ], [ "mortgage rate lock", "https://www.investopedia.com/should-i-lock-my-mortgage-rate-today-5223338" ], [ "lock periods", "https://www.investopedia.com/terms/l/lock-period.asp" ], [ "lock deposit", "https://www.investopedia.com/terms/m/mortgage_rate_lock_deposit.asp" ], [ "mortgage rate lock float down", "https://www.investopedia.com/terms/m/mortgage_rate_lock_float_down.asp" ] ]
https://www.investopedia.com/terms/a/aggregation.asp
Aggregation: Meaning, Importance, Effects
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-aggregation"></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 Aggregation? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Aggregation in the futures markets is a process that combines of all futures positions owned or controlled by a single trader or group of traders into one aggregate position. Aggregation in a financial planning sense, however, is a time-saving accounting method that consolidates an individual’s financial data from various institutions. </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"> Aggregation is increasingly popular with advisors when servicing clients’ accounts, as they are able to discuss the accounts with the client in a cleaner, more easily understood way before they break down the account into its respective categories. </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><em>Financial advisors and banks aggregate their customer's information so that they are able to easily produce a clear picture of that client's finances. Also, it adds an additional level of protection for the client.</em></li><li><em>Advisors and planners hit a wall when their clients do not give them full access, and they argue that it does not allow them the full-picture view needed to give accurate advice on their client's finances.</em></li><li><em>Aggregation is beneficial for both parties but the edge goes to the financial advisor, who may or may not see a gap in a client's servicing where they might be able to upsell a product or service.</em></li></ul></div></div></div> <span class="heading-toc" id="toc-how-aggregation-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 Aggregation Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Financial advisors use account-aggregation technology to gather position and transaction information from investors’ retail accounts held at other financial institutions. Aggregators provide investors and their advisors with a centralized view of the investor’s complete financial situation, including daily updates. </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/terms/f/financialplanner.asp" rel="noopener noreferrer">Financial planners</a> handle both managed and non-managed accounts. Managed accounts contain assets under the advisor’s control that are held by the advisor’s custodian. The planners utilize portfolio management and reporting software to capture a client’s data through a direct link from the custodian. It is important for the planner to have all the accounts because aggregating them without the complete collection would paint an inaccurate picture of that client's finances. </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"> Additionally, non-managed accounts contain assets that are not under the advisor's management but are nevertheless important to the client’s financial plan. Examples include 401(k) accounts, personal checking or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savingsaccount.asp" rel="noopener noreferrer">savings accounts</a>, pensions, and credit card accounts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The advisor’s concern with managed accounts is lack of accessibility when the client does not provide log-in information. Advisors cannot offer an all-encompassing approach to financial planning and asset management without daily updates on non-managed accounts. </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-importance-of-account-aggregation"></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"> Importance of Account Aggregation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/account-aggregation.asp" rel="noopener noreferrer">Account aggregation</a> services solve the issue by providing a convenient method for obtaining current position and transaction information about accounts held at most retail banks or brokerages. Because investors’ privacy is protected, disclosing their personal-access information for each non-managed account is unnecessary. </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"> Financial planners use aggregate account software for analyzing a client’s total assets, liabilities, and net worth; income and expenses; and trends in assets, liability, net worth, and transaction values. The advisor also assesses various risks in a client’s portfolio before making investment decisions. </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-effects-of-account-aggregation"></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"> Effects of Account Aggregation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Many aggregation services offer direct data connections between brokerage firms and financial institutions, rather than using banks’ consumer-facing websites. Clients give financial institutions their consent by providing personal information for the aggregate services. </p></div>
## What Is Aggregation? Aggregation in the futures markets is a process that combines of all futures positions owned or controlled by a single trader or group of traders into one aggregate position. Aggregation in a financial planning sense, however, is a time-saving accounting method that consolidates an individual’s financial data from various institutions. Aggregation is increasingly popular with advisors when servicing clients’ accounts, as they are able to discuss the accounts with the client in a cleaner, more easily understood way before they break down the account into its respective categories. ### Key Takeaways * *Financial advisors and banks aggregate their customer's information so that they are able to easily produce a clear picture of that client's finances. Also, it adds an additional level of protection for the client.* * *Advisors and planners hit a wall when their clients do not give them full access, and they argue that it does not allow them the full-picture view needed to give accurate advice on their client's finances.* * *Aggregation is beneficial for both parties but the edge goes to the financial advisor, who may or may not see a gap in a client's servicing where they might be able to upsell a product or service.* ## How Aggregation Works Financial advisors use account-aggregation technology to gather position and transaction information from investors’ retail accounts held at other financial institutions. Aggregators provide investors and their advisors with a centralized view of the investor’s complete financial situation, including daily updates. [Financial planners](https://www.investopedia.com/terms/f/financialplanner.asp) handle both managed and non-managed accounts. Managed accounts contain assets under the advisor’s control that are held by the advisor’s custodian. The planners utilize portfolio management and reporting software to capture a client’s data through a direct link from the custodian. It is important for the planner to have all the accounts because aggregating them without the complete collection would paint an inaccurate picture of that client's finances. Additionally, non-managed accounts contain assets that are not under the advisor's management but are nevertheless important to the client’s financial plan. Examples include 401(k) accounts, personal checking or [savings accounts](https://www.investopedia.com/terms/s/savingsaccount.asp), pensions, and credit card accounts. The advisor’s concern with managed accounts is lack of accessibility when the client does not provide log-in information. Advisors cannot offer an all-encompassing approach to financial planning and asset management without daily updates on non-managed accounts. ## Importance of Account Aggregation [Account aggregation](https://www.investopedia.com/terms/a/account-aggregation.asp) services solve the issue by providing a convenient method for obtaining current position and transaction information about accounts held at most retail banks or brokerages. Because investors’ privacy is protected, disclosing their personal-access information for each non-managed account is unnecessary. Financial planners use aggregate account software for analyzing a client’s total assets, liabilities, and net worth; income and expenses; and trends in assets, liability, net worth, and transaction values. The advisor also assesses various risks in a client’s portfolio before making investment decisions. ## Effects of Account Aggregation Many aggregation services offer direct data connections between brokerage firms and financial institutions, rather than using banks’ consumer-facing websites. Clients give financial institutions their consent by providing personal information for the aggregate services.
What Is Aggregation? Aggregation in the futures markets is a process that combines of all futures positions owned or controlled by a single trader or group of traders into one aggregate position. Aggregation in a financial planning sense, however, is a time-saving accounting method that consolidates an individual’s financial data from various institutions. Aggregation is increasingly popular with advisors when servicing clients’ accounts, as they are able to discuss the accounts with the client in a cleaner, more easily understood way before they break down the account into its respective categories. Key Takeaways Financial advisors and banks aggregate their customer's information so that they are able to easily produce a clear picture of that client's finances. Also, it adds an additional level of protection for the client.Advisors and planners hit a wall when their clients do not give them full access, and they argue that it does not allow them the full-picture view needed to give accurate advice on their client's finances.Aggregation is beneficial for both parties but the edge goes to the financial advisor, who may or may not see a gap in a client's servicing where they might be able to upsell a product or service. How Aggregation Works Financial advisors use account-aggregation technology to gather position and transaction information from investors’ retail accounts held at other financial institutions. Aggregators provide investors and their advisors with a centralized view of the investor’s complete financial situation, including daily updates. Financial planners handle both managed and non-managed accounts. Managed accounts contain assets under the advisor’s control that are held by the advisor’s custodian. The planners utilize portfolio management and reporting software to capture a client’s data through a direct link from the custodian. It is important for the planner to have all the accounts because aggregating them without the complete collection would paint an inaccurate picture of that client's finances. Additionally, non-managed accounts contain assets that are not under the advisor's management but are nevertheless important to the client’s financial plan. Examples include 401(k) accounts, personal checking or savings accounts, pensions, and credit card accounts. The advisor’s concern with managed accounts is lack of accessibility when the client does not provide log-in information. Advisors cannot offer an all-encompassing approach to financial planning and asset management without daily updates on non-managed accounts. Importance of Account Aggregation Account aggregation services solve the issue by providing a convenient method for obtaining current position and transaction information about accounts held at most retail banks or brokerages. Because investors’ privacy is protected, disclosing their personal-access information for each non-managed account is unnecessary. Financial planners use aggregate account software for analyzing a client’s total assets, liabilities, and net worth; income and expenses; and trends in assets, liability, net worth, and transaction values. The advisor also assesses various risks in a client’s portfolio before making investment decisions. Effects of Account Aggregation Many aggregation services offer direct data connections between brokerage firms and financial institutions, rather than using banks’ consumer-facing websites. Clients give financial institutions their consent by providing personal information for the aggregate services.
[ [ "Financial planners", "https://www.investopedia.com/terms/f/financialplanner.asp" ], [ "savings accounts", "https://www.investopedia.com/terms/s/savingsaccount.asp" ], [ "Account aggregation", "https://www.investopedia.com/terms/a/account-aggregation.asp" ] ]
https://www.investopedia.com/adt-stock-slides-after-announcing-secondary-public-offering-key-level-to-watch-8605503
ADT Stock Slides After Announcement of Secondary Public Offering—Key Level to Watch
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>ADT shares fell sharply in premarket trading Thursday after the company announced a secondary public offering of its stock.</li><li>Sixty five million shares will be priced to the public at $6.50 per share, representing a 13% discount to Wednesday's $7.47 closing price. The underwriters of the of the offering have a 30-day option to purchase up to an additional 9.75 million shares of ADT’s common stock.</li><li>ADT has agreed to purchase 15 million shares from the underwriters as part of its $350 million stock buyback program.</li><li>Monitor if the ADT share price finds support around $6.80 from a 12-month horizontal line that sits in close proximity to the 50-day moving average.</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 in ADT (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=adt">ADT</a>) were down nearly 12% in premarket trading Thursday morning after the home security company announced a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/secondaryoffering.asp">secondary public offering</a> of its stock. </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"> Under the terms of the ADT secondary offering, 65 million shares of the company’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commonstock.asp">common stock</a> held by entities managed by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/affiliate.asp">affiliates</a> of Apollo Global Management (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=apo">APO</a>) will be priced to the public at $6.50 per share, representing a 13% discount to Wednesday’s $7.47 closing price. The company expects the offering to close on March 11.<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 addition, the managing underwriters—who include Morgan Stanley (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ms">MS</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>), Apollo Global Securities, and RBC Capital Markets—have a 30-day option to purchase up to an additional 9.75 million shares of ADT’s common stock from the selling shareholders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> ADT said that it will not receive any proceeds from the offering and has agreed to purchase 15 million shares from the underwriters as part of its $350 million <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/02/041702.asp">stock buyback</a> program, most likely a move aimed at countering the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dilution.asp">dilution</a> of its shares. The secondary offering comes roughly a week after the company missed Wall Street’s 2024 <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revenue.asp">revenue</a> forecast amid softness in its solar business.<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 ADT share price recently broke above a period of nine-month <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sidewaysmarket.asp">sideways drift</a> on above-average volume. Moreover, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/06/differencebetweenmas.asp">50-day moving average</a> crossed back above the 200-day moving average in early January to create a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/goldencross.asp">golden cross</a> – a chart signal that often marks the start of a new uptrend.  </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"> However, with news-driven selling looking likely in the short-term, keep an eye on if the stock finds support from a key 12-month <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/horizontal-line.asp">horizontal line</a> that sits in close proximity to the 50-day moving average around $6.80. </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"> ADT shares were down 11.9% at $6.58 about three hours before Thursday's opening bell.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer">warranty and liability disclaimer</a> for more info.</em> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> <em>As of the date this article was written, the author does not own any of the above securities.</em><br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? 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 * ADT shares fell sharply in premarket trading Thursday after the company announced a secondary public offering of its stock. * Sixty five million shares will be priced to the public at $6.50 per share, representing a 13% discount to Wednesday's $7.47 closing price. The underwriters of the of the offering have a 30-day option to purchase up to an additional 9.75 million shares of ADT’s common stock. * ADT has agreed to purchase 15 million shares from the underwriters as part of its $350 million stock buyback program. * Monitor if the ADT share price finds support around $6.80 from a 12-month horizontal line that sits in close proximity to the 50-day moving average. Shares in ADT ([ADT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=adt)) were down nearly 12% in premarket trading Thursday morning after the home security company announced a [secondary public offering](https://www.investopedia.com/terms/s/secondaryoffering.asp) of its stock. Under the terms of the ADT secondary offering, 65 million shares of the company’s [common stock](https://www.investopedia.com/terms/c/commonstock.asp) held by entities managed by [affiliates](https://www.investopedia.com/terms/a/affiliate.asp) of Apollo Global Management ([APO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=apo)) will be priced to the public at $6.50 per share, representing a 13% discount to Wednesday’s $7.47 closing price. The company expects the offering to close on March 11. In addition, the managing underwriters—who include Morgan Stanley ([MS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ms)), Barclays ([BCS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=bcs)), Apollo Global Securities, and RBC Capital Markets—have a 30-day option to purchase up to an additional 9.75 million shares of ADT’s common stock from the selling shareholders. ADT said that it will not receive any proceeds from the offering and has agreed to purchase 15 million shares from the underwriters as part of its $350 million [stock buyback](https://www.investopedia.com/articles/02/041702.asp) program, most likely a move aimed at countering the [dilution](https://www.investopedia.com/terms/d/dilution.asp) of its shares. The secondary offering comes roughly a week after the company missed Wall Street’s 2024 [revenue](https://www.investopedia.com/terms/r/revenue.asp) forecast amid softness in its solar business. The ADT share price recently broke above a period of nine-month [sideways drift](https://www.investopedia.com/terms/s/sidewaysmarket.asp) on above-average volume. Moreover, the [50-day moving average](https://www.investopedia.com/ask/answers/06/differencebetweenmas.asp) crossed back above the 200-day moving average in early January to create a [golden cross](https://www.investopedia.com/terms/g/goldencross.asp) – a chart signal that often marks the start of a new uptrend.  However, with news-driven selling looking likely in the short-term, keep an eye on if the stock finds support from a key 12-month [horizontal line](https://www.investopedia.com/terms/h/horizontal-line.asp) that sits in close proximity to the 50-day moving average around $6.80. ADT shares were down 11.9% at $6.58 about three hours before Thursday's opening bell. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.* *As of the date this article was written, the author does not own any of the above securities.* Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
Key Takeaways ADT shares fell sharply in premarket trading Thursday after the company announced a secondary public offering of its stock.Sixty five million shares will be priced to the public at $6.50 per share, representing a 13% discount to Wednesday's $7.47 closing price. The underwriters of the of the offering have a 30-day option to purchase up to an additional 9.75 million shares of ADT’s common stock.ADT has agreed to purchase 15 million shares from the underwriters as part of its $350 million stock buyback program.Monitor if the ADT share price finds support around $6.80 from a 12-month horizontal line that sits in close proximity to the 50-day moving average. Shares in ADT (ADT) were down nearly 12% in premarket trading Thursday morning after the home security company announced a secondary public offering of its stock. Under the terms of the ADT secondary offering, 65 million shares of the company’s common stock held by entities managed by affiliates of Apollo Global Management (APO) will be priced to the public at $6.50 per share, representing a 13% discount to Wednesday’s $7.47 closing price. The company expects the offering to close on March 11. In addition, the managing underwriters—who include Morgan Stanley (MS), Barclays (BCS), Apollo Global Securities, and RBC Capital Markets—have a 30-day option to purchase up to an additional 9.75 million shares of ADT’s common stock from the selling shareholders. ADT said that it will not receive any proceeds from the offering and has agreed to purchase 15 million shares from the underwriters as part of its $350 million stock buyback program, most likely a move aimed at countering the dilution of its shares. The secondary offering comes roughly a week after the company missed Wall Street’s 2024 revenue forecast amid softness in its solar business. The ADT share price recently broke above a period of nine-month sideways drift on above-average volume. Moreover, the 50-day moving average crossed back above the 200-day moving average in early January to create a golden cross – a chart signal that often marks the start of a new uptrend.  However, with news-driven selling looking likely in the short-term, keep an eye on if the stock finds support from a key 12-month horizontal line that sits in close proximity to the 50-day moving average around $6.80. ADT shares were down 11.9% at $6.58 about three hours before Thursday's opening bell. The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own any of the above securities. Do you have a news tip for Investopedia reporters? Please email us at [email protected]
[ [ "ADT", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=adt" ], [ "secondary public offering", "https://www.investopedia.com/terms/s/secondaryoffering.asp" ], [ "common stock", "https://www.investopedia.com/terms/c/commonstock.asp" ], [ "affiliates", "https://www.investopedia.com/terms/a/affiliate.asp" ], [ "APO", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=apo" ], [ "MS", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=ms" ], [ "BCS", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=bcs" ], [ "stock buyback", "https://www.investopedia.com/articles/02/041702.asp" ], [ "dilution", "https://www.investopedia.com/terms/d/dilution.asp" ], [ "revenue", "https://www.investopedia.com/terms/r/revenue.asp" ], [ "sideways drift", "https://www.investopedia.com/terms/s/sidewaysmarket.asp" ], [ "50-day moving average", "https://www.investopedia.com/ask/answers/06/differencebetweenmas.asp" ], [ "golden cross", "https://www.investopedia.com/terms/g/goldencross.asp" ], [ "horizontal line", "https://www.investopedia.com/terms/h/horizontal-line.asp" ], [ "warranty and liability disclaimer", "https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/the-city-of-london-corporation-7547068
City of London Corp.: Everything You Need to Know
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-city-of-london-corp"></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 City of London Corp.? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The City of London Corp., also known as the Corporation of London, is the governing body for the Square Mile, better known as the City of London (or just “the City”), the historical and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/londons-financial-districts-7548716">financial district of London</a>. It has a unique status, covering an area of 1.1 square miles and at the heart of Greater London. </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 City, as it is colloquially known, is considered to be the world’s oldest continuous municipal government, with a history that extends over 1,000 years.<span class="ql-inline-citation" data-cite="1"></span> It therefore should not be confused with the Greater London Authority, which covers the whole of the much larger London metropolitan area in the United Kingdom. </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"> Historically, the City was the entire extent of London, but as the metropolis grew, it became incorporated as just one part of it. The corporation was established in medieval times, and despite reforms and changes over the centuries, many ancient offices and traditions are still observed today. </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 City of London Corp. is the governing body for the City of London, also known as “the City,” the historic and financial district of London. It is at the heart of Greater London.</li><li>The City is the world’s oldest continuous municipal government, with over 1,000 years of history.</li><li>The City of London Corp., also known as the Corporation of London, functions as both a local authority and a ceremonial county, with two primary decision-making bodies: the Court of Aldermen and the Court of Common Council, made up of elected Aldermen and Common Councilmen.</li><li>The City of London Corp.’s responsibilities extend beyond those of a typical local authority, including managing open spaces, operating the central criminal court, running London’s wholesale food markets, and promoting London as a leading global city for international trade and finance.</li><li>The corporation is incorporated and manages the “City’s Cash” fund, a fund built up over centuries, used for activities not covered by taxpayer money.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-does-the-city-of-london-corp-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> How Does the City of London Corp. Work? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The City of London Corp. functions as both a local governing authority and a ceremonial committee. It has two primary decision-making bodies: the Court of Aldermen and the Court of Common Council.<span class="ql-inline-citation" data-cite="2"></span> These two bodies oversee the strategic direction and decision-making processes of the City of London Corp. </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 <strong>Court of Aldermen</strong> is composed of the Aldermen of the City’s 25 wards. An alderman is a member of a municipal assembly or council, found today in many jurisdictions. The term originated in the early medieval English boroughs and “shire” counties where the alderman was a leader of a territorial unit or locality, similar to the role of a mayor. </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"> Aldermen serve a term of six years, after which they can be reelected. Among their duties, Aldermen also play a significant role in choosing the Lord Mayor of London, an annual position in which the occupant acts as the symbolic head of the City of London Corp. Aldermen also serve on the Court of Common Council committees and act as governors and trustees of a variety of schools, hospitals, charitable foundations, and trusts with connections to the City of London.<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"> The <strong>Court of Common Council</strong> consists of 100 Common Councilmen, elected by the residents and businesses of the City. It is the City of London Corp.’s primary decision-making body, and it usually meets every four weeks. Its main business focuses on the reports of committees and members’ questions and motions. </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 Court of Common Council works through committees, like any other local authority, but it is unique in that it is politically nonparty. Each ward is represented by two to 10 members, depending on the size of the electorate.<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> <span class="heading-toc" id="toc-city-of-london-corp-responsibilities"></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"> City of London Corp. Responsibilities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The City of London Corp. has three main functions: to support and promote the City as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-london-became-the-world-s-financial-hub-4589324">a leading global financial and business hub</a>, to provide local government services to the residents and businesses of the Square Mile, and to manage a range of assets and open spaces for the benefit of London and the nation. Some of its responsibilities include:<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <li>Providing police, fire, and environmental services</li><li>Maintaining roads, bridges, and street lighting</li><li>Regulating markets, licensing, and trading standards</li><li>Supporting education, culture, and heritage</li><li>Managing parks, gardens, and green spaces</li><li>Supporting charities and community organizations<br/></li><li>Hosting state and civic events</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> In addition to the usual duties of a local authority, like garbage collection and maintaining streets, it also has some unusual roles due to its historical status. These include managing open spaces like Hampstead Heath and Epping Forest, operating the central criminal court (Old Bailey), running London’s wholesale food markets (Billingsgate, Smithfield, and New Spitalfields), and operating the Barbican Centre, the Guildhall School of Music and Drama, and the Museum of London. </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">City of London Corp.’s Mission</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The City of London Corp.’s mission is to provide high-quality public services to its residents, workers, and visitors. It also aims to support and promote London as a leading global city, particularly as a hub for international trade and finance.<span class="ql-inline-citation" data-cite="3"></span><br/></p></div></div></div> <span class="heading-toc" id="toc-city-of-london-corp-organizational-structure"></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"> City of London Corp. Organizational Structure </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> The City of London Corp. consists of several key members and entities: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <li><strong>Lord Mayor</strong>: The Lord Mayor is the head of the corporation and serves as a key representative both in the U.K. and abroad. They promote the U.K. as a place for business and financial services.<span class="ql-inline-citation" data-cite="4"></span></li><li><strong>Remembrancer</strong>: One of the City’s four law officers. This office is responsible for the protection of the City’s constitution. The role was created in 1571. The office acts as a liaison between the City and the U.K. Parliament.<span class="ql-inline-citation" data-cite="9"></span></li><li><strong>Aldermen</strong>: There are 25 Aldermen, one for each ward of the City. They have a range of responsibilities, including being magistrates.<span class="ql-inline-citation" data-cite="2"></span></li><li><strong>Sheriffs</strong>: The office of the sheriff is the oldest official position in London. The name derives from the Shire-Reeve who exercised the king’s authority over the citizens, collecting royal revenues and enforcing royal justice. There are two sheriffs elected annually who support the Lord Mayor in the Lord Mayor’s judicial role. It is customary for one or both of the sheriffs to attend the Lord Mayor on the Lord Mayor’s official occasions at home and abroad.<span class="ql-inline-citation" data-cite="5"></span></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span><li><strong>Liverymen</strong>: Members of the City’s livery companies (i.e., guilds), who play a key part in the City’s governance, including the election of the Lord Mayor and the sheriffs. Some livery guilds can trace their origins back to the 12th century, with the earliest charter still in existence being granted to the Weavers’ Co. in 1155. Today, there are more than 100 liveries, and though trading conditions have changed since their inception, their work is as pertinent as it always has been.<span class="ql-inline-citation" data-cite="6"></span></li><li><strong>Freemen</strong>: The Freedom of the City, an honor bestowed by the City of London Corp., is the first step to becoming a liveryman.</li><li><strong>Committees</strong>: The work of the corporation is undertaken through a number of committees that meet regularly throughout the year, dealing with matters such as planning and transportation, markets, police authority, etc.<span class="ql-inline-citation" data-cite="2"></span></li><li><strong>Common Councillors:</strong> The 100 Common Councilmen are elected by the residents and businesses of the City and form the bulk of the Court of Common Council.<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_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_35-0"><span class="heading-toc" id="toc-what-does-the-city-of-london-corp-do"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does the City of London Corp. Do?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The City of London Corp. is the municipal governing body of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/100115/most-expensive-neighborhoods-london.asp">City of London neighborhood</a>, the historic center of London and the location of much of the U.K.’s financial sector. The corporation provides local government services for the City of London, manages a range of public services, promotes London as a financial center, and maintains historical and open spaces.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-what-is-the-legal-entity-of-the-city-of-london"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Legal Entity of the City of London?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The City of London Corp. is a sui generis (unique) local authority for the City of London. It has the status of both a local council and a ceremonial county. This means that it has some powers and responsibilities that are different from other local authorities in England.</p><p>For example, it has its own police force, the City of London Police, and its own courts, the Central Criminal Court (also known as the Old Bailey) and the Mayor’s and City of London Court. It also has some special privileges and exemptions, such as being exempt from the Freedom of Information Act and the Human Rights Act.</p><p>The corporation is not accountable to the U.K. Parliament or the mayor of London, but to its own electorate and members.<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_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-is-the-city-of-london-incorporated"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is the City of London Incorporated?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, the City of London is incorporated. The term “corporation” in its name denotes this. It functions similarly to other municipal corporations but also has unique aspects due to its historical status and specific role in the governance of the City of London. It is not a corporation in the sense of a business entity, but rather a local governing authority.</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-how-much-money-does-the-city-of-london-corp-have"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Money Does the City of London Corp. Have?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The exact amount of money that the City of London Corp. has can change each year and is not usually publicly disclosed in full. The corporation holds a “City’s Cash” fund, which has been built up over the past 800 years and is used to fund its activities that are not covered by taxpayer money.<span class="ql-inline-citation" data-cite="7"></span></p><p>According to its 2022 financials, the corporation held assets worth just over £2.8 billion, most of which is composed of real estate holdings. In terms of cash, it held around £20 million in 2022.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <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"> The City of London Corp. holds a unique position in the governance of London and the U.K. more broadly. Rooted in a rich history, it not only serves as the municipal authority for the City of London but also takes on responsibilities that far outreach those of a typical local council. </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"> Understanding the corporation’s structure and roles provides a fascinating insight into the blend of tradition and modernity that characterizes the governance of the City of London. </p></div>
## What Is the City of London Corp.? The City of London Corp., also known as the Corporation of London, is the governing body for the Square Mile, better known as the City of London (or just “the City”), the historical and [financial district of London](https://www.investopedia.com/londons-financial-districts-7548716). It has a unique status, covering an area of 1.1 square miles and at the heart of Greater London. The City, as it is colloquially known, is considered to be the world’s oldest continuous municipal government, with a history that extends over 1,000 years. It therefore should not be confused with the Greater London Authority, which covers the whole of the much larger London metropolitan area in the United Kingdom. Historically, the City was the entire extent of London, but as the metropolis grew, it became incorporated as just one part of it. The corporation was established in medieval times, and despite reforms and changes over the centuries, many ancient offices and traditions are still observed today. ### Key Takeaways * The City of London Corp. is the governing body for the City of London, also known as “the City,” the historic and financial district of London. It is at the heart of Greater London. * The City is the world’s oldest continuous municipal government, with over 1,000 years of history. * The City of London Corp., also known as the Corporation of London, functions as both a local authority and a ceremonial county, with two primary decision-making bodies: the Court of Aldermen and the Court of Common Council, made up of elected Aldermen and Common Councilmen. * The City of London Corp.’s responsibilities extend beyond those of a typical local authority, including managing open spaces, operating the central criminal court, running London’s wholesale food markets, and promoting London as a leading global city for international trade and finance. * The corporation is incorporated and manages the “City’s Cash” fund, a fund built up over centuries, used for activities not covered by taxpayer money. ## How Does the City of London Corp. Work? The City of London Corp. functions as both a local governing authority and a ceremonial committee. It has two primary decision-making bodies: the Court of Aldermen and the Court of Common Council. These two bodies oversee the strategic direction and decision-making processes of the City of London Corp. The **Court of Aldermen** is composed of the Aldermen of the City’s 25 wards. An alderman is a member of a municipal assembly or council, found today in many jurisdictions. The term originated in the early medieval English boroughs and “shire” counties where the alderman was a leader of a territorial unit or locality, similar to the role of a mayor. Aldermen serve a term of six years, after which they can be reelected. Among their duties, Aldermen also play a significant role in choosing the Lord Mayor of London, an annual position in which the occupant acts as the symbolic head of the City of London Corp. Aldermen also serve on the Court of Common Council committees and act as governors and trustees of a variety of schools, hospitals, charitable foundations, and trusts with connections to the City of London. The **Court of Common Council** consists of 100 Common Councilmen, elected by the residents and businesses of the City. It is the City of London Corp.’s primary decision-making body, and it usually meets every four weeks. Its main business focuses on the reports of committees and members’ questions and motions. The Court of Common Council works through committees, like any other local authority, but it is unique in that it is politically nonparty. Each ward is represented by two to 10 members, depending on the size of the electorate. ## City of London Corp. Responsibilities The City of London Corp. has three main functions: to support and promote the City as [a leading global financial and business hub](https://www.investopedia.com/how-london-became-the-world-s-financial-hub-4589324), to provide local government services to the residents and businesses of the Square Mile, and to manage a range of assets and open spaces for the benefit of London and the nation. Some of its responsibilities include: * Providing police, fire, and environmental services * Maintaining roads, bridges, and street lighting * Regulating markets, licensing, and trading standards * Supporting education, culture, and heritage * Managing parks, gardens, and green spaces * Supporting charities and community organizations * Hosting state and civic events In addition to the usual duties of a local authority, like garbage collection and maintaining streets, it also has some unusual roles due to its historical status. These include managing open spaces like Hampstead Heath and Epping Forest, operating the central criminal court (Old Bailey), running London’s wholesale food markets (Billingsgate, Smithfield, and New Spitalfields), and operating the Barbican Centre, the Guildhall School of Music and Drama, and the Museum of London. ### City of London Corp.’s Mission The City of London Corp.’s mission is to provide high-quality public services to its residents, workers, and visitors. It also aims to support and promote London as a leading global city, particularly as a hub for international trade and finance. ## City of London Corp. Organizational Structure The City of London Corp. consists of several key members and entities: * **Lord Mayor**: The Lord Mayor is the head of the corporation and serves as a key representative both in the U.K. and abroad. They promote the U.K. as a place for business and financial services. * **Remembrancer**: One of the City’s four law officers. This office is responsible for the protection of the City’s constitution. The role was created in 1571. The office acts as a liaison between the City and the U.K. Parliament. * **Aldermen**: There are 25 Aldermen, one for each ward of the City. They have a range of responsibilities, including being magistrates. * **Sheriffs**: The office of the sheriff is the oldest official position in London. The name derives from the Shire-Reeve who exercised the king’s authority over the citizens, collecting royal revenues and enforcing royal justice. There are two sheriffs elected annually who support the Lord Mayor in the Lord Mayor’s judicial role. It is customary for one or both of the sheriffs to attend the Lord Mayor on the Lord Mayor’s official occasions at home and abroad. * **Liverymen**: Members of the City’s livery companies (i.e., guilds), who play a key part in the City’s governance, including the election of the Lord Mayor and the sheriffs. Some livery guilds can trace their origins back to the 12th century, with the earliest charter still in existence being granted to the Weavers’ Co. in 1155. Today, there are more than 100 liveries, and though trading conditions have changed since their inception, their work is as pertinent as it always has been. * **Freemen**: The Freedom of the City, an honor bestowed by the City of London Corp., is the first step to becoming a liveryman. * **Committees**: The work of the corporation is undertaken through a number of committees that meet regularly throughout the year, dealing with matters such as planning and transportation, markets, police authority, etc. * **Common Councillors:** The 100 Common Councilmen are elected by the residents and businesses of the City and form the bulk of the Court of Common Council. ## What Does the City of London Corp. Do? The City of London Corp. is the municipal governing body of the [City of London neighborhood](https://www.investopedia.com/articles/personal-finance/100115/most-expensive-neighborhoods-london.asp), the historic center of London and the location of much of the U.K.’s financial sector. The corporation provides local government services for the City of London, manages a range of public services, promotes London as a financial center, and maintains historical and open spaces. ## What Is the Legal Entity of the City of London? The City of London Corp. is a sui generis (unique) local authority for the City of London. It has the status of both a local council and a ceremonial county. This means that it has some powers and responsibilities that are different from other local authorities in England. For example, it has its own police force, the City of London Police, and its own courts, the Central Criminal Court (also known as the Old Bailey) and the Mayor’s and City of London Court. It also has some special privileges and exemptions, such as being exempt from the Freedom of Information Act and the Human Rights Act. The corporation is not accountable to the U.K. Parliament or the mayor of London, but to its own electorate and members. ## Is the City of London Incorporated? Yes, the City of London is incorporated. The term “corporation” in its name denotes this. It functions similarly to other municipal corporations but also has unique aspects due to its historical status and specific role in the governance of the City of London. It is not a corporation in the sense of a business entity, but rather a local governing authority. ## How Much Money Does the City of London Corp. Have? The exact amount of money that the City of London Corp. has can change each year and is not usually publicly disclosed in full. The corporation holds a “City’s Cash” fund, which has been built up over the past 800 years and is used to fund its activities that are not covered by taxpayer money. According to its 2022 financials, the corporation held assets worth just over £2.8 billion, most of which is composed of real estate holdings. In terms of cash, it held around £20 million in 2022. ## The Bottom Line The City of London Corp. holds a unique position in the governance of London and the U.K. more broadly. Rooted in a rich history, it not only serves as the municipal authority for the City of London but also takes on responsibilities that far outreach those of a typical local council. Understanding the corporation’s structure and roles provides a fascinating insight into the blend of tradition and modernity that characterizes the governance of the City of London.
What Is the City of London Corp.? The City of London Corp., also known as the Corporation of London, is the governing body for the Square Mile, better known as the City of London (or just “the City”), the historical and financial district of London. It has a unique status, covering an area of 1.1 square miles and at the heart of Greater London. The City, as it is colloquially known, is considered to be the world’s oldest continuous municipal government, with a history that extends over 1,000 years. It therefore should not be confused with the Greater London Authority, which covers the whole of the much larger London metropolitan area in the United Kingdom. Historically, the City was the entire extent of London, but as the metropolis grew, it became incorporated as just one part of it. The corporation was established in medieval times, and despite reforms and changes over the centuries, many ancient offices and traditions are still observed today. Key Takeaways The City of London Corp. is the governing body for the City of London, also known as “the City,” the historic and financial district of London. It is at the heart of Greater London.The City is the world’s oldest continuous municipal government, with over 1,000 years of history.The City of London Corp., also known as the Corporation of London, functions as both a local authority and a ceremonial county, with two primary decision-making bodies: the Court of Aldermen and the Court of Common Council, made up of elected Aldermen and Common Councilmen.The City of London Corp.’s responsibilities extend beyond those of a typical local authority, including managing open spaces, operating the central criminal court, running London’s wholesale food markets, and promoting London as a leading global city for international trade and finance.The corporation is incorporated and manages the “City’s Cash” fund, a fund built up over centuries, used for activities not covered by taxpayer money. How Does the City of London Corp. Work? The City of London Corp. functions as both a local governing authority and a ceremonial committee. It has two primary decision-making bodies: the Court of Aldermen and the Court of Common Council. These two bodies oversee the strategic direction and decision-making processes of the City of London Corp. The Court of Aldermen is composed of the Aldermen of the City’s 25 wards. An alderman is a member of a municipal assembly or council, found today in many jurisdictions. The term originated in the early medieval English boroughs and “shire” counties where the alderman was a leader of a territorial unit or locality, similar to the role of a mayor. Aldermen serve a term of six years, after which they can be reelected. Among their duties, Aldermen also play a significant role in choosing the Lord Mayor of London, an annual position in which the occupant acts as the symbolic head of the City of London Corp. Aldermen also serve on the Court of Common Council committees and act as governors and trustees of a variety of schools, hospitals, charitable foundations, and trusts with connections to the City of London. The Court of Common Council consists of 100 Common Councilmen, elected by the residents and businesses of the City. It is the City of London Corp.’s primary decision-making body, and it usually meets every four weeks. Its main business focuses on the reports of committees and members’ questions and motions. The Court of Common Council works through committees, like any other local authority, but it is unique in that it is politically nonparty. Each ward is represented by two to 10 members, depending on the size of the electorate. City of London Corp. Responsibilities The City of London Corp. has three main functions: to support and promote the City as a leading global financial and business hub, to provide local government services to the residents and businesses of the Square Mile, and to manage a range of assets and open spaces for the benefit of London and the nation. Some of its responsibilities include: Providing police, fire, and environmental servicesMaintaining roads, bridges, and street lightingRegulating markets, licensing, and trading standardsSupporting education, culture, and heritageManaging parks, gardens, and green spacesSupporting charities and community organizationsHosting state and civic events In addition to the usual duties of a local authority, like garbage collection and maintaining streets, it also has some unusual roles due to its historical status. These include managing open spaces like Hampstead Heath and Epping Forest, operating the central criminal court (Old Bailey), running London’s wholesale food markets (Billingsgate, Smithfield, and New Spitalfields), and operating the Barbican Centre, the Guildhall School of Music and Drama, and the Museum of London. City of London Corp.’s Mission The City of London Corp.’s mission is to provide high-quality public services to its residents, workers, and visitors. It also aims to support and promote London as a leading global city, particularly as a hub for international trade and finance. City of London Corp. Organizational Structure The City of London Corp. consists of several key members and entities: Lord Mayor: The Lord Mayor is the head of the corporation and serves as a key representative both in the U.K. and abroad. They promote the U.K. as a place for business and financial services.Remembrancer: One of the City’s four law officers. This office is responsible for the protection of the City’s constitution. The role was created in 1571. The office acts as a liaison between the City and the U.K. Parliament.Aldermen: There are 25 Aldermen, one for each ward of the City. They have a range of responsibilities, including being magistrates.Sheriffs: The office of the sheriff is the oldest official position in London. The name derives from the Shire-Reeve who exercised the king’s authority over the citizens, collecting royal revenues and enforcing royal justice. There are two sheriffs elected annually who support the Lord Mayor in the Lord Mayor’s judicial role. It is customary for one or both of the sheriffs to attend the Lord Mayor on the Lord Mayor’s official occasions at home and abroad.Liverymen: Members of the City’s livery companies (i.e., guilds), who play a key part in the City’s governance, including the election of the Lord Mayor and the sheriffs. Some livery guilds can trace their origins back to the 12th century, with the earliest charter still in existence being granted to the Weavers’ Co. in 1155. Today, there are more than 100 liveries, and though trading conditions have changed since their inception, their work is as pertinent as it always has been.Freemen: The Freedom of the City, an honor bestowed by the City of London Corp., is the first step to becoming a liveryman.Committees: The work of the corporation is undertaken through a number of committees that meet regularly throughout the year, dealing with matters such as planning and transportation, markets, police authority, etc.Common Councillors: The 100 Common Councilmen are elected by the residents and businesses of the City and form the bulk of the Court of Common Council. What Does the City of London Corp. Do? The City of London Corp. is the municipal governing body of the City of London neighborhood, the historic center of London and the location of much of the U.K.’s financial sector. The corporation provides local government services for the City of London, manages a range of public services, promotes London as a financial center, and maintains historical and open spaces. What Is the Legal Entity of the City of London? The City of London Corp. is a sui generis (unique) local authority for the City of London. It has the status of both a local council and a ceremonial county. This means that it has some powers and responsibilities that are different from other local authorities in England.For example, it has its own police force, the City of London Police, and its own courts, the Central Criminal Court (also known as the Old Bailey) and the Mayor’s and City of London Court. It also has some special privileges and exemptions, such as being exempt from the Freedom of Information Act and the Human Rights Act.The corporation is not accountable to the U.K. Parliament or the mayor of London, but to its own electorate and members. Is the City of London Incorporated? Yes, the City of London is incorporated. The term “corporation” in its name denotes this. It functions similarly to other municipal corporations but also has unique aspects due to its historical status and specific role in the governance of the City of London. It is not a corporation in the sense of a business entity, but rather a local governing authority. How Much Money Does the City of London Corp. Have? The exact amount of money that the City of London Corp. has can change each year and is not usually publicly disclosed in full. The corporation holds a “City’s Cash” fund, which has been built up over the past 800 years and is used to fund its activities that are not covered by taxpayer money.According to its 2022 financials, the corporation held assets worth just over £2.8 billion, most of which is composed of real estate holdings. In terms of cash, it held around £20 million in 2022. The Bottom Line The City of London Corp. holds a unique position in the governance of London and the U.K. more broadly. Rooted in a rich history, it not only serves as the municipal authority for the City of London but also takes on responsibilities that far outreach those of a typical local council. Understanding the corporation’s structure and roles provides a fascinating insight into the blend of tradition and modernity that characterizes the governance of the City of London.
[ [ "financial district of London", "https://www.investopedia.com/londons-financial-districts-7548716" ], [ "a leading global financial and business hub", "https://www.investopedia.com/how-london-became-the-world-s-financial-hub-4589324" ], [ "City of London neighborhood", "https://www.investopedia.com/articles/personal-finance/100115/most-expensive-neighborhoods-london.asp" ] ]
https://www.investopedia.com/terms/a/appreciation.asp
Appreciation vs Depreciation: Examples and FAQs
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-appreciation"></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 Appreciation? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Appreciation, in general terms, is an increase in the value of an asset over time. The increase can occur for a number of reasons, including increased demand or weakening supply, or as a result of changes in inflation or interest rates. This is the opposite of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/depreciation.asp">depreciation</a>, which is a decrease in value over time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Appreciation is an increase in the value of an asset over time.</li><li>This is unlike depreciation, which lowers an asset’s value over its useful life. </li><li>The appreciation rate is the rate at which an asset grows in value. </li><li>Capital appreciation refers to an increase in the value of financial assets such as stocks.</li><li>Currency appreciation refers to the increase in the value of one currency relative to another in the foreign exchange markets.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-appreciation-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 Appreciation Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Appreciation can be used to refer to an increase in any type of asset, such as a stock, bond, currency, or real estate. For example, the term <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalappreciation.asp">capital appreciation</a> refers to an increase in the value of financial assets such as stocks, which can occur for reasons such as improved financial performance of the company. </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"> Just because the value of an asset appreciates does not necessarily mean its owner realizes the increase. If the owner revalues the asset at its higher price on their financial statements, this represents a realization of the increase. </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"> Another type of appreciation is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency-appreciation.asp">currency appreciation</a>. The value of a country's currency can appreciate or depreciate over time in relation to other currencies. </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><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalgain.asp">Capital gain</a> is the profit achieved by selling an asset that has appreciated in value.</p></div></div></div> <span class="heading-toc" id="toc-how-to-calculate-the-appreciation-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"> How to Calculate the Appreciation Rate </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The appreciation rate is virtually the same as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cagr.asp">compound annual growth rate</a> (CAGR). Thus, you take the ending value, divide by the beginning value, then take that result to 1 dividend by the number of holding periods (e.g. years). Finally, you subtract one from the result.  </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">  However, in order to calculate the appreciation rate that means you need to know the initial value of the investment and the future value. You also need to know how long the asset will appreciate. </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"> For example, Rachel buys a home for $100,000 in 2016. In 2021, the value has increased to $125,000. The home has appreciated by 25% [($125,000 - $100,000) / $100,000] during these five years. The appreciate rate (or CAGR) is 4.6% [($125,000 / $100,000)^(1/5) - 1]. </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-appreciation-vs-depreciation"></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"> Appreciation vs. Depreciation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Appreciation is also used in accounting when referring to an upward adjustment of the value of an asset held on a company's accounting books. The most common adjustment on the value of an asset in accounting is usually a downward one, known as depreciation. </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"> Certain assets are given to appreciation, while other assets tend to depreciate over time. As a general rule, assets that have a finite <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/usefullife.asp">useful life</a> depreciate rather than appreciate. </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"> Depreciation is typically done as the asset loses economic value through use, such as a piece of machinery being used over its useful life. While appreciation of assets in accounting is less frequent, assets such as trademarks may see an upward value revision due to increased <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>. </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"> Real estate, stocks, and precious metals represent assets purchased with the expectation that they will be worth more in the future than at the time of purchase. By contrast, automobiles, computers, and physical equipment gradually decline in value as they progress through their useful lives. </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-capital-appreciation"></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 Capital Appreciation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> An investor purchases a stock for $10 and the stock pays an annual dividend of $1, equating to a dividend yield of 10%. A year later, the stock is trading at $15 per share and the investor has received the dividend of $1. </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 investor has a return of $5 from capital appreciation as the price of the stock went from the purchase price or cost basis of $10 to a current market value of $15. In percentage terms, the stock price increase led to a return from capital appreciation of 50%. The dividend income return is $1, equating to a return of 10% in line with the original dividend yield. The return from capital appreciation combined with the return from the dividend leads to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/totalreturn.asp">total return</a> on the stock of $6 or 60%. </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-example-of-currency-appreciation"></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"> Example of Currency Appreciation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> China's ascension onto the world stage as a major economic power has corresponded with price swings in the exchange rate for its currency, the yuan. Beginning in 1981, the currency rose steadily against the dollar until 1996, when it plateaued at a value of $1 equaling 8.28 yuan until 2005. The dollar remained relatively strong during this period. It meant cheaper manufacturing costs and labor for American companies, who migrated to the country in droves. </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 also meant that American goods were competitive on the world stage as well as the U.S. due to their cheap labor and manufacturing costs. In 2005, however, China's yuan reversed course and appreciated 33% in value against the dollar. As of May 2024, it's still near that retraced level, trading at 7.2 yuan.<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> <span class="heading-toc" id="toc-appreciation-faqs"></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"> Appreciation FAQs </span> </h2> <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"> What Is an Appreciating Asset? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> An appreciating asset is any asset which value is increasing. For example, appreciating assets can be real estate, stocks, bonds, and currency. </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"> What Is Appreciation Rate? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Appreciation rate is another word for growth rate. The appreciation rate is the rate at which an asset's value grows. </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"> What Is a Good Home Appreciation Rate? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> A good appreciation rate is relative to the asset and risk involved. What might be a good appreciation rate for real estate is different than what is a good appreciation rate for a certain currency given the risk involved. </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"> What Is Meant by Capital Appreciation? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Capital appreciation is the increase in the value or price of an asset. This can include stocks, real estate, or the like. <strong> </strong> </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-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"> Appreciation is the rise in the value of an asset, such as currency or real estate. It’s the opposite of depreciation, which reduces the value of an asset over its useful life. Increases in value can be attributed to interest rate changes, supply and demand changes, or various other reasons.  </p></div>
## What Is Appreciation? Appreciation, in general terms, is an increase in the value of an asset over time. The increase can occur for a number of reasons, including increased demand or weakening supply, or as a result of changes in inflation or interest rates. This is the opposite of [depreciation](https://www.investopedia.com/terms/d/depreciation.asp), which is a decrease in value over time. ### Key Takeaways * Appreciation is an increase in the value of an asset over time. * This is unlike depreciation, which lowers an asset’s value over its useful life. * The appreciation rate is the rate at which an asset grows in value. * Capital appreciation refers to an increase in the value of financial assets such as stocks. * Currency appreciation refers to the increase in the value of one currency relative to another in the foreign exchange markets. ## How Appreciation Works Appreciation can be used to refer to an increase in any type of asset, such as a stock, bond, currency, or real estate. For example, the term [capital appreciation](https://www.investopedia.com/terms/c/capitalappreciation.asp) refers to an increase in the value of financial assets such as stocks, which can occur for reasons such as improved financial performance of the company. Just because the value of an asset appreciates does not necessarily mean its owner realizes the increase. If the owner revalues the asset at its higher price on their financial statements, this represents a realization of the increase. Another type of appreciation is [currency appreciation](https://www.investopedia.com/terms/c/currency-appreciation.asp). The value of a country's currency can appreciate or depreciate over time in relation to other currencies. ### [Capital gain](https://www.investopedia.com/terms/c/capitalgain.asp) is the profit achieved by selling an asset that has appreciated in value. ## How to Calculate the Appreciation Rate The appreciation rate is virtually the same as the [compound annual growth rate](https://www.investopedia.com/terms/c/cagr.asp) (CAGR). Thus, you take the ending value, divide by the beginning value, then take that result to 1 dividend by the number of holding periods (e.g. years). Finally, you subtract one from the result.   However, in order to calculate the appreciation rate that means you need to know the initial value of the investment and the future value. You also need to know how long the asset will appreciate. For example, Rachel buys a home for $100,000 in 2016. In 2021, the value has increased to $125,000. The home has appreciated by 25% [($125,000 - $100,000) / $100,000] during these five years. The appreciate rate (or CAGR) is 4.6% [($125,000 / $100,000)^(1/5) - 1]. ## Appreciation vs. Depreciation Appreciation is also used in accounting when referring to an upward adjustment of the value of an asset held on a company's accounting books. The most common adjustment on the value of an asset in accounting is usually a downward one, known as depreciation. Certain assets are given to appreciation, while other assets tend to depreciate over time. As a general rule, assets that have a finite [useful life](https://www.investopedia.com/terms/u/usefullife.asp) depreciate rather than appreciate. Depreciation is typically done as the asset loses economic value through use, such as a piece of machinery being used over its useful life. While appreciation of assets in accounting is less frequent, assets such as trademarks may see an upward value revision due to increased [brand recognition](https://www.investopedia.com/terms/b/brand-recognition.asp). Real estate, stocks, and precious metals represent assets purchased with the expectation that they will be worth more in the future than at the time of purchase. By contrast, automobiles, computers, and physical equipment gradually decline in value as they progress through their useful lives. ## Example of Capital Appreciation An investor purchases a stock for $10 and the stock pays an annual dividend of $1, equating to a dividend yield of 10%. A year later, the stock is trading at $15 per share and the investor has received the dividend of $1. The investor has a return of $5 from capital appreciation as the price of the stock went from the purchase price or cost basis of $10 to a current market value of $15. In percentage terms, the stock price increase led to a return from capital appreciation of 50%. The dividend income return is $1, equating to a return of 10% in line with the original dividend yield. The return from capital appreciation combined with the return from the dividend leads to a [total return](https://www.investopedia.com/terms/t/totalreturn.asp) on the stock of $6 or 60%. ## Example of Currency Appreciation China's ascension onto the world stage as a major economic power has corresponded with price swings in the exchange rate for its currency, the yuan. Beginning in 1981, the currency rose steadily against the dollar until 1996, when it plateaued at a value of $1 equaling 8.28 yuan until 2005. The dollar remained relatively strong during this period. It meant cheaper manufacturing costs and labor for American companies, who migrated to the country in droves. It also meant that American goods were competitive on the world stage as well as the U.S. due to their cheap labor and manufacturing costs. In 2005, however, China's yuan reversed course and appreciated 33% in value against the dollar. As of May 2024, it's still near that retraced level, trading at 7.2 yuan. ## Appreciation FAQs ### What Is an Appreciating Asset? An appreciating asset is any asset which value is increasing. For example, appreciating assets can be real estate, stocks, bonds, and currency. ### What Is Appreciation Rate? Appreciation rate is another word for growth rate. The appreciation rate is the rate at which an asset's value grows. ### What Is a Good Home Appreciation Rate? A good appreciation rate is relative to the asset and risk involved. What might be a good appreciation rate for real estate is different than what is a good appreciation rate for a certain currency given the risk involved. ### What Is Meant by Capital Appreciation? Capital appreciation is the increase in the value or price of an asset. This can include stocks, real estate, or the like.  ## The Bottom Line Appreciation is the rise in the value of an asset, such as currency or real estate. It’s the opposite of depreciation, which reduces the value of an asset over its useful life. Increases in value can be attributed to interest rate changes, supply and demand changes, or various other reasons. 
What Is Appreciation? Appreciation, in general terms, is an increase in the value of an asset over time. The increase can occur for a number of reasons, including increased demand or weakening supply, or as a result of changes in inflation or interest rates. This is the opposite of depreciation, which is a decrease in value over time. Key Takeaways Appreciation is an increase in the value of an asset over time.This is unlike depreciation, which lowers an asset’s value over its useful life. The appreciation rate is the rate at which an asset grows in value. Capital appreciation refers to an increase in the value of financial assets such as stocks.Currency appreciation refers to the increase in the value of one currency relative to another in the foreign exchange markets. How Appreciation Works Appreciation can be used to refer to an increase in any type of asset, such as a stock, bond, currency, or real estate. For example, the term capital appreciation refers to an increase in the value of financial assets such as stocks, which can occur for reasons such as improved financial performance of the company. Just because the value of an asset appreciates does not necessarily mean its owner realizes the increase. If the owner revalues the asset at its higher price on their financial statements, this represents a realization of the increase. Another type of appreciation is currency appreciation. The value of a country's currency can appreciate or depreciate over time in relation to other currencies. Capital gain is the profit achieved by selling an asset that has appreciated in value. How to Calculate the Appreciation Rate The appreciation rate is virtually the same as the compound annual growth rate (CAGR). Thus, you take the ending value, divide by the beginning value, then take that result to 1 dividend by the number of holding periods (e.g. years). Finally, you subtract one from the result.   However, in order to calculate the appreciation rate that means you need to know the initial value of the investment and the future value. You also need to know how long the asset will appreciate. For example, Rachel buys a home for $100,000 in 2016. In 2021, the value has increased to $125,000. The home has appreciated by 25% [($125,000 - $100,000) / $100,000] during these five years. The appreciate rate (or CAGR) is 4.6% [($125,000 / $100,000)^(1/5) - 1]. Appreciation vs. Depreciation Appreciation is also used in accounting when referring to an upward adjustment of the value of an asset held on a company's accounting books. The most common adjustment on the value of an asset in accounting is usually a downward one, known as depreciation. Certain assets are given to appreciation, while other assets tend to depreciate over time. As a general rule, assets that have a finite useful life depreciate rather than appreciate. Depreciation is typically done as the asset loses economic value through use, such as a piece of machinery being used over its useful life. While appreciation of assets in accounting is less frequent, assets such as trademarks may see an upward value revision due to increased brand recognition. Real estate, stocks, and precious metals represent assets purchased with the expectation that they will be worth more in the future than at the time of purchase. By contrast, automobiles, computers, and physical equipment gradually decline in value as they progress through their useful lives. Example of Capital Appreciation An investor purchases a stock for $10 and the stock pays an annual dividend of $1, equating to a dividend yield of 10%. A year later, the stock is trading at $15 per share and the investor has received the dividend of $1. The investor has a return of $5 from capital appreciation as the price of the stock went from the purchase price or cost basis of $10 to a current market value of $15. In percentage terms, the stock price increase led to a return from capital appreciation of 50%. The dividend income return is $1, equating to a return of 10% in line with the original dividend yield. The return from capital appreciation combined with the return from the dividend leads to a total return on the stock of $6 or 60%. Example of Currency Appreciation China's ascension onto the world stage as a major economic power has corresponded with price swings in the exchange rate for its currency, the yuan. Beginning in 1981, the currency rose steadily against the dollar until 1996, when it plateaued at a value of $1 equaling 8.28 yuan until 2005. The dollar remained relatively strong during this period. It meant cheaper manufacturing costs and labor for American companies, who migrated to the country in droves. It also meant that American goods were competitive on the world stage as well as the U.S. due to their cheap labor and manufacturing costs. In 2005, however, China's yuan reversed course and appreciated 33% in value against the dollar. As of May 2024, it's still near that retraced level, trading at 7.2 yuan. Appreciation FAQs What Is an Appreciating Asset? An appreciating asset is any asset which value is increasing. For example, appreciating assets can be real estate, stocks, bonds, and currency. What Is Appreciation Rate? Appreciation rate is another word for growth rate. The appreciation rate is the rate at which an asset's value grows. What Is a Good Home Appreciation Rate? A good appreciation rate is relative to the asset and risk involved. What might be a good appreciation rate for real estate is different than what is a good appreciation rate for a certain currency given the risk involved. What Is Meant by Capital Appreciation? Capital appreciation is the increase in the value or price of an asset. This can include stocks, real estate, or the like.   The Bottom Line Appreciation is the rise in the value of an asset, such as currency or real estate. It’s the opposite of depreciation, which reduces the value of an asset over its useful life. Increases in value can be attributed to interest rate changes, supply and demand changes, or various other reasons. 
[ [ "depreciation", "https://www.investopedia.com/terms/d/depreciation.asp" ], [ "capital appreciation", "https://www.investopedia.com/terms/c/capitalappreciation.asp" ], [ "currency appreciation", "https://www.investopedia.com/terms/c/currency-appreciation.asp" ], [ "Capital gain", "https://www.investopedia.com/terms/c/capitalgain.asp" ], [ "compound annual growth rate", "https://www.investopedia.com/terms/c/cagr.asp" ], [ "useful life", "https://www.investopedia.com/terms/u/usefullife.asp" ], [ "brand recognition", "https://www.investopedia.com/terms/b/brand-recognition.asp" ], [ "total return", "https://www.investopedia.com/terms/t/totalreturn.asp" ] ]
https://www.investopedia.com/terms/i/inland-revenue.asp
Inland Revenue: What It Is, How It Works
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-was-the-inland-revenue"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Was the Inland Revenue? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Inland Revenue was a department of the British government that existed from 1849 to 2005. The department was responsible for collecting direct taxes, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incometax.asp">income tax</a>, and administering benefits, such as child tax credits.<span class="ql-inline-citation" data-cite="8"></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_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 Inland Revenue was a British government department responsible for collecting taxes and administering benefits from 1849 to 2005.</li><li>The Inland Revenue was first established in the United Kingdom in 1849 and merged with Her Majesty's (HM) Customs and Excise to form HM Revenue and Customs (HMRC) in 2005.</li><li>Inland Revenue was an 1849 amalgamation of two former government boards—the Board of Excise and the Board of Stamps and Taxes.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-inland-revenue"></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 Inland Revenue </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The Inland Revenue was first established in the United Kingdom in 1849. In 2005, the department merged with Her Majesty's (HM) Customs and Excise to form <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hm-revenue-and-customs-hmrc.asp">HM Revenue and Customs</a> (HMRC). The Inland Revenue was an 1849 amalgamation of two former government boards—the Board of Excise and the Board of Stamps and Taxes.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The Board of Excise, established in 1643, was in charge of collecting duties that were levied at the point of manufacturing rather than the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/point-of-sale.asp">point of sale</a> on certain British products. The Board of Stamps and Taxes was preceded by two separate boards that were formally combined in 1834.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <li>One of the boards was the Tax Board, which was set up in 1665. The earlier taxes imposed by this board included land and house taxes. Income taxes were introduced in the late 1700s and early 1800s in several different formats, largely to support Britain’s war efforts. In 1816, due to widespread public protest, the government was forced to abolish income taxes. However, they were reintroduced in 1842 and are now renewed yearly in the Finance Act.<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="3"></span></li> <li>The second board was the Board of Stamps established in 1694. This board served to collect <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stampduty.asp">stamp duties</a>, which were imposed on various items at the point of sale.<span class="ql-inline-citation" data-cite="6"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Once the Inland Revenue was established, it handled the collection of taxes, including income and capital gains tax, corporate tax, inheritance tax, and stamp duty. Until 1909, the Inland Revenue managed the excise affairs of the nation. However, matters relating to excise were transferred in 1909 to a new board, the Board of Customs and Excise.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The Inland Revenue administered certain payments that were available to eligible recipients. Since 2003, a benefit called the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/working-tax-credit-wtc.asp">Working Tax Credit</a> (WTC) has been provided to working individuals, couples, or families with low income.<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"> Another credit system previously handled by the Inland Revenue is the Child Tax Credit, which was paid to families by the Inland Revenue until the inception of Her Majesty's Revenue and Customs (HMRC).<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> <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"> HM Revenue and Customs (HMRC) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> HMRC now handles all the duties previously conducted by both the Inland Revenue and the Board of Customs and Excise, bringing all of the nation’s taxation-related matters under the auspices of one department.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Some of the responsibilities of the HMRC include making sure that money is available to fund the public system in the United Kingdom and providing for families that need financial assistance, administering statutory sick pay and statutory maternity leave, facilitating legitimate international trade, recovering student loan repayments, and administering Child Benefit.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> HMRC seeks to maximize revenues, and one of the ways it accomplishes this objective is by cracking down on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tax_avoidance.asp">tax avoidance</a>. HMRC designed the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dotas-disclosure-tax-avoidance-schemes.asp">Disclosure of Tax Avoidance Schemes</a> (DOTAS) to identify what types of tax avoidance schemes are in circulation. This requires the promoter of a scheme (i.e., the person who designs or markets it) to disclose its main elements to HMRC.<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_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> HMRC reviews and amends the current tax policy to block any schemes that the government considers unfair. This way, the tax policy is consistently amended to minimize individuals' and corporations' chances of avoiding taxes.<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> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_28-0"><span class="heading-toc" id="toc-what-happens-if-i-cant-pay-my-inland-revenue-bill-in-the-uk"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Happens If I Can't Pay My Inland Revenue Bill in the U.K.?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you cannot pay your taxes in the U.K., you may be eligible to set up a payment plan to pay your bill in installments. The U.K. government calls this arrangement "Time to Pay." You will need to be approved for it and if HMRC does not think you will be able to keep up with your payments, you will not be approved.<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_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-what-does-hmrc-stand-for-in-the-uk"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does "HMRC" Stand for in the U.K.?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>"HMRC" stands for "Her Majesty's Revenue &amp; Customs" and is the department in the United Kingdom responsible for administering and collecting taxes.</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-am-i-still-a-uk-resident-if-i-live-abroad"></span> <h2 class="mntl-sc-block-questionandanswer__question">Am I Still a U.K. Resident If I Live Abroad?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You are considered a U.K. resident if you live in the country for 183 days or more. If you do, you will be responsible for taxes.<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> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The Inland Revenue existed from 1849 to 2005 and was responsible for collecting direct taxes in the British Empire/United Kingdom. It was replaced by the department, Her Majesty's (HM) Revenue and Customs (HMRC), which is now responsible for overseeing such taxes.<span class="ql-inline-citation" data-cite="8"></span> </p></div>
## What Was the Inland Revenue? The Inland Revenue was a department of the British government that existed from 1849 to 2005. The department was responsible for collecting direct taxes, such as [income tax](https://www.investopedia.com/terms/i/incometax.asp), and administering benefits, such as child tax credits. ### Key Takeaways * The Inland Revenue was a British government department responsible for collecting taxes and administering benefits from 1849 to 2005. * The Inland Revenue was first established in the United Kingdom in 1849 and merged with Her Majesty's (HM) Customs and Excise to form HM Revenue and Customs (HMRC) in 2005. * Inland Revenue was an 1849 amalgamation of two former government boards—the Board of Excise and the Board of Stamps and Taxes. ## Understanding the Inland Revenue The Inland Revenue was first established in the United Kingdom in 1849. In 2005, the department merged with Her Majesty's (HM) Customs and Excise to form [HM Revenue and Customs](https://www.investopedia.com/terms/h/hm-revenue-and-customs-hmrc.asp) (HMRC). The Inland Revenue was an 1849 amalgamation of two former government boards—the Board of Excise and the Board of Stamps and Taxes. The Board of Excise, established in 1643, was in charge of collecting duties that were levied at the point of manufacturing rather than the [point of sale](https://www.investopedia.com/terms/p/point-of-sale.asp) on certain British products. The Board of Stamps and Taxes was preceded by two separate boards that were formally combined in 1834. * One of the boards was the Tax Board, which was set up in 1665. The earlier taxes imposed by this board included land and house taxes. Income taxes were introduced in the late 1700s and early 1800s in several different formats, largely to support Britain’s war efforts. In 1816, due to widespread public protest, the government was forced to abolish income taxes. However, they were reintroduced in 1842 and are now renewed yearly in the Finance Act. * The second board was the Board of Stamps established in 1694. This board served to collect [stamp duties](https://www.investopedia.com/terms/s/stampduty.asp), which were imposed on various items at the point of sale. Once the Inland Revenue was established, it handled the collection of taxes, including income and capital gains tax, corporate tax, inheritance tax, and stamp duty. Until 1909, the Inland Revenue managed the excise affairs of the nation. However, matters relating to excise were transferred in 1909 to a new board, the Board of Customs and Excise. The Inland Revenue administered certain payments that were available to eligible recipients. Since 2003, a benefit called the [Working Tax Credit](https://www.investopedia.com/terms/w/working-tax-credit-wtc.asp) (WTC) has been provided to working individuals, couples, or families with low income. Another credit system previously handled by the Inland Revenue is the Child Tax Credit, which was paid to families by the Inland Revenue until the inception of Her Majesty's Revenue and Customs (HMRC). ### HM Revenue and Customs (HMRC) HMRC now handles all the duties previously conducted by both the Inland Revenue and the Board of Customs and Excise, bringing all of the nation’s taxation-related matters under the auspices of one department. Some of the responsibilities of the HMRC include making sure that money is available to fund the public system in the United Kingdom and providing for families that need financial assistance, administering statutory sick pay and statutory maternity leave, facilitating legitimate international trade, recovering student loan repayments, and administering Child Benefit. HMRC seeks to maximize revenues, and one of the ways it accomplishes this objective is by cracking down on [tax avoidance](https://www.investopedia.com/terms/t/tax_avoidance.asp). HMRC designed the [Disclosure of Tax Avoidance Schemes](https://www.investopedia.com/terms/d/dotas-disclosure-tax-avoidance-schemes.asp) (DOTAS) to identify what types of tax avoidance schemes are in circulation. This requires the promoter of a scheme (i.e., the person who designs or markets it) to disclose its main elements to HMRC. HMRC reviews and amends the current tax policy to block any schemes that the government considers unfair. This way, the tax policy is consistently amended to minimize individuals' and corporations' chances of avoiding taxes. ## What Happens If I Can't Pay My Inland Revenue Bill in the U.K.? If you cannot pay your taxes in the U.K., you may be eligible to set up a payment plan to pay your bill in installments. The U.K. government calls this arrangement "Time to Pay." You will need to be approved for it and if HMRC does not think you will be able to keep up with your payments, you will not be approved. ## What Does "HMRC" Stand for in the U.K.? "HMRC" stands for "Her Majesty's Revenue & Customs" and is the department in the United Kingdom responsible for administering and collecting taxes. ## Am I Still a U.K. Resident If I Live Abroad? You are considered a U.K. resident if you live in the country for 183 days or more. If you do, you will be responsible for taxes. ## The Bottom Line The Inland Revenue existed from 1849 to 2005 and was responsible for collecting direct taxes in the British Empire/United Kingdom. It was replaced by the department, Her Majesty's (HM) Revenue and Customs (HMRC), which is now responsible for overseeing such taxes.
What Was the Inland Revenue? The Inland Revenue was a department of the British government that existed from 1849 to 2005. The department was responsible for collecting direct taxes, such as income tax, and administering benefits, such as child tax credits. Key Takeaways The Inland Revenue was a British government department responsible for collecting taxes and administering benefits from 1849 to 2005.The Inland Revenue was first established in the United Kingdom in 1849 and merged with Her Majesty's (HM) Customs and Excise to form HM Revenue and Customs (HMRC) in 2005.Inland Revenue was an 1849 amalgamation of two former government boards—the Board of Excise and the Board of Stamps and Taxes. Understanding the Inland Revenue The Inland Revenue was first established in the United Kingdom in 1849. In 2005, the department merged with Her Majesty's (HM) Customs and Excise to form HM Revenue and Customs (HMRC). The Inland Revenue was an 1849 amalgamation of two former government boards—the Board of Excise and the Board of Stamps and Taxes. The Board of Excise, established in 1643, was in charge of collecting duties that were levied at the point of manufacturing rather than the point of sale on certain British products. The Board of Stamps and Taxes was preceded by two separate boards that were formally combined in 1834. One of the boards was the Tax Board, which was set up in 1665. The earlier taxes imposed by this board included land and house taxes. Income taxes were introduced in the late 1700s and early 1800s in several different formats, largely to support Britain’s war efforts. In 1816, due to widespread public protest, the government was forced to abolish income taxes. However, they were reintroduced in 1842 and are now renewed yearly in the Finance Act. The second board was the Board of Stamps established in 1694. This board served to collect stamp duties, which were imposed on various items at the point of sale. Once the Inland Revenue was established, it handled the collection of taxes, including income and capital gains tax, corporate tax, inheritance tax, and stamp duty. Until 1909, the Inland Revenue managed the excise affairs of the nation. However, matters relating to excise were transferred in 1909 to a new board, the Board of Customs and Excise. The Inland Revenue administered certain payments that were available to eligible recipients. Since 2003, a benefit called the Working Tax Credit (WTC) has been provided to working individuals, couples, or families with low income. Another credit system previously handled by the Inland Revenue is the Child Tax Credit, which was paid to families by the Inland Revenue until the inception of Her Majesty's Revenue and Customs (HMRC). HM Revenue and Customs (HMRC) HMRC now handles all the duties previously conducted by both the Inland Revenue and the Board of Customs and Excise, bringing all of the nation’s taxation-related matters under the auspices of one department. Some of the responsibilities of the HMRC include making sure that money is available to fund the public system in the United Kingdom and providing for families that need financial assistance, administering statutory sick pay and statutory maternity leave, facilitating legitimate international trade, recovering student loan repayments, and administering Child Benefit. HMRC seeks to maximize revenues, and one of the ways it accomplishes this objective is by cracking down on tax avoidance. HMRC designed the Disclosure of Tax Avoidance Schemes (DOTAS) to identify what types of tax avoidance schemes are in circulation. This requires the promoter of a scheme (i.e., the person who designs or markets it) to disclose its main elements to HMRC. HMRC reviews and amends the current tax policy to block any schemes that the government considers unfair. This way, the tax policy is consistently amended to minimize individuals' and corporations' chances of avoiding taxes. What Happens If I Can't Pay My Inland Revenue Bill in the U.K.? If you cannot pay your taxes in the U.K., you may be eligible to set up a payment plan to pay your bill in installments. The U.K. government calls this arrangement "Time to Pay." You will need to be approved for it and if HMRC does not think you will be able to keep up with your payments, you will not be approved. What Does "HMRC" Stand for in the U.K.? "HMRC" stands for "Her Majesty's Revenue & Customs" and is the department in the United Kingdom responsible for administering and collecting taxes. Am I Still a U.K. Resident If I Live Abroad? You are considered a U.K. resident if you live in the country for 183 days or more. If you do, you will be responsible for taxes. The Bottom Line The Inland Revenue existed from 1849 to 2005 and was responsible for collecting direct taxes in the British Empire/United Kingdom. It was replaced by the department, Her Majesty's (HM) Revenue and Customs (HMRC), which is now responsible for overseeing such taxes.
[ [ "income tax", "https://www.investopedia.com/terms/i/incometax.asp" ], [ "HM Revenue and Customs", "https://www.investopedia.com/terms/h/hm-revenue-and-customs-hmrc.asp" ], [ "point of sale", "https://www.investopedia.com/terms/p/point-of-sale.asp" ], [ "stamp duties", "https://www.investopedia.com/terms/s/stampduty.asp" ], [ "Working Tax Credit", "https://www.investopedia.com/terms/w/working-tax-credit-wtc.asp" ], [ "tax avoidance", "https://www.investopedia.com/terms/t/tax_avoidance.asp" ], [ "Disclosure of Tax Avoidance Schemes", "https://www.investopedia.com/terms/d/dotas-disclosure-tax-avoidance-schemes.asp" ] ]
https://www.investopedia.com/massmutual-life-insurance-review-5076622
MassMutual Life Insurance Review
<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="comp product-review-content product-review-content--finance product-review--base" id="product-review-content--finance_1-0"> <div class="comp js-toc-appear article-container product-card-record--finance article-intro mntl-block" id="article-intro_1-0"> <div class="comp product-card" data-tracking-container="true" data-tracking-id="product-card" id="product-card_1-0" style="--imgWidth: 0px"> <div class="product-card__content"> <div class="product-card__intro expert-content"> <figure class="comp figure-article figure-2x1 product-card__image litho-figure-article mntl-universal-primary-image primary-image" id="product-card__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="MassMutual" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/Xsmbfh-qAP1-pXm3sjkriNUTf2c=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/MassMutual-5542d799adfc45ebb6a7ab9b116e9c7c.jpg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhFgADAPMAAAAOTSU1byU3bCM5bSQ4bSQ3cP7+/P/+/////wAOTQAOTQAOTQAOTQAOTQAOTQAOTSwAAAAAFgADAEMIKQARCERwYKBBBAAOChTA8KAABA0FBngI8UBDAxQpIigwAKJHAg8ZCggIADs=')" width="1500"/> <noscript> <img alt="MassMutual" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/Xsmbfh-qAP1-pXm3sjkriNUTf2c=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/MassMutual-5542d799adfc45ebb6a7ab9b116e9c7c.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_1-0"> <span class="figure-article-caption-owner"><p> MassMutual</p> </span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-article figure-2x1 product-card__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp js-sticky-riser-show product-card__cta commerce-block mntl-block" id="product-card__cta_1-0"> <a class="commerce-button mntl-text-link mntl-commerce-btn" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-retailer-caption="On Covr" data-tracking-container="false" href="https://dotdash.covrtech.com" id="commerce-button_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: commerce-button mntl-text-link mntl-commerce-btn --> </div><!-- end: comp js-sticky-riser-show product-card__cta commerce-block mntl-block --> <div class="tabbed-sc-block-intro"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> <strong>Our Take</strong> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-1"> MassMutual Life Insurance offers multiple policy types, dividends on whole life insurance, generous term conversion options, and some of the highest third-party ratings in the industry. It also scores highly among our top providers for its no-medical-exam policies and financial strength. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp product-review__top-rated-list top-rated-list--roundups top-rated-list--base" id="product-review__top-rated-list_3-0-1"> <h2 class="top-rated-list__title">Top Rated For</h2> <ul class="top-rated-list__container"> <div class="comp top-rated-list__items mntl-block" id="top-rated-list__items_3-0-1"> <li class="comp top-rated-list__item badge-ribbon list-item mntl-block" id="list-item_3-0-4"> <a class="top-rated-list__item-link mntl-text-link" data-click-action="Top Rated Tool Click" data-tracking-container="true" href="https://www.investopedia.com/best-life-insurance-companies-4845858#toc-massmutual" id="top-rated-list__item-link_3-0-4" rel="noopener nocaes" target="_blank"><span class="comp top-rated-list__item-link-text mntl-text-block" id="top-rated-list__item-link-text_3-0-4"> Best Convertible Term Life Insurance</span><!-- end: comp top-rated-list__item-link-text mntl-text-block --> <span class="comp top-rated-list__item-link-subtext mntl-text-block" id="top-rated-list__item-link-subtext_3-0-4"> 11 Best Term, Whole, and No-Exam Life Insurance Companies for May 2024</span><!-- end: comp top-rated-list__item-link-subtext mntl-text-block --></a><!-- end: top-rated-list__item-link mntl-text-link --> </li><!-- end: comp top-rated-list__item badge-ribbon list-item mntl-block --> <li class="comp top-rated-list__item badge-ribbon list-item mntl-block" id="list-item_3-0-5"> <a class="top-rated-list__item-link mntl-text-link" data-click-action="Top Rated Tool Click" data-tracking-container="true" href="https://www.investopedia.com/best-term-life-insurance-4845961#toc-massmutual" id="top-rated-list__item-link_3-0-5" rel="noopener nocaes" target="_blank"><span class="comp top-rated-list__item-link-text mntl-text-block" id="top-rated-list__item-link-text_3-0-5"> Best for Financial Stability </span><!-- end: comp top-rated-list__item-link-text mntl-text-block --> <span class="comp top-rated-list__item-link-subtext mntl-text-block" id="top-rated-list__item-link-subtext_3-0-5"> Best Term Life Insurance Companies of 2024</span><!-- end: comp top-rated-list__item-link-subtext mntl-text-block --></a><!-- end: top-rated-list__item-link mntl-text-link --> </li><!-- end: comp top-rated-list__item badge-ribbon list-item mntl-block --> <li class="comp top-rated-list__item badge-ribbon list-item mntl-block" id="list-item_3-0-6"> <a class="top-rated-list__item-link mntl-text-link" data-click-action="Top Rated Tool Click" data-tracking-container="true" href="https://www.investopedia.com/best-life-insurance-for-smokers-5119536#toc-massmutual" id="top-rated-list__item-link_3-0-6" rel="noopener nocaes" target="_blank"><span class="comp top-rated-list__item-link-text mntl-text-block" id="top-rated-list__item-link-text_3-0-6"> Best for Cigar Smokers</span><!-- end: comp top-rated-list__item-link-text mntl-text-block --> <span class="comp top-rated-list__item-link-subtext mntl-text-block" id="top-rated-list__item-link-subtext_3-0-6"> Best Life Insurance Companies for Smokers</span><!-- end: comp top-rated-list__item-link-subtext mntl-text-block --></a><!-- end: top-rated-list__item-link mntl-text-link --> </li><!-- end: comp top-rated-list__item badge-ribbon list-item mntl-block --> <li class="comp top-rated-list__item badge-ribbon list-item mntl-block" id="list-item_3-0-7"> <a class="top-rated-list__item-link mntl-text-link" data-click-action="Top Rated Tool Click" data-tracking-container="true" href="https://www.investopedia.com/best-life-insurance-for-people-over-50-4846582#toc-massmutual" id="top-rated-list__item-link_3-0-7" rel="noopener nocaes" target="_blank"><span class="comp top-rated-list__item-link-text mntl-text-block" id="top-rated-list__item-link-text_3-0-7"> Best for Dividends</span><!-- end: comp top-rated-list__item-link-text mntl-text-block --> <span class="comp top-rated-list__item-link-subtext mntl-text-block" id="top-rated-list__item-link-subtext_3-0-7"> 7 Best Life Insurance Companies for People Over 50</span><!-- end: comp top-rated-list__item-link-subtext mntl-text-block --></a><!-- end: top-rated-list__item-link mntl-text-link --> </li><!-- end: comp top-rated-list__item badge-ribbon list-item mntl-block --> </div><!-- end: comp top-rated-list__items mntl-block --> </ul> </div><!-- end: comp product-review__top-rated-list top-rated-list--roundups top-rated-list--base --> </div> </div> <div class="tabbed-sc-block" data-click-action="Product Tab Click" data-tracking-container="true" data-tracking-id="Full Product Review"> <ul class="tabbed-sc-block__tabs"> <li class="tabbed-sc-block__tab js-tabbed-tab is-active is-initial-load" data-tab-index="1"><span class="tabbed-sc-block__title">Pros &amp; Cons</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="2"><span class="tabbed-sc-block__title">Company Overview</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="3"><span class="tabbed-sc-block__title">specifications</span></li> </ul> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content is-active is-initial-load" data-tab-index="1"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_1-0-3"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Liberal term conversion options</p></li> <li><p>Opportunity to receive dividends</p></li> <li><p>Very few complaints for a company of its size</p></li> <li><p>No-medical-exam policies available</p></li> <li><p>Highest financial strength rating</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>Doesn’t accept online credit card payments</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Company Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="2"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-5"> Massachusetts Mutual Life Insurance Company (better known as MassMutual) was founded in 1851 and is headquartered in Springfield, Massachusetts. As of 2022, the company received more than $9 billion in direct premiums and is the second-largest life insurance provider in the country, based on market share.<span class="ql-inline-citation" data-cite="11"></span> MassMutual is licensed to sell life insurance products in all 50 states and Washington, D.C. </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">specifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content customTab expert-content" data-tab-index="3"> <div class="loc tab-specifications"> <div class="comp key-facts-block--finance product-record-details" id="key-facts-block--finance_3-0-5"> <div class="product-record__key-fact-row-container"> <div class="product-record__key-fact-label">AM Best Rating</div> <div class="product-record__key-fact-text">A++</div> </div> <div class="product-record__key-fact-row-container"> <div class="product-record__key-fact-label">NAIC Score (avg.)</div> <div class="product-record__key-fact-text">N/A</div> </div> <div class="product-record__key-fact-row-container"> <div class="product-record__key-fact-label">Years In Business</div> <div class="product-record__key-fact-text">173 Years</div> </div> <div class="product-record__key-fact-row-container"> <div class="product-record__key-fact-label">Policy Types</div> <div class="product-record__key-fact-text">Term, Universal (UL), Variable Universal (VUL), Whole</div> </div> <div class="product-record__key-fact-row-container"> <div class="product-record__key-fact-label">Accepts Credit Cards</div> <div class="product-record__key-fact-text">No</div> </div> </div><!-- end: comp key-facts-block--finance product-record-details --> </div> </div> </div> </div> </div><!-- end: comp product-card --> <div class="comp product-review-expertise-block expertise-block--finance expertise-block" id="product-review-expertise-block_3-0"> <div class="expertise-block__header"> <span class="expertise-block__heading"> Why Trust Us </span> <div class="expertise-block__chevron"></div> </div> <div class="expertise-block__data-points"> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-companies-reviewed"> 91 </span> <div class="expertise-block__data-point-content"> Companies reviewed </div> </div> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-features-considered"> 55 </span> <div class="expertise-block__data-point-content"> Features considered </div> </div> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-analyzed"> 5,005 </span> <div class="expertise-block__data-point-content"> Data points analyzed </div> </div> </div> <span class="expertise-block__content"> We collected over 5,000 data points from 91 life insurance companies to measure financial stability, customer satisfaction, product and feature variety, and the overall buying experience. We then evaluated each company based on 55 metrics to develop unbiased, comprehensive reviews. <div class="expertise-block__section-link"> <a href="https://www.investopedia.com/life-insurance-review-methodology-5071427">Read our Full Methodology</a> </div> </span> </div><!-- end: comp product-review-expertise-block expertise-block--finance expertise-block --> </div><!-- end: comp js-toc-appear article-container product-card-record--finance article-intro mntl-block --> <div class="loc body-content article-container"> <div class="comp article-body article-content mntl-block" id="article-content_1-0"> <div class="comp left-nav js-sticky-container product-review__left-nav mntl-block" id="product-review__left-nav_1-0"> <div class="comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block" data-desktop-bp="54em" data-tracking-container="true" id="product-review__toc_1-0"> <div class="comp sticky-toc-widget__product-container mntl-block" id="sticky-toc-widget__product-container_1-0"> <figure class="comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image" id="sticky-toc-widget__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="MassMutual" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/Xsmbfh-qAP1-pXm3sjkriNUTf2c=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/MassMutual-5542d799adfc45ebb6a7ab9b116e9c7c.jpg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhFgADAPMAAAAOTSU1byU3bCM5bSQ4bSQ3cP7+/P/+/////wAOTQAOTQAOTQAOTQAOTQAOTQAOTSwAAAAAFgADAEMIKQARCERwYKBBBAAOChTA8KAABA0FBngI8UBDAxQpIigwAKJHAg8ZCggIADs=')" width="1500"/> <noscript> <img alt="MassMutual" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/Xsmbfh-qAP1-pXm3sjkriNUTf2c=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/MassMutual-5542d799adfc45ebb6a7ab9b116e9c7c.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_2-0"> <span class="figure-article-caption-owner"><p> MassMutual</p> </span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp sticky-toc-widget__cta commerce-block mntl-block" id="sticky-toc-widget__cta_1-0"> <a class="commerce-button mntl-text-link mntl-commerce-btn" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-retailer-caption="On Covr" data-tracking-container="false" href="https://dotdash.covrtech.com" id="commerce-button_2-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: commerce-button mntl-text-link mntl-commerce-btn --> </div><!-- end: comp sticky-toc-widget__cta commerce-block mntl-block --> </div><!-- end: comp sticky-toc-widget__product-container mntl-block --> <div class="comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="sticky-toc-widget__toc_3-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_3-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_3-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_5-0"> Table of Contents</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_3-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="View All" id="mntl-toc-toggle__btn_3-0"> View All</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-MassMutual Life Insurance Review" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_6-0"> MassMutual Life Insurance Review</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_3-0"> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Pros Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pros-explained" id="mntl-toc__list-item-link_3-0" rel="nocaes"><span class="link__wrapper">Pros Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Cons Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-cons-explained" id="mntl-toc__list-item-link_3-0-1" rel="nocaes"><span class="link__wrapper">Cons Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Complaint Index" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-complaint-index" id="mntl-toc__list-item-link_3-0-2" rel="nocaes"><span class="link__wrapper">Complaint Index</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Third-Party Ratings" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-third-party-ratings" id="mntl-toc__list-item-link_3-0-3" rel="nocaes"><span class="link__wrapper">Third-Party Ratings</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Competition" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-competition" id="mntl-toc__list-item-link_3-0-4" rel="nocaes"><span class="link__wrapper">Competition</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-5"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Policies Available" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-policies-available" id="mntl-toc__list-item-link_3-0-5" rel="nocaes"><span class="link__wrapper">Policies Available</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-6"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-6"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Available Riders" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-available-riders" id="mntl-toc__list-item-link_3-0-6" rel="nocaes"><span class="link__wrapper">Available Riders</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-7"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-7"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Service" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-customer-service" id="mntl-toc__list-item-link_3-0-7" rel="nocaes"><span class="link__wrapper">Customer Service</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-8"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-8"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Price" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-price" id="mntl-toc__list-item-link_3-0-8" rel="nocaes"><span class="link__wrapper">Price</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-9"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-9"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Final Verdict" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-final-verdict" id="mntl-toc__list-item-link_3-0-9" rel="nocaes"><span class="link__wrapper">Final Verdict</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-10"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-10"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Frequently Asked Questions" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-frequently-asked-questions" id="mntl-toc__list-item-link_3-0-10" rel="nocaes"><span class="link__wrapper">Frequently Asked Questions</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-11"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-11"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_3-0-11" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block --> </div><!-- end: comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block --> </div><!-- end: comp left-nav js-sticky-container product-review__left-nav mntl-block --> <div class="comp expert-content product-review__content prm-sc-page mntl-sc-page mntl-block" data-tracking-container="true" id="product-review__content_1-0"> <span class="heading-toc" id="toc-pros-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0"> <span class="mntl-sc-block-heading__text"> Pros Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-1"> <li><strong>Liberal term conversion options:</strong> MassMutual allows policyholders to convert term life insurance policies into permanent coverage, without taking a medical exam or answering any health questions.</li> <li><strong>Opportunity to receive dividends: </strong>While dividends aren’t guaranteed, MassMutual has paid them to eligible whole life insurance customers every year since 1869.<span class="ql-inline-citation" data-cite="11"></span></li> <li><strong>Very few complaints for a company of its size: </strong>MassMutual received far fewer customer complaints than many other insurance companies of a similar size. No-medical-exam policies available: Applicants up to age 64 looking for $250,000 to $3 million in coverage can apply for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-no-medical-exam-life-insurance-5078737">no-medical-exam life insurance</a>.</li> <li><strong>Highest financial strength rating: </strong><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://news.ambest.com/PressContent.aspx?altsrc=2&amp;refnum=32242" rel="sponsored nofollow">MassMutual</a> has an A++ financial strength rating from AM Best, which is the top grade possible.<span class="ql-inline-citation" data-cite="12"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-cons-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-2"> <span class="mntl-sc-block-heading__text"> Cons Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-3"> <li><strong>Doesn’t accept credit cards: </strong>MassMutual policyholders don’t have the option to pay their premiums with a credit card online. The only payment methods are ACH transfer, mailing a physical check, or, in some cases, making a credit card payment by phone.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-complaint-index"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-4"> <span class="mntl-sc-block-heading__text"> Complaint Index </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-5"> MassMutual has fewer complaints than expected for a company of its size. To determine this, we looked to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nainsurancec.asp">National Association of Insurance Commissioners (NAIC)</a>, which measures how many complaints a company receives and compares that to its market share to create a complaint index.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-6"> Averaged over three years, MassMutual has a complaint index of 0.03. Companies with an index below 1 have fewer than expected complaints, whereas an index above 1 means that a company has more complaints than expected.<span class="ql-inline-citation" data-cite="10"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-third-party-ratings"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-7"> <span class="mntl-sc-block-heading__text"> Third-Party Ratings </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-8"> MassMutual also receives excellent marks from other ratings institutions. The company has an A++ (Superior) rating from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/a-m-best.asp#:~:text=What%20Is%20AM%20Best%3F,will%20default%20on%20its%20obligations.">AM Best</a>, the highest financial strength rating possible.<span class="ql-inline-citation" data-cite="12"></span> AM Best’s letter grades are calculated based on a company’s balance sheet, operating performance, and debts. Most of the life insurance providers we evaluated have AM Best scores of A or A+. Out of a total of 91 insurance companies we reviewed, MassMutual is one of only eight that has an A++ rating. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-9"> In addition, MassMutual is rated above average for overall customer satisfaction in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-j-d-power-5025160">J.D. Power’s</a> 2022 U.S. Individual Life Insurance Study. On the list of 21 life insurance companies, MassMutual was ranked ninth, with a score of 780 out of 1,000. The industry average score is 774 out of 1,000.<span class="ql-inline-citation" data-cite="9"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-competition"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-10"> <span class="mntl-sc-block-heading__text"> Competition </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-11"> Every life insurance company has its advantages and drawbacks. Before selecting a company, it’s important to compare several providers to find the best fit. In the table below, you can see how MassMutual stacks up against New York Life and Transamerica. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-12"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th> </th> <th><b>MassMutual</b></th> <th><b>New York Life</b> </th> <th><b>Transamerica</b> </th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>Types of Coverage</b></td> <td>Term, whole, universal, variable universal</td> <td>Term, whole, universal, variable</td> <td>Term, whole, index universal, final expense</td> </tr> <tr> <td><b>Dividends for 2022</b> </td> <td>$1.85 billion </td> <td>$1.9 billion </td> <td>Dividends not offered </td> </tr> <tr> <td><b>Online Application</b> </td> <td>Available </td> <td>Not Available </td> <td>Not Available </td> </tr> <tr> <td><b>AM Best Rating</b> </td> <td>A++ </td> <td>A++ </td> <td>A </td> </tr> <tr> <td><b>Price for Term Policies</b> </td> <td>Better than average </td> <td>Not available </td> <td>Better than average </td> </tr> <tr> <td><b>NAIC-Derived Complaint Index</b> </td> <td>0.03</td> <td>0.22 </td> <td>1.78</td> </tr> <tr> <td><b>J.D. Power Ranking</b> </td> <td>9</td> <td>10 </td> <td>21 </td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <div class="comp theme-important mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-13"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>The NAIC complaint index indicates how many complaints a company receives relative to its size. A score lower than 1.0 indicates fewer customer complaints than expected; a score greater than 1.0 indicates more complaints than expected. The closer the index is to 0, the better.</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 --> <span class="heading-toc" id="toc-policies-available"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-14"> <span class="mntl-sc-block-heading__text"> Policies Available  </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-15"> MassMutual offers four types of life insurance. Here are the policies available: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-16"> <span class="mntl-sc-block-subheading__text"> Term Life Insurance </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-17"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/termlife.asp">Term life insurance</a> provides coverage for a specific period of time, such as 10 or 20 years. The premiums are fixed over the lifetime of the policy, and if you pass away during the term, your beneficiary receives a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deathbenefit.asp#:~:text=A%20death%20benefit%20is%20a,as%20a%20lump%2Dsum%20payment.">death benefit</a>. Term life insurance premiums are lower for younger people, and get increasingly more expensive with age. Some term life policies are <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/convertible-insurance.asp#:~:text=Convertible%20insurance%20is%20a%20type,the%20health%20qualification%20process%20again.">convertible</a>, meaning you can roll your coverage into a permanent policy, without taking a medical exam.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-18"> <strong>MassMutual Term</strong> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-19"> MassMutual’s term life insurance policy offers coverage for 10, 15, 20, 25, or 30 years, with the option to convert all or a portion of the coverage to any permanent policy the company offers. That’s more generous than many competitors, who limit the policy types you can convert to. Coverage amount ranges from $100,000 to $10 million, and premiums are guaranteed for the initial term period. To get a quote or apply for the term life policy, you must work with a MassMutual agent. A medical exam is required for some individuals. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-20"> <span class="mntl-sc-block-subheading__text"> Whole Life Insurance </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-21"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wholelife.asp">Whole life insurance</a> is a permanent life insurance policy that provides coverage for your entire lifetime. It has fixed premiums and pays a death benefit when you pass away. In addition, whole life insurance policies build cash value, which can be borrowed or withdrawn. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-22"> MassMutual’s whole-life policyholders are eligible to receive annual dividends based on the company’s financial performance. Dividends can be used to increase the death benefit or cash value, or pay premiums.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-23"> <li><strong>Whole Life 100: </strong>Premiums are payable to age 100. This policy has the highest issue age of all MassMutual whole life offerings at 90 years old.</li><li><strong>Whole Life 65: </strong>This policy offers level premiums payable to age 65, after which the policy is guaranteed to be paid up.</li><li><strong>Whole Life 10/15/20-Pay: </strong>With premiums payable for 10, 15, or 20 years, this policy builds cash value more quickly than other whole life policies with longer premium periods. </li><li><strong>Whole Life High Early Cash Value (HECV): </strong>Designed for businesses to use with selective benefit programs for key employees and executives, HECV premiums are payable to age 85.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-24"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>Premiums for a short payment period will be much higher than if you spread out payments for a longer time, but the policy’s cash value will also increase much more quickly. </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 --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-25"> <span class="mntl-sc-block-subheading__text"> Universal Life Insurance </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-26"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/universallife.asp">Universal life (UL) insurance</a> is another type of permanent life insurance that builds cash value. This type of life insurance is known for its flexibility—as long as you have enough cash value in your account, you can adjust your universal life insurance premium and death benefit, depending on how your financial needs change. Some universal life insurance policies can be structured like term coverage, where the coverage is designed to remain in effect for a fixed period of time. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-27"> <strong>Universal Life (UL) Guard</strong> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-28"> UL Guard offers policyholders the option to select both the duration of the death benefit period and how long they want to pay premiums. Coverage is available for ages 18 to 85, for coverage amounts as low as $50,000. Policyholders can obtain a chronic illness rider and terminal illness rider at no additional cost.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-29"> <strong>Survivorship Universal Life (SUL) Guard</strong> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-30"> SUL Guard is a second-to-die universal life policy designed for couples who want permanent life insurance and guaranteed coverage. Premiums for this survivorship policy are typically lower than for a comparable individual life policy. Policyholders between the ages of 18 to 85 can purchase coverage as low as $100,000. Available riders include an estate protection rider and a terminal illness rider. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-31"> <span class="mntl-sc-block-subheading__text"> Variable Universal Life Insurance </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-32"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/variableuniversallife.asp#:~:text=Variable%20universal%20life%20%28VUL%29%20insurance%20is%20a%20type%20of%20permanent,cash%20piece%20in%20the%20market.">Variable universal life (VUL) insurance</a> provides the same flexibility as a universal life policy, with the option to adjust the frequency and amount of your premiums, within limits. Variable universal policies build cash value, and you’re able to choose where the money gets invested. MassMutual provides a portfolio of investment options to choose from, or you can invest the money in the Guaranteed Principal Account (GPA), a fixed account that earns guaranteed interest on a daily basis. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-33"> <strong>Apex VUL</strong> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-34"> The Apex VUL policy combines permanent life insurance protection with potential account value accumulation via stock market investments. Policies include a chronic illness rider and coverage amount, which starts at $50,000 minimum, and can be increased by exercising the policy’s guaranteed insurability rider if elected at issue or after issue to age 40. </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_2-0-35"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-2"> <p>VUL policies are the most risky type of life insurance because if your investments lose value, your premiums may increase, and the policy could ultimately lapse.</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 --> <span class="heading-toc" id="toc-available-riders"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-36"> <span class="mntl-sc-block-heading__text"> Available Riders </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-37"> Life insurance <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rider.asp">riders</a> are optional policies that provide coverage for things that your standard policy excludes. Some riders are free, while others cost extra and will increase your premium. Here are the riders available from MassMutual. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-38"> <span class="mntl-sc-block-subheading__text"> Guaranteed Insurability Rider  </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-39"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/guaranteed-insurability-rider-5095038#:~:text=A%20guaranteed%20insurability%20rider%20lets,with%20this%20type%20of%20rider.">guaranteed insurability rider</a> allows you to purchase more life insurance coverage in the future without taking another medical exam. With this rider, you have the option to increase the face value of your current whole life policy, or purchase a new whole life, universal life, or variable universal life policy from MassMutual.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-40"> Additional coverage can be purchased every three years on option dates between the ages of 25 and 46, or you can choose the accelerated option to purchase more coverage after getting married, having a baby, or adopting a child.<span class="ql-inline-citation" data-cite="14"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-41"> <span class="mntl-sc-block-subheading__text"> Waiver of Premium  </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-42"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/waiver_of_premium.asp">waiver of premium</a> rider is available as an add-on to whole life insurance policies from MassMutual. If you become disabled and are unable to work, this rider will pause your premiums temporarily, without affecting your death benefit or cash value growth. It will stay in effect on your policy until age 65, or after 10 years if you are older than 65. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-43"> <span class="mntl-sc-block-subheading__text"> Terminal Illness Rider </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-44"> When you purchase an individual life insurance policy through MassMutual, you get a free terminal illness <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/013114/closer-look-accelerated-benefit-riders.asp">accelerated death benefit rider</a>. This rider allows you to use money from your death benefit if you get diagnosed with a terminal illness and have a life expectancy of 12 months or less (although life expectancy requirements can vary by state). This rider is included at no cost on MassMutual’s term, whole life, UL, and VUL policies. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-45"> <span class="mntl-sc-block-subheading__text"> Long-Term Care Rider  </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-46"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/long-term-care-rider-4802409">long-term care rider</a> allows you to use some or all of your policy’s death benefit to pay for long-term care expenses, such as hospice care, a nursing home, or a home health aid. In order to use this rider, a medical professional must determine that you cannot perform certain <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assisted-living.asp">activities of daily living (ADLs)</a>, or have cognitive impairments. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-47"> <span class="mntl-sc-block-subheading__text"> Chronic Illness Rider </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-48"> If you get diagnosed with a qualifying chronic illness, a chronic illness rider enables you to receive a portion of your death benefit money early. Typically, your doctor must confirm your diagnosis and certify that you cannot perform at least two ADLs. MassMutual’s UL Guard offers this rider at no additional cost.  </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_2-0-49"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-3"> <p>Some riders are only sold in select states. If you are interested in a specific rider, it’s a good idea to speak with an agent and confirm that it’s available where you live, and for the type of policy you want.</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 --> <span class="heading-toc" id="toc-customer-service"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-50"> <span class="mntl-sc-block-heading__text"> Customer Service </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-51"> To get in touch with MassMutual, you can call the company at (800) 272-2216 during business hours, which are Monday through Friday, from 8 a.m. to 8 p.m. Eastern Time. You can also email the company by filling out this <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.massmutual.com/contact-us/life-insurance" rel="sponsored nofollow">online form</a>.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-price"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-52"> <span class="mntl-sc-block-heading__text"> Price </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-53"> To assess the cost of MassMutual’s life insurance policies versus other life insurance companies, we got sample quotes from multiple insurers for 30-year, $250,000 term life policies for healthy males and females aged 25, 40, and 55 years old. We found that premiums charged by MassMutual were better than average, but not as good as some of its competitors on our list of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-companies-4845858">best life insurance companies</a>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-54"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-4"> <p>Before you purchase a life insurance policy, consider getting rate quotes from several different companies and comparing them to help you find the lowest premium.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-final-verdict"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-55"> <span class="mntl-sc-block-heading__text"> Final Verdict </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-56"> MassMutual is a great life insurance provider for shoppers who are looking for whole life insurance with dividends or are shopping for a convertible term life policy. MassMutual also has fewer than average complaints for a company of its size, and has excellent financial strength, making it a solid option for anyone who is in the market for life insurance. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-57"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-5"> <p>Also, when you apply for a life insurance policy from MassMutual, you will need to check the box for “male” or “female” on the application. Although <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-being-nonbinary-affects-getting-life-insurance-4869749">transgender and non-binary individuals can qualify for life insurance</a>, there is no industry standard for how premiums are calculated. We recommend reaching out to MassMutual to learn more about its specific underwriting practices for transgender and non-binary applicants.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-frequently-asked-questions"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-58"> <span class="mntl-sc-block-heading__text"> Frequently Asked Questions </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-59"> <span class="mntl-sc-block-subheading__text"> Is MassMutual a Reputable Company? </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-60"> Yes, MassMutual is reputable. Both AM Best and Standard &amp; Poor's give the insurer high ratings based on the company's financial strength. Additionally, MassMutual has fewer consumer complaints than other companies its size. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-61"> <span class="mntl-sc-block-subheading__text"> What Are MassMutual's Ratings? </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-62"> MassMutual earned an A++ (Superior) rating from AM Best, the company's highest rating for an insurer.<span class="ql-inline-citation" data-cite="12"></span> Standard &amp; Poor's ranks the company an AA+ (Very Strong).<span class="ql-inline-citation" data-cite="15"></span> In its 2022 U.S. Individual Life Insurance Study, J.D. Power ranked MassMutual 9th out of 21 companies.<span class="ql-inline-citation" data-cite="9"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-63"> <span class="mntl-sc-block-subheading__text"> Who Is MassMutual Owned By? </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-64"> MassMutual is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualcompany.asp">mutual company</a>, which means it doesn't have shareholders. Instead, it is owned by its customers and policyholders, who are entitled to receive a share of the profits in the form of dividends or a reduced premium. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-65"> <span class="mntl-sc-block-subheading__text"> How Do You Cancel Mass Mutual Life Insurance? </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-66"> In order to cancel your MassMutual life insurance policy, you'll need to reach out to your financial professional or give the company a call at 1-800-272-2216. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-67"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-68"> We designed a comprehensive rating methodology based on consumer priorities and life insurance company fundamentals to rank more than 90 insurers across five general categories: financial stability, customer satisfaction, product and feature variety, the overall buying experience, and cost. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-69"> In order to do this, we collected over 5,000 data points and scored each company based on 55 metrics. We grouped metrics by category to see how insurers performed in each; we then weighted category scores to determine how companies performed overall. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-70"> To learn more, read our full <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/life-insurance-review-methodology-5071427">Life Insurance Methodology</a>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp expert-content product-review__content prm-sc-page mntl-sc-page mntl-block --> </div><!-- end: comp article-body article-content mntl-block --> </div> </div><!-- end: comp product-review-content product-review-content--finance product-review--base --> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-11"><p>Mass Mutual. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.massmutual.com/insurance/life-insurance/whole-life" rel="nofollow sponsored">Whole Life Insurance Policy</a>."</p></li> <li class="mntl-sources__source" id="citation-12"><p>AM Best. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://news.ambest.com/presscontent.aspx?refnum=32242&amp;altsrc=2" rel="nofollow sponsored">AM Best Affirms Credit Ratings of Massachusetts Mutual</a>."</p></li> <li class="mntl-sources__source" id="citation-10"><p>National Association of Insurance Commissioners. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.naic.org/cis_refined_results.htm?TABLEAU=CIS_COMPLAINTS&amp;COCODE=63312&amp;:refresh">Great American Life Ins Co National Complaint Index Report (MassMutual)</a>."</p></li> <li class="mntl-sources__source" id="citation-9"><p>J.D. Power. "<a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.jdpower.com/business/press-releases/2022-us-individual-life-insurance-individual-annuity-studies">Both Life Insurance and Annuity Customer Satisfaction Decline as Pandemic Fears Wane, J.D. Power Finds</a>."</p></li> <li class="mntl-sources__source" id="citation-14"><p>Mass Mutual. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://static.fmgsuite.com/media/documents/5212a217-e113-479e-adf2-4984b94b0ade.pdf">Guaranteed Insurability Rider</a>."</p></li> <li class="mntl-sources__source" id="citation-15"><p>Standard and Poor. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/s-p-affirms-ratings-of-american-financial-massmutual-following-deal-news-62336470" rel="nofollow sponsored">S&amp;P Affirms Ratings of MassMutual</a>."</p></li> </ol> </div> </div></div> <div class="comp prm-recirc related-recirc-section--articles mntl-block" data-tracking-container="true" id="prm-recirc_1-0"><section class="comp related-articles" data-tracking-container="true" id="related-articles_1-0"> <span class="related-articles__header type--camel"> Related Articles </span> <div class="loc recirc-content"><div class="comp related-articles__card-list-1 card-list--related-articles mntl-document-card-list mntl-card-list mntl-block" data-chunk="36" id="related-articles__card-list-1_1-0"><a class="comp mntl-card-list-items mntl-document-card mntl-card related-articles__link card" data-cta="Read Now ▸" 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![MassMutual](https://www.investopedia.com/thmb/Xsmbfh-qAP1-pXm3sjkriNUTf2c=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/MassMutual-5542d799adfc45ebb6a7ab9b116e9c7c.jpg) ![MassMutual](https://www.investopedia.com/thmb/Xsmbfh-qAP1-pXm3sjkriNUTf2c=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/MassMutual-5542d799adfc45ebb6a7ab9b116e9c7c.jpg)  MassMutual [Get A Quote](https://dotdash.covrtech.com) **Our Take** MassMutual Life Insurance offers multiple policy types, dividends on whole life insurance, generous term conversion options, and some of the highest third-party ratings in the industry. It also scores highly among our top providers for its no-medical-exam policies and financial strength. ## Top Rated For * [Best Convertible Term Life Insurance 11 Best Term, Whole, and No-Exam Life Insurance Companies for May 2024](https://www.investopedia.com/best-life-insurance-companies-4845858#toc-massmutual) * [Best for Financial Stability Best Term Life Insurance Companies of 2024](https://www.investopedia.com/best-term-life-insurance-4845961#toc-massmutual) * [Best for Cigar Smokers Best Life Insurance Companies for Smokers](https://www.investopedia.com/best-life-insurance-for-smokers-5119536#toc-massmutual) * [Best for Dividends 7 Best Life Insurance Companies for People Over 50](https://www.investopedia.com/best-life-insurance-for-people-over-50-4846582#toc-massmutual) * Pros & Cons * Company Overview * specifications Pros & Cons Pros * Liberal term conversion options * Opportunity to receive dividends * Very few complaints for a company of its size * No-medical-exam policies available * Highest financial strength rating Cons * Doesn’t accept online credit card payments Company Overview Massachusetts Mutual Life Insurance Company (better known as MassMutual) was founded in 1851 and is headquartered in Springfield, Massachusetts. As of 2022, the company received more than $9 billion in direct premiums and is the second-largest life insurance provider in the country, based on market share. MassMutual is licensed to sell life insurance products in all 50 states and Washington, D.C. specifications AM Best Rating A++ NAIC Score (avg.) N/A Years In Business 173 Years Policy Types Term, Universal (UL), Variable Universal (VUL), Whole Accepts Credit Cards No Why Trust Us 91 Companies reviewed 55 Features considered 5,005 Data points analyzed We collected over 5,000 data points from 91 life insurance companies to measure financial stability, customer satisfaction, product and feature variety, and the overall buying experience. We then evaluated each company based on 55 metrics to develop unbiased, comprehensive reviews. [Read our Full Methodology](https://www.investopedia.com/life-insurance-review-methodology-5071427) ![MassMutual](https://www.investopedia.com/thmb/Xsmbfh-qAP1-pXm3sjkriNUTf2c=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/MassMutual-5542d799adfc45ebb6a7ab9b116e9c7c.jpg) ![MassMutual](https://www.investopedia.com/thmb/Xsmbfh-qAP1-pXm3sjkriNUTf2c=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/MassMutual-5542d799adfc45ebb6a7ab9b116e9c7c.jpg)  MassMutual [Get A Quote](https://dotdash.covrtech.com) Table of Contents View All MassMutual Life Insurance Review * [Pros Explained](#toc-pros-explained) * [Cons Explained](#toc-cons-explained) * [Complaint Index](#toc-complaint-index) * [Third-Party Ratings](#toc-third-party-ratings) * [Competition](#toc-competition) * [Policies Available](#toc-policies-available) * [Available Riders](#toc-available-riders) * [Customer Service](#toc-customer-service) * [Price](#toc-price) * [Final Verdict](#toc-final-verdict) * [Frequently Asked Questions](#toc-frequently-asked-questions) * [Methodology](#toc-methodology) ## Pros Explained * **Liberal term conversion options:** MassMutual allows policyholders to convert term life insurance policies into permanent coverage, without taking a medical exam or answering any health questions. * **Opportunity to receive dividends:** While dividends aren’t guaranteed, MassMutual has paid them to eligible whole life insurance customers every year since 1869. * **Very few complaints for a company of its size:** MassMutual received far fewer customer complaints than many other insurance companies of a similar size. No-medical-exam policies available: Applicants up to age 64 looking for $250,000 to $3 million in coverage can apply for [no-medical-exam life insurance](https://www.investopedia.com/best-no-medical-exam-life-insurance-5078737). * **Highest financial strength rating:** [MassMutual](https://news.ambest.com/PressContent.aspx?altsrc=2&refnum=32242) has an A++ financial strength rating from AM Best, which is the top grade possible. ## Cons Explained * **Doesn’t accept credit cards:** MassMutual policyholders don’t have the option to pay their premiums with a credit card online. The only payment methods are ACH transfer, mailing a physical check, or, in some cases, making a credit card payment by phone. ## Complaint Index MassMutual has fewer complaints than expected for a company of its size. To determine this, we looked to the [National Association of Insurance Commissioners (NAIC)](https://www.investopedia.com/terms/n/nainsurancec.asp), which measures how many complaints a company receives and compares that to its market share to create a complaint index.  Averaged over three years, MassMutual has a complaint index of 0.03. Companies with an index below 1 have fewer than expected complaints, whereas an index above 1 means that a company has more complaints than expected. ## Third-Party Ratings MassMutual also receives excellent marks from other ratings institutions. The company has an A++ (Superior) rating from [AM Best](https://www.investopedia.com/terms/a/a-m-best.asp#:~:text=What%20Is%20AM%20Best%3F,will%20default%20on%20its%20obligations.), the highest financial strength rating possible. AM Best’s letter grades are calculated based on a company’s balance sheet, operating performance, and debts. Most of the life insurance providers we evaluated have AM Best scores of A or A+. Out of a total of 91 insurance companies we reviewed, MassMutual is one of only eight that has an A++ rating. In addition, MassMutual is rated above average for overall customer satisfaction in [J.D. Power’s](https://www.investopedia.com/what-is-j-d-power-5025160) 2022 U.S. Individual Life Insurance Study. On the list of 21 life insurance companies, MassMutual was ranked ninth, with a score of 780 out of 1,000. The industry average score is 774 out of 1,000. ## Competition Every life insurance company has its advantages and drawbacks. Before selecting a company, it’s important to compare several providers to find the best fit. In the table below, you can see how MassMutual stacks up against New York Life and Transamerica. | | **MassMutual** | **New York Life** | **Transamerica** | | --- | --- | --- | --- | | **Types of Coverage** | Term, whole, universal, variable universal | Term, whole, universal, variable | Term, whole, index universal, final expense | | **Dividends for 2022** | $1.85 billion | $1.9 billion | Dividends not offered | | **Online Application** | Available | Not Available | Not Available | | **AM Best Rating** | A++ | A++ | A | | **Price for Term Policies** | Better than average | Not available | Better than average | | **NAIC-Derived Complaint Index** | 0.03 | 0.22 | 1.78 | | **J.D. Power Ranking** | 9 | 10 | 21 | The NAIC complaint index indicates how many complaints a company receives relative to its size. A score lower than 1.0 indicates fewer customer complaints than expected; a score greater than 1.0 indicates more complaints than expected. The closer the index is to 0, the better. ## Policies Available MassMutual offers four types of life insurance. Here are the policies available: ### Term Life Insurance [Term life insurance](https://www.investopedia.com/terms/t/termlife.asp) provides coverage for a specific period of time, such as 10 or 20 years. The premiums are fixed over the lifetime of the policy, and if you pass away during the term, your beneficiary receives a [death benefit](https://www.investopedia.com/terms/d/deathbenefit.asp#:~:text=A%20death%20benefit%20is%20a,as%20a%20lump%2Dsum%20payment.). Term life insurance premiums are lower for younger people, and get increasingly more expensive with age. Some term life policies are [convertible](https://www.investopedia.com/terms/c/convertible-insurance.asp#:~:text=Convertible%20insurance%20is%20a%20type,the%20health%20qualification%20process%20again.), meaning you can roll your coverage into a permanent policy, without taking a medical exam.  **MassMutual Term** MassMutual’s term life insurance policy offers coverage for 10, 15, 20, 25, or 30 years, with the option to convert all or a portion of the coverage to any permanent policy the company offers. That’s more generous than many competitors, who limit the policy types you can convert to. Coverage amount ranges from $100,000 to $10 million, and premiums are guaranteed for the initial term period. To get a quote or apply for the term life policy, you must work with a MassMutual agent. A medical exam is required for some individuals. ### Whole Life Insurance [Whole life insurance](https://www.investopedia.com/terms/w/wholelife.asp) is a permanent life insurance policy that provides coverage for your entire lifetime. It has fixed premiums and pays a death benefit when you pass away. In addition, whole life insurance policies build cash value, which can be borrowed or withdrawn. MassMutual’s whole-life policyholders are eligible to receive annual dividends based on the company’s financial performance. Dividends can be used to increase the death benefit or cash value, or pay premiums.  * **Whole Life 100:** Premiums are payable to age 100. This policy has the highest issue age of all MassMutual whole life offerings at 90 years old. * **Whole Life 65:** This policy offers level premiums payable to age 65, after which the policy is guaranteed to be paid up. * **Whole Life 10/15/20-Pay:** With premiums payable for 10, 15, or 20 years, this policy builds cash value more quickly than other whole life policies with longer premium periods. * **Whole Life High Early Cash Value (HECV):** Designed for businesses to use with selective benefit programs for key employees and executives, HECV premiums are payable to age 85. Premiums for a short payment period will be much higher than if you spread out payments for a longer time, but the policy’s cash value will also increase much more quickly.  ### Universal Life Insurance [Universal life (UL) insurance](https://www.investopedia.com/terms/u/universallife.asp) is another type of permanent life insurance that builds cash value. This type of life insurance is known for its flexibility—as long as you have enough cash value in your account, you can adjust your universal life insurance premium and death benefit, depending on how your financial needs change. Some universal life insurance policies can be structured like term coverage, where the coverage is designed to remain in effect for a fixed period of time. **Universal Life (UL) Guard** UL Guard offers policyholders the option to select both the duration of the death benefit period and how long they want to pay premiums. Coverage is available for ages 18 to 85, for coverage amounts as low as $50,000. Policyholders can obtain a chronic illness rider and terminal illness rider at no additional cost.  **Survivorship Universal Life (SUL) Guard** SUL Guard is a second-to-die universal life policy designed for couples who want permanent life insurance and guaranteed coverage. Premiums for this survivorship policy are typically lower than for a comparable individual life policy. Policyholders between the ages of 18 to 85 can purchase coverage as low as $100,000. Available riders include an estate protection rider and a terminal illness rider. ### Variable Universal Life Insurance [Variable universal life (VUL) insurance](https://www.investopedia.com/terms/v/variableuniversallife.asp#:~:text=Variable%20universal%20life%20%28VUL%29%20insurance%20is%20a%20type%20of%20permanent,cash%20piece%20in%20the%20market.) provides the same flexibility as a universal life policy, with the option to adjust the frequency and amount of your premiums, within limits. Variable universal policies build cash value, and you’re able to choose where the money gets invested. MassMutual provides a portfolio of investment options to choose from, or you can invest the money in the Guaranteed Principal Account (GPA), a fixed account that earns guaranteed interest on a daily basis. **Apex VUL** The Apex VUL policy combines permanent life insurance protection with potential account value accumulation via stock market investments. Policies include a chronic illness rider and coverage amount, which starts at $50,000 minimum, and can be increased by exercising the policy’s guaranteed insurability rider if elected at issue or after issue to age 40. VUL policies are the most risky type of life insurance because if your investments lose value, your premiums may increase, and the policy could ultimately lapse. ## Available Riders Life insurance [riders](https://www.investopedia.com/terms/r/rider.asp) are optional policies that provide coverage for things that your standard policy excludes. Some riders are free, while others cost extra and will increase your premium. Here are the riders available from MassMutual. ### Guaranteed Insurability Rider The [guaranteed insurability rider](https://www.investopedia.com/guaranteed-insurability-rider-5095038#:~:text=A%20guaranteed%20insurability%20rider%20lets,with%20this%20type%20of%20rider.) allows you to purchase more life insurance coverage in the future without taking another medical exam. With this rider, you have the option to increase the face value of your current whole life policy, or purchase a new whole life, universal life, or variable universal life policy from MassMutual.  Additional coverage can be purchased every three years on option dates between the ages of 25 and 46, or you can choose the accelerated option to purchase more coverage after getting married, having a baby, or adopting a child. ### Waiver of Premium The [waiver of premium](https://www.investopedia.com/terms/w/waiver_of_premium.asp) rider is available as an add-on to whole life insurance policies from MassMutual. If you become disabled and are unable to work, this rider will pause your premiums temporarily, without affecting your death benefit or cash value growth. It will stay in effect on your policy until age 65, or after 10 years if you are older than 65. ### Terminal Illness Rider When you purchase an individual life insurance policy through MassMutual, you get a free terminal illness [accelerated death benefit rider](https://www.investopedia.com/articles/personal-finance/013114/closer-look-accelerated-benefit-riders.asp). This rider allows you to use money from your death benefit if you get diagnosed with a terminal illness and have a life expectancy of 12 months or less (although life expectancy requirements can vary by state). This rider is included at no cost on MassMutual’s term, whole life, UL, and VUL policies. ### Long-Term Care Rider A [long-term care rider](https://www.investopedia.com/long-term-care-rider-4802409) allows you to use some or all of your policy’s death benefit to pay for long-term care expenses, such as hospice care, a nursing home, or a home health aid. In order to use this rider, a medical professional must determine that you cannot perform certain [activities of daily living (ADLs)](https://www.investopedia.com/terms/a/assisted-living.asp), or have cognitive impairments. ### Chronic Illness Rider If you get diagnosed with a qualifying chronic illness, a chronic illness rider enables you to receive a portion of your death benefit money early. Typically, your doctor must confirm your diagnosis and certify that you cannot perform at least two ADLs. MassMutual’s UL Guard offers this rider at no additional cost.  Some riders are only sold in select states. If you are interested in a specific rider, it’s a good idea to speak with an agent and confirm that it’s available where you live, and for the type of policy you want. ## Customer Service To get in touch with MassMutual, you can call the company at (800) 272-2216 during business hours, which are Monday through Friday, from 8 a.m. to 8 p.m. Eastern Time. You can also email the company by filling out this [online form](https://www.massmutual.com/contact-us/life-insurance).  ## Price To assess the cost of MassMutual’s life insurance policies versus other life insurance companies, we got sample quotes from multiple insurers for 30-year, $250,000 term life policies for healthy males and females aged 25, 40, and 55 years old. We found that premiums charged by MassMutual were better than average, but not as good as some of its competitors on our list of [best life insurance companies](https://www.investopedia.com/best-life-insurance-companies-4845858). Before you purchase a life insurance policy, consider getting rate quotes from several different companies and comparing them to help you find the lowest premium. ## Final Verdict MassMutual is a great life insurance provider for shoppers who are looking for whole life insurance with dividends or are shopping for a convertible term life policy. MassMutual also has fewer than average complaints for a company of its size, and has excellent financial strength, making it a solid option for anyone who is in the market for life insurance. Also, when you apply for a life insurance policy from MassMutual, you will need to check the box for “male” or “female” on the application. Although [transgender and non-binary individuals can qualify for life insurance](https://www.investopedia.com/how-being-nonbinary-affects-getting-life-insurance-4869749), there is no industry standard for how premiums are calculated. We recommend reaching out to MassMutual to learn more about its specific underwriting practices for transgender and non-binary applicants. ## Frequently Asked Questions ### Is MassMutual a Reputable Company? Yes, MassMutual is reputable. Both AM Best and Standard & Poor's give the insurer high ratings based on the company's financial strength. Additionally, MassMutual has fewer consumer complaints than other companies its size. ### What Are MassMutual's Ratings? MassMutual earned an A++ (Superior) rating from AM Best, the company's highest rating for an insurer. Standard & Poor's ranks the company an AA+ (Very Strong). In its 2022 U.S. Individual Life Insurance Study, J.D. Power ranked MassMutual 9th out of 21 companies. ### Who Is MassMutual Owned By? MassMutual is a [mutual company](https://www.investopedia.com/terms/m/mutualcompany.asp), which means it doesn't have shareholders. Instead, it is owned by its customers and policyholders, who are entitled to receive a share of the profits in the form of dividends or a reduced premium. ### How Do You Cancel Mass Mutual Life Insurance? In order to cancel your MassMutual life insurance policy, you'll need to reach out to your financial professional or give the company a call at 1-800-272-2216. ## Methodology We designed a comprehensive rating methodology based on consumer priorities and life insurance company fundamentals to rank more than 90 insurers across five general categories: financial stability, customer satisfaction, product and feature variety, the overall buying experience, and cost. In order to do this, we collected over 5,000 data points and scored each company based on 55 metrics. We grouped metrics by category to see how insurers performed in each; we then weighted category scores to determine how companies performed overall. To learn more, read our full [Life Insurance Methodology](https://www.investopedia.com/life-insurance-review-methodology-5071427). 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. Mass Mutual. "[Whole Life Insurance Policy](https://www.massmutual.com/insurance/life-insurance/whole-life)." 2. AM Best. "[AM Best Affirms Credit Ratings of Massachusetts Mutual](https://news.ambest.com/presscontent.aspx?refnum=32242&altsrc=2)." 3. National Association of Insurance Commissioners. "[Great American Life Ins Co National Complaint Index Report (MassMutual)](https://www.naic.org/cis_refined_results.htm?TABLEAU=CIS_COMPLAINTS&COCODE=63312&:refresh)." 4. J.D. Power. "[Both Life Insurance and Annuity Customer Satisfaction Decline as Pandemic Fears Wane, J.D. Power Finds](https://www.jdpower.com/business/press-releases/2022-us-individual-life-insurance-individual-annuity-studies)." 5. Mass Mutual. "[Guaranteed Insurability Rider](https://static.fmgsuite.com/media/documents/5212a217-e113-479e-adf2-4984b94b0ade.pdf)." 6. Standard and Poor. "[S&P Affirms Ratings of MassMutual](https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/s-p-affirms-ratings-of-american-financial-massmutual-following-deal-news-62336470)." 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 MassMutual Get A Quote Our Take MassMutual Life Insurance offers multiple policy types, dividends on whole life insurance, generous term conversion options, and some of the highest third-party ratings in the industry. It also scores highly among our top providers for its no-medical-exam policies and financial strength. Top Rated For Best Convertible Term Life Insurance 11 Best Term, Whole, and No-Exam Life Insurance Companies for May 2024 Best for Financial Stability Best Term Life Insurance Companies of 2024 Best for Cigar Smokers Best Life Insurance Companies for Smokers Best for Dividends 7 Best Life Insurance Companies for People Over 50 Pros & Cons Company Overview specifications Pros & Cons Pros Liberal term conversion options Opportunity to receive dividends Very few complaints for a company of its size No-medical-exam policies available Highest financial strength rating Cons Doesn’t accept online credit card payments Company Overview Massachusetts Mutual Life Insurance Company (better known as MassMutual) was founded in 1851 and is headquartered in Springfield, Massachusetts. As of 2022, the company received more than $9 billion in direct premiums and is the second-largest life insurance provider in the country, based on market share. MassMutual is licensed to sell life insurance products in all 50 states and Washington, D.C. specifications AM Best Rating A++ NAIC Score (avg.) N/A Years In Business 173 Years Policy Types Term, Universal (UL), Variable Universal (VUL), Whole Accepts Credit Cards No Why Trust Us 91 Companies reviewed 55 Features considered 5,005 Data points analyzed We collected over 5,000 data points from 91 life insurance companies to measure financial stability, customer satisfaction, product and feature variety, and the overall buying experience. We then evaluated each company based on 55 metrics to develop unbiased, comprehensive reviews. Read our Full Methodology  MassMutual Get A Quote Table of Contents View All MassMutual Life Insurance Review Pros Explained Cons Explained Complaint Index Third-Party Ratings Competition Policies Available Available Riders Customer Service Price Final Verdict Frequently Asked Questions Methodology Pros Explained Liberal term conversion options: MassMutual allows policyholders to convert term life insurance policies into permanent coverage, without taking a medical exam or answering any health questions. Opportunity to receive dividends: While dividends aren’t guaranteed, MassMutual has paid them to eligible whole life insurance customers every year since 1869. Very few complaints for a company of its size: MassMutual received far fewer customer complaints than many other insurance companies of a similar size. No-medical-exam policies available: Applicants up to age 64 looking for $250,000 to $3 million in coverage can apply for no-medical-exam life insurance. Highest financial strength rating: MassMutual has an A++ financial strength rating from AM Best, which is the top grade possible. Cons Explained Doesn’t accept credit cards: MassMutual policyholders don’t have the option to pay their premiums with a credit card online. The only payment methods are ACH transfer, mailing a physical check, or, in some cases, making a credit card payment by phone. Complaint Index MassMutual has fewer complaints than expected for a company of its size. To determine this, we looked to the National Association of Insurance Commissioners (NAIC), which measures how many complaints a company receives and compares that to its market share to create a complaint index.  Averaged over three years, MassMutual has a complaint index of 0.03. Companies with an index below 1 have fewer than expected complaints, whereas an index above 1 means that a company has more complaints than expected. Third-Party Ratings MassMutual also receives excellent marks from other ratings institutions. The company has an A++ (Superior) rating from AM Best, the highest financial strength rating possible. AM Best’s letter grades are calculated based on a company’s balance sheet, operating performance, and debts. Most of the life insurance providers we evaluated have AM Best scores of A or A+. Out of a total of 91 insurance companies we reviewed, MassMutual is one of only eight that has an A++ rating. In addition, MassMutual is rated above average for overall customer satisfaction in J.D. Power’s 2022 U.S. Individual Life Insurance Study. On the list of 21 life insurance companies, MassMutual was ranked ninth, with a score of 780 out of 1,000. The industry average score is 774 out of 1,000. Competition Every life insurance company has its advantages and drawbacks. Before selecting a company, it’s important to compare several providers to find the best fit. In the table below, you can see how MassMutual stacks up against New York Life and Transamerica.   MassMutual New York Life  Transamerica  Types of Coverage Term, whole, universal, variable universal Term, whole, universal, variable Term, whole, index universal, final expense Dividends for 2022  $1.85 billion  $1.9 billion  Dividends not offered  Online Application  Available  Not Available  Not Available  AM Best Rating  A++  A++  A  Price for Term Policies  Better than average  Not available  Better than average  NAIC-Derived Complaint Index  0.03 0.22  1.78 J.D. Power Ranking  9 10  21  The NAIC complaint index indicates how many complaints a company receives relative to its size. A score lower than 1.0 indicates fewer customer complaints than expected; a score greater than 1.0 indicates more complaints than expected. The closer the index is to 0, the better. Policies Available  MassMutual offers four types of life insurance. Here are the policies available: Term Life Insurance Term life insurance provides coverage for a specific period of time, such as 10 or 20 years. The premiums are fixed over the lifetime of the policy, and if you pass away during the term, your beneficiary receives a death benefit. Term life insurance premiums are lower for younger people, and get increasingly more expensive with age. Some term life policies are convertible, meaning you can roll your coverage into a permanent policy, without taking a medical exam.  MassMutual Term MassMutual’s term life insurance policy offers coverage for 10, 15, 20, 25, or 30 years, with the option to convert all or a portion of the coverage to any permanent policy the company offers. That’s more generous than many competitors, who limit the policy types you can convert to. Coverage amount ranges from $100,000 to $10 million, and premiums are guaranteed for the initial term period. To get a quote or apply for the term life policy, you must work with a MassMutual agent. A medical exam is required for some individuals. Whole Life Insurance Whole life insurance is a permanent life insurance policy that provides coverage for your entire lifetime. It has fixed premiums and pays a death benefit when you pass away. In addition, whole life insurance policies build cash value, which can be borrowed or withdrawn. MassMutual’s whole-life policyholders are eligible to receive annual dividends based on the company’s financial performance. Dividends can be used to increase the death benefit or cash value, or pay premiums.  Whole Life 100: Premiums are payable to age 100. This policy has the highest issue age of all MassMutual whole life offerings at 90 years old.Whole Life 65: This policy offers level premiums payable to age 65, after which the policy is guaranteed to be paid up.Whole Life 10/15/20-Pay: With premiums payable for 10, 15, or 20 years, this policy builds cash value more quickly than other whole life policies with longer premium periods. Whole Life High Early Cash Value (HECV): Designed for businesses to use with selective benefit programs for key employees and executives, HECV premiums are payable to age 85. Premiums for a short payment period will be much higher than if you spread out payments for a longer time, but the policy’s cash value will also increase much more quickly.  Universal Life Insurance Universal life (UL) insurance is another type of permanent life insurance that builds cash value. This type of life insurance is known for its flexibility—as long as you have enough cash value in your account, you can adjust your universal life insurance premium and death benefit, depending on how your financial needs change. Some universal life insurance policies can be structured like term coverage, where the coverage is designed to remain in effect for a fixed period of time. Universal Life (UL) Guard UL Guard offers policyholders the option to select both the duration of the death benefit period and how long they want to pay premiums. Coverage is available for ages 18 to 85, for coverage amounts as low as $50,000. Policyholders can obtain a chronic illness rider and terminal illness rider at no additional cost.  Survivorship Universal Life (SUL) Guard SUL Guard is a second-to-die universal life policy designed for couples who want permanent life insurance and guaranteed coverage. Premiums for this survivorship policy are typically lower than for a comparable individual life policy. Policyholders between the ages of 18 to 85 can purchase coverage as low as $100,000. Available riders include an estate protection rider and a terminal illness rider. Variable Universal Life Insurance Variable universal life (VUL) insurance provides the same flexibility as a universal life policy, with the option to adjust the frequency and amount of your premiums, within limits. Variable universal policies build cash value, and you’re able to choose where the money gets invested. MassMutual provides a portfolio of investment options to choose from, or you can invest the money in the Guaranteed Principal Account (GPA), a fixed account that earns guaranteed interest on a daily basis. Apex VUL The Apex VUL policy combines permanent life insurance protection with potential account value accumulation via stock market investments. Policies include a chronic illness rider and coverage amount, which starts at $50,000 minimum, and can be increased by exercising the policy’s guaranteed insurability rider if elected at issue or after issue to age 40. VUL policies are the most risky type of life insurance because if your investments lose value, your premiums may increase, and the policy could ultimately lapse. Available Riders Life insurance riders are optional policies that provide coverage for things that your standard policy excludes. Some riders are free, while others cost extra and will increase your premium. Here are the riders available from MassMutual. Guaranteed Insurability Rider  The guaranteed insurability rider allows you to purchase more life insurance coverage in the future without taking another medical exam. With this rider, you have the option to increase the face value of your current whole life policy, or purchase a new whole life, universal life, or variable universal life policy from MassMutual.  Additional coverage can be purchased every three years on option dates between the ages of 25 and 46, or you can choose the accelerated option to purchase more coverage after getting married, having a baby, or adopting a child. Waiver of Premium  The waiver of premium rider is available as an add-on to whole life insurance policies from MassMutual. If you become disabled and are unable to work, this rider will pause your premiums temporarily, without affecting your death benefit or cash value growth. It will stay in effect on your policy until age 65, or after 10 years if you are older than 65. Terminal Illness Rider When you purchase an individual life insurance policy through MassMutual, you get a free terminal illness accelerated death benefit rider. This rider allows you to use money from your death benefit if you get diagnosed with a terminal illness and have a life expectancy of 12 months or less (although life expectancy requirements can vary by state). This rider is included at no cost on MassMutual’s term, whole life, UL, and VUL policies. Long-Term Care Rider  A long-term care rider allows you to use some or all of your policy’s death benefit to pay for long-term care expenses, such as hospice care, a nursing home, or a home health aid. In order to use this rider, a medical professional must determine that you cannot perform certain activities of daily living (ADLs), or have cognitive impairments. Chronic Illness Rider If you get diagnosed with a qualifying chronic illness, a chronic illness rider enables you to receive a portion of your death benefit money early. Typically, your doctor must confirm your diagnosis and certify that you cannot perform at least two ADLs. MassMutual’s UL Guard offers this rider at no additional cost.  Some riders are only sold in select states. If you are interested in a specific rider, it’s a good idea to speak with an agent and confirm that it’s available where you live, and for the type of policy you want. Customer Service To get in touch with MassMutual, you can call the company at (800) 272-2216 during business hours, which are Monday through Friday, from 8 a.m. to 8 p.m. Eastern Time. You can also email the company by filling out this online form.  Price To assess the cost of MassMutual’s life insurance policies versus other life insurance companies, we got sample quotes from multiple insurers for 30-year, $250,000 term life policies for healthy males and females aged 25, 40, and 55 years old. We found that premiums charged by MassMutual were better than average, but not as good as some of its competitors on our list of best life insurance companies. Before you purchase a life insurance policy, consider getting rate quotes from several different companies and comparing them to help you find the lowest premium. Final Verdict MassMutual is a great life insurance provider for shoppers who are looking for whole life insurance with dividends or are shopping for a convertible term life policy. MassMutual also has fewer than average complaints for a company of its size, and has excellent financial strength, making it a solid option for anyone who is in the market for life insurance. Also, when you apply for a life insurance policy from MassMutual, you will need to check the box for “male” or “female” on the application. Although transgender and non-binary individuals can qualify for life insurance, there is no industry standard for how premiums are calculated. We recommend reaching out to MassMutual to learn more about its specific underwriting practices for transgender and non-binary applicants. Frequently Asked Questions Is MassMutual a Reputable Company? Yes, MassMutual is reputable. Both AM Best and Standard & Poor's give the insurer high ratings based on the company's financial strength. Additionally, MassMutual has fewer consumer complaints than other companies its size. What Are MassMutual's Ratings? MassMutual earned an A++ (Superior) rating from AM Best, the company's highest rating for an insurer. Standard & Poor's ranks the company an AA+ (Very Strong). In its 2022 U.S. Individual Life Insurance Study, J.D. Power ranked MassMutual 9th out of 21 companies. Who Is MassMutual Owned By? MassMutual is a mutual company, which means it doesn't have shareholders. Instead, it is owned by its customers and policyholders, who are entitled to receive a share of the profits in the form of dividends or a reduced premium. How Do You Cancel Mass Mutual Life Insurance? In order to cancel your MassMutual life insurance policy, you'll need to reach out to your financial professional or give the company a call at 1-800-272-2216. Methodology We designed a comprehensive rating methodology based on consumer priorities and life insurance company fundamentals to rank more than 90 insurers across five general categories: financial stability, customer satisfaction, product and feature variety, the overall buying experience, and cost. In order to do this, we collected over 5,000 data points and scored each company based on 55 metrics. We grouped metrics by category to see how insurers performed in each; we then weighted category scores to determine how companies performed overall. To learn more, read our full Life Insurance Methodology. 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. Mass Mutual. "Whole Life Insurance Policy." AM Best. "AM Best Affirms Credit Ratings of Massachusetts Mutual." National Association of Insurance Commissioners. "Great American Life Ins Co National Complaint Index Report (MassMutual)." J.D. Power. "Both Life Insurance and Annuity Customer Satisfaction Decline as Pandemic Fears Wane, J.D. Power Finds." Mass Mutual. "Guaranteed Insurability Rider." Standard and Poor. "S&P Affirms Ratings of MassMutual." Related Articles 11 Best Term, Whole, and No-Exam Life Insurance Companies for May 2024 Best Whole Life Insurance Companies of 2024 Best Term Life Insurance Companies of 2024 Best Life Insurance Companies for Seniors of 2024 Haven Life Insurance Review Physicians Mutual Life Insurance Review
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https://www.investopedia.com/5-things-to-know-before-the-stock-market-opens-may-21-2024-8651580
5 Things to Know Before the Stock Market Opens
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Shares of Lowe (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LOW">LOW</a>) are rising in premarket trading as the home-improvement retailer reported higher-than-forecast sales and earnings; 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>) is set to give more details of its <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-unveils-new-copilot-ai-pcs-here-is-what-you-need-to-know-8651238">new category of Windows PCs</a> at today’s Microsoft Build developer conference; shares of Palo Alto Networks (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW">PANW</a>) are slumping after the cybersecurity firm issued a downbeat outlook; Macy's (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=M">M</a>) shares are gaining after a profit beat; and cryptocurrencies are up further after big gains Monday and increasing confidence about an ether ETF approval. U.S. stock futures are little changed ahead of the hotly anticipated <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investors-expect-the-best-from-nvidia-earnings-what-that-could-mean-for-the-stock-8651022">earnings report</a> from Nvidia (<a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>) and the Federal Reserve's meeting minutes, both set for <a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-expect-in-the-markets-this-week-may-20-2024-8650191">release Wednesday</a>. Here’s what investors need to know today. </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-1-lowes-rises-as-home-improvement-retailers-results-beat-estimates"></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"> 1. Lowe's Rises as Home-Improvement Retailer’s Results Beat Estimates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Shares of Lowe's (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LOW">LOW</a>) are up more than 2% in premarket trading, even though year-over-year quarterly sales fell, as the home-improvement retailer posted first-quarter results that beat top- and bottom-line estimates.<span class="ql-inline-citation" data-cite="2"></span> The company said quarterly revenue was $21.36 billion, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lowes-q1-fy-2024-earnings-preview-8650047">beating analysts’ estimates</a> of $21.12 billion, while net income of $1.76 billion, or $3.06 per share, surpassed forecasts of $1.68 billion, or $2.93 per share. While both revenue and profit fell from the prior-year quarter, the results were in contrast to those of rival Home Depot (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=HD">HD</a>), which last week reported results that <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/home-depot-earnings-q1-fy-2024-results-8648018">missed analysts’ forecasts</a>, as inflation continued to take a toll on consumer spending on DIY projects. </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-2-microsoft-set-to-give-more-details-of-new-windows-pcs-for-ai"></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"> 2. Microsoft Set to Give More Details of New Windows PCs for AI  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Microsoft (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>) is set to give more details of its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-unveils-new-copilot-ai-pcs-here-is-what-you-need-to-know-8651238">new category of Windows PCs</a> at today’s developer conference, Microsoft Build. The company announced the launch of Copilot+ PCs designed for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI)</a> at an event Monday and said these Windows AI PCs "outperform Apple’s MacBook Air by up to 58% in sustained multithreaded performance, all while delivering all-day battery life." Apple (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL">AAPL</a>) <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/apple-pushes-into-ai-with-launch-of-new-ipad-pro-powered-by-m4-ai-chip-8644559">announced</a> a new iPad model powered by the recently released M4 chip earlier in the month, in the iPhone maker's push into AI devices. Microsoft stock is up 0.4% in premarket trading.<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-3-palo-alto-networks-tumbles-on-tepid-outlook-amid-cautious-enterprise-spending"></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"> 3. Palo Alto Networks Tumbles on Tepid Outlook Amid Cautious Enterprise Spending </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Shares of Palo Alto Networks (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW">PANW</a>) are slumping nearly 7% in premarket trading after the cybersecurity firm issued a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-watch-for-on-palo-alto-networks-stock-after-post-earnings-plunge-8651533">lackluster current-quarter</a> and full-year outlook. For the full fiscal year, the company kept its billings guidance relatively unchanged, expecting it to range from $10.13 billion to $10.18 billion, compared with its earlier forecast of $10.10 billion to $10.20 billion. In an effort to pursue growth amid cautious enterprise spending on <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cybersecurity-4427739">cybersecurity</a> solutions, the company recently pivoted to a consolidated security platform, offering a range of initiatives, such as free product offers, to entice corporate signups.<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-4-macys-surges-on-profit-beat-improved-outlook-as-restructuring-bears-fruit"></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"> 4. Macy's Surges on Profit Beat, Improved Outlook as Restructuring Bears Fruit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Macy's (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=M">M</a>) shares are up nearly 4% after it posted quarterly profits that beat analysts’ forecasts and upped its guidance for the year, in signs the retailer’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/macys-plans-150-store-closures-in-new-strategy-as-chain-faces-proxy-fight-8600871">restructuring and closure of stores</a> is starting to work.<span class="ql-inline-citation" data-cite="5"></span> The retailer reported first-quarter adjusted earnings per share of 27 cents, beating forecasts of 15 cents, though revenue, which was down 2.7% year-over-year to $4.85 billion, was a tick below forecasts.<span class="ql-inline-citation" data-cite="6"></span> Macy’s said it now expects full-year net sales of between $22.3 billion and $22.9 billion, versus the $22.2 billion to $22.9 billion range it projected in February.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-5-cryptocurrencies-gain-ahead-of-possible-sec-approval-of-spot-ether-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> 5. Cryptocurrencies Gain Ahead of Possible SEC Approval of Spot Ether ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Cryptocurrencies are rising ahead of 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’s (SEC</a>) decision on approving spot <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a> for ether (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ETHUSD">ETHUSD</a>). The SEC contacted at least one exchange and at least one potential spot ether ETF issuer to update related 19b-4 filings, <em>Bloomberg</em> reported.<span class="ql-inline-citation" data-cite="3"></span> Ether, which surged 20% Monday,<span class="ql-inline-citation" data-cite="4"></span> is rising again this morning, while bitcoin (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=btcusd">BTCUSD</a>) is little changed though trading above $71,000. The agency's approval of <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/where-to-buy-the-new-spot-bitcoin-etfs-8557203#:~:text=A%20spot%20bitcoin%20ETF%20invests,the%20company%20offering%20the%20ETFs.">spot bitcoin</a> ETFs earlier this year <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/why-spot-ether-etfs-could-face-a-difficult-path-to-approval-8609104">turbocharged the demand</a> for the cryptocurrency. Crypto-tied stocks also are rising, with trading app Robinhood (<a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=hood">HOOD</a>) up 2.4% in premarket trading and cryptocurrency exchange Coinbase (<a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=COIN">COIN</a>) up 3.7%.<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>
Shares of Lowe ([LOW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LOW)) are rising in premarket trading as the home-improvement retailer reported higher-than-forecast sales and earnings; Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) is set to give more details of its [new category of Windows PCs](https://www.investopedia.com/microsoft-unveils-new-copilot-ai-pcs-here-is-what-you-need-to-know-8651238) at today’s Microsoft Build developer conference; shares of Palo Alto Networks ([PANW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW)) are slumping after the cybersecurity firm issued a downbeat outlook; Macy's ([M](https://www.investopedia.com/markets/quote?tvwidgetsymbol=M)) shares are gaining after a profit beat; and cryptocurrencies are up further after big gains Monday and increasing confidence about an ether ETF approval. U.S. stock futures are little changed ahead of the hotly anticipated [earnings report](https://www.investopedia.com/investors-expect-the-best-from-nvidia-earnings-what-that-could-mean-for-the-stock-8651022) from Nvidia ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)) and the Federal Reserve's meeting minutes, both set for [release Wednesday](https://www.investopedia.com/what-to-expect-in-the-markets-this-week-may-20-2024-8650191). Here’s what investors need to know today. ## 1. Lowe's Rises as Home-Improvement Retailer’s Results Beat Estimates Shares of Lowe's ([LOW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LOW)) are up more than 2% in premarket trading, even though year-over-year quarterly sales fell, as the home-improvement retailer posted first-quarter results that beat top- and bottom-line estimates. The company said quarterly revenue was $21.36 billion, [beating analysts’ estimates](https://www.investopedia.com/lowes-q1-fy-2024-earnings-preview-8650047) of $21.12 billion, while net income of $1.76 billion, or $3.06 per share, surpassed forecasts of $1.68 billion, or $2.93 per share. While both revenue and profit fell from the prior-year quarter, the results were in contrast to those of rival Home Depot ([HD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HD)), which last week reported results that [missed analysts’ forecasts](https://www.investopedia.com/home-depot-earnings-q1-fy-2024-results-8648018), as inflation continued to take a toll on consumer spending on DIY projects. ## 2. Microsoft Set to Give More Details of New Windows PCs for AI Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) is set to give more details of its [new category of Windows PCs](https://www.investopedia.com/microsoft-unveils-new-copilot-ai-pcs-here-is-what-you-need-to-know-8651238) at today’s developer conference, Microsoft Build. The company announced the launch of Copilot+ PCs designed for [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) at an event Monday and said these Windows AI PCs "outperform Apple’s MacBook Air by up to 58% in sustained multithreaded performance, all while delivering all-day battery life." Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) [announced](https://www.investopedia.com/apple-pushes-into-ai-with-launch-of-new-ipad-pro-powered-by-m4-ai-chip-8644559) a new iPad model powered by the recently released M4 chip earlier in the month, in the iPhone maker's push into AI devices. Microsoft stock is up 0.4% in premarket trading. ## 3. Palo Alto Networks Tumbles on Tepid Outlook Amid Cautious Enterprise Spending Shares of Palo Alto Networks ([PANW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW)) are slumping nearly 7% in premarket trading after the cybersecurity firm issued a [lackluster current-quarter](https://www.investopedia.com/what-to-watch-for-on-palo-alto-networks-stock-after-post-earnings-plunge-8651533) and full-year outlook. For the full fiscal year, the company kept its billings guidance relatively unchanged, expecting it to range from $10.13 billion to $10.18 billion, compared with its earlier forecast of $10.10 billion to $10.20 billion. In an effort to pursue growth amid cautious enterprise spending on [cybersecurity](https://www.investopedia.com/cybersecurity-4427739) solutions, the company recently pivoted to a consolidated security platform, offering a range of initiatives, such as free product offers, to entice corporate signups. ## 4. Macy's Surges on Profit Beat, Improved Outlook as Restructuring Bears Fruit Macy's ([M](https://www.investopedia.com/markets/quote?tvwidgetsymbol=M)) shares are up nearly 4% after it posted quarterly profits that beat analysts’ forecasts and upped its guidance for the year, in signs the retailer’s [restructuring and closure of stores](https://www.investopedia.com/macys-plans-150-store-closures-in-new-strategy-as-chain-faces-proxy-fight-8600871) is starting to work. The retailer reported first-quarter adjusted earnings per share of 27 cents, beating forecasts of 15 cents, though revenue, which was down 2.7% year-over-year to $4.85 billion, was a tick below forecasts. Macy’s said it now expects full-year net sales of between $22.3 billion and $22.9 billion, versus the $22.2 billion to $22.9 billion range it projected in February. ## 5. Cryptocurrencies Gain Ahead of Possible SEC Approval of Spot Ether ETFs Cryptocurrencies are rising ahead of the [Securities and Exchange Commission’s (SEC](https://www.investopedia.com/terms/s/sec.asp)) decision on approving spot [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) for ether ([ETHUSD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ETHUSD)). The SEC contacted at least one exchange and at least one potential spot ether ETF issuer to update related 19b-4 filings, *Bloomberg* reported. Ether, which surged 20% Monday, is rising again this morning, while bitcoin ([BTCUSD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=btcusd)) is little changed though trading above $71,000. The agency's approval of [spot bitcoin](https://www.investopedia.com/where-to-buy-the-new-spot-bitcoin-etfs-8557203#:~:text=A%20spot%20bitcoin%20ETF%20invests,the%20company%20offering%20the%20ETFs.) ETFs earlier this year [turbocharged the demand](https://www.investopedia.com/why-spot-ether-etfs-could-face-a-difficult-path-to-approval-8609104) for the cryptocurrency. Crypto-tied stocks also are rising, with trading app Robinhood ([HOOD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=hood)) up 2.4% in premarket trading and cryptocurrency exchange Coinbase ([COIN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=COIN)) up 3.7%. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
Shares of Lowe (LOW) are rising in premarket trading as the home-improvement retailer reported higher-than-forecast sales and earnings; Microsoft (MSFT) is set to give more details of its new category of Windows PCs at today’s Microsoft Build developer conference; shares of Palo Alto Networks (PANW) are slumping after the cybersecurity firm issued a downbeat outlook; Macy's (M) shares are gaining after a profit beat; and cryptocurrencies are up further after big gains Monday and increasing confidence about an ether ETF approval. U.S. stock futures are little changed ahead of the hotly anticipated earnings report from Nvidia (NVDA) and the Federal Reserve's meeting minutes, both set for release Wednesday. Here’s what investors need to know today. 1. Lowe's Rises as Home-Improvement Retailer’s Results Beat Estimates Shares of Lowe's (LOW) are up more than 2% in premarket trading, even though year-over-year quarterly sales fell, as the home-improvement retailer posted first-quarter results that beat top- and bottom-line estimates. The company said quarterly revenue was $21.36 billion, beating analysts’ estimates of $21.12 billion, while net income of $1.76 billion, or $3.06 per share, surpassed forecasts of $1.68 billion, or $2.93 per share. While both revenue and profit fell from the prior-year quarter, the results were in contrast to those of rival Home Depot (HD), which last week reported results that missed analysts’ forecasts, as inflation continued to take a toll on consumer spending on DIY projects. 2. Microsoft Set to Give More Details of New Windows PCs for AI  Microsoft (MSFT) is set to give more details of its new category of Windows PCs at today’s developer conference, Microsoft Build. The company announced the launch of Copilot+ PCs designed for artificial intelligence (AI) at an event Monday and said these Windows AI PCs "outperform Apple’s MacBook Air by up to 58% in sustained multithreaded performance, all while delivering all-day battery life." Apple (AAPL) announced a new iPad model powered by the recently released M4 chip earlier in the month, in the iPhone maker's push into AI devices. Microsoft stock is up 0.4% in premarket trading. 3. Palo Alto Networks Tumbles on Tepid Outlook Amid Cautious Enterprise Spending Shares of Palo Alto Networks (PANW) are slumping nearly 7% in premarket trading after the cybersecurity firm issued a lackluster current-quarter and full-year outlook. For the full fiscal year, the company kept its billings guidance relatively unchanged, expecting it to range from $10.13 billion to $10.18 billion, compared with its earlier forecast of $10.10 billion to $10.20 billion. In an effort to pursue growth amid cautious enterprise spending on cybersecurity solutions, the company recently pivoted to a consolidated security platform, offering a range of initiatives, such as free product offers, to entice corporate signups. 4. Macy's Surges on Profit Beat, Improved Outlook as Restructuring Bears Fruit Macy's (M) shares are up nearly 4% after it posted quarterly profits that beat analysts’ forecasts and upped its guidance for the year, in signs the retailer’s restructuring and closure of stores is starting to work. The retailer reported first-quarter adjusted earnings per share of 27 cents, beating forecasts of 15 cents, though revenue, which was down 2.7% year-over-year to $4.85 billion, was a tick below forecasts. Macy’s said it now expects full-year net sales of between $22.3 billion and $22.9 billion, versus the $22.2 billion to $22.9 billion range it projected in February. 5. Cryptocurrencies Gain Ahead of Possible SEC Approval of Spot Ether ETFs Cryptocurrencies are rising ahead of the Securities and Exchange Commission’s (SEC) decision on approving spot exchange-traded funds (ETFs) for ether (ETHUSD). The SEC contacted at least one exchange and at least one potential spot ether ETF issuer to update related 19b-4 filings, Bloomberg reported. Ether, which surged 20% Monday, is rising again this morning, while bitcoin (BTCUSD) is little changed though trading above $71,000. The agency's approval of spot bitcoin ETFs earlier this year turbocharged the demand for the cryptocurrency. Crypto-tied stocks also are rising, with trading app Robinhood (HOOD) up 2.4% in premarket trading and cryptocurrency exchange Coinbase (COIN) up 3.7%. Do you have a news tip for Investopedia reporters? Please email us at [email protected]
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https://www.investopedia.com/ask/answers/071615/what-are-some-examples-money-market-funds.asp
What Are Some Examples of Money Market Funds?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Money market funds are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp" rel="noopener noreferrer">mutual funds</a> designed to be low-risk, liquid, and short-term investments. They are usually offered by companies that have invested in other money market instruments and are almost always composed of highly rated paper. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp" rel="noopener noreferrer">Investors</a> can choose between municipal money funds, state-level debt funds, Treasury funds, or funds that focus on private commercial money <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketexposure.asp" rel="noopener noreferrer">market exposure</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>Money market funds are mutual funds designed to be low-risk, liquid, and short-term investments.</li><li>A market can be described as a money market if it is composed of highly liquid, short-term assets.</li><li>Money market funds typically invest in government securities, certificates of deposit, commercial paper of companies, and other highly liquid, low-risk securities.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-makes-a-money-market"></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 Makes a Money Market? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A market can be described as a money market if it is composed of highly liquid, short-term assets. Maturities should not exceed one year on instruments, and they can be as short as one day. This includes assets such as <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> (CDs), interbank loans, money market funds, Treasury bills (T-bills), repurchase agreements, commercial paper, and short-term securities loans.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The Federal Reserve Board tracks money markets through its flow of funds survey. It is standard for money markets to account for nearly one-third of all credit in the United States.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-money-market-funds"></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"> Money Market Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Money market funds were developed in the 1970s to provide an opportunity to buy a “group” of securities that typically offer higher returns than interest-bearing bank accounts while assuming a substantially lower risk than a typical stock investment.<span class="ql-inline-citation" data-cite="2"></span> The product quickly grew popular; currently, around $5 trillion in assets are invested in these money market funds.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Money market funds typically invest in government securities, certificates of deposit, commercial paper of companies, and other highly liquid, low-risk securities. The funds attempt to keep their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/04/032604.asp">net asset value</a> (NAV) at a constant of $1 per share, so typically only their yields fluctuate. Investor losses in these vehicles are quite rare, but not impossible. A money market’s per share NAV may fall below $1 if its investments perform unusually poorly.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>A money market is composed of highly liquid, short-term assets.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Unlike a money market deposit account at a bank, money market funds are not federally insured, but the SEC regulates them under the Investment Company Act of 1940.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="6"></span> These regulations prohibit money market funds from acquiring any investment that is not short-term, meaning that the money market fund can receive its full principal and interest within 397 days. Money market <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/etfs-mutual-funds/070916/top-4-money-market-fund-etfs-2016-shv-near.asp">investments must have minimal credit risk</a> and be either highly rated or found comparable in quality to highly rated securities.<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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> There are several basic types of money market funds, and each includes different kinds of investments. </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-us-treasury-funds"></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"> U.S. Treasury Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> As the name suggests, U.S. Treasury funds invest in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/united-states-treasury-money-mutual-funds.asp" rel="noopener noreferrer">treasury funds</a>. They offer lower yields than other types of money market funds, but they also provide the lowest risk. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Additionally, they are tax-exempt. Treasury funds are well-suited for investors with a low-risk tolerance who want to make a percent or two more in return than they earn in an interest-yielding bank account. </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-us-government-and-agency-funds"></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"> U.S. Government and Agency Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> U.S. government and agency funds invest in bonds and notes of federal government agencies, which are guaranteed by the U.S. Treasury and Congress. Some also invest in foreign markets, emerging markets, and mortgage-related securities. These funds are slightly riskier than U.S. Treasury funds, but they offer slightly higher yields. Like U.S. Treasury funds, they are tax-exempt. </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-diversified-taxable-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"> Diversified Taxable Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Funds that do not focus on government paper tend to have higher <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp" rel="noopener noreferrer">expense ratios</a>, but they have been known to return more interest income. Diversified taxable funds invest in U.S. corporations' and foreign companies' commercial paper, such as repurchase agreements. Some also invest assets in deposits issued by foreign banks. Diversified taxable funds are riskier than many other money market funds but also have higher yields. As the name suggests, their income is taxable. </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-tax-free-funds"></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"> Tax-Free Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Tax-free funds invest in short-term, tax-exempt securities of local and state governments. Naturally, these funds are exempt from federal taxes. They can be quite complicated. Some of them don’t invest outside of a single state. They are also the riskiest type of mutual fund. </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"> Tax-free funds are best suited to investors in a higher tax bracket or those who live in high-tax states. For example, T. Rowe Price offers a New York Tax-Free Money Fund (NYTXX), which attempts to build a short-term, liquid portfolio of assets that is exempt from federal, New York state, and New York City <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incometax.asp">income taxes</a>. It is only one of several such New York tax-preferred money funds.<span class="ql-inline-citation" data-cite="8"></span> Similar funds are found for California, Maryland, and other high-tax states.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> While money market funds are safe, the long-term returns on them are lower than those of bonds and substantially lower than those of stocks. As such, money market funds are typically used as a place to store cash, either by investors and institutions when they are waiting for investment opportunities, or by older investors who value safety overgrowth. They can also be used as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/051415/what-are-benefits-investing-money-market-fund.asp">an alternative to traditional savings accounts</a> for investors in low-interest-rate environments or may be included in asset allocation to provide balance in the portfolio. </p></div>
Money market funds are [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) designed to be low-risk, liquid, and short-term investments. They are usually offered by companies that have invested in other money market instruments and are almost always composed of highly rated paper. [Investors](https://www.investopedia.com/terms/i/investor.asp) can choose between municipal money funds, state-level debt funds, Treasury funds, or funds that focus on private commercial money [market exposure](https://www.investopedia.com/terms/m/marketexposure.asp). ### Key Takeaways * Money market funds are mutual funds designed to be low-risk, liquid, and short-term investments. * A market can be described as a money market if it is composed of highly liquid, short-term assets. * Money market funds typically invest in government securities, certificates of deposit, commercial paper of companies, and other highly liquid, low-risk securities. ## What Makes a Money Market? A market can be described as a money market if it is composed of highly liquid, short-term assets. Maturities should not exceed one year on instruments, and they can be as short as one day. This includes assets such as [certificates of deposit](https://www.investopedia.com/terms/c/certificateofdeposit.asp) (CDs), interbank loans, money market funds, Treasury bills (T-bills), repurchase agreements, commercial paper, and short-term securities loans. The Federal Reserve Board tracks money markets through its flow of funds survey. It is standard for money markets to account for nearly one-third of all credit in the United States. ## Money Market Funds Money market funds were developed in the 1970s to provide an opportunity to buy a “group” of securities that typically offer higher returns than interest-bearing bank accounts while assuming a substantially lower risk than a typical stock investment. The product quickly grew popular; currently, around $5 trillion in assets are invested in these money market funds. Money market funds typically invest in government securities, certificates of deposit, commercial paper of companies, and other highly liquid, low-risk securities. The funds attempt to keep their [net asset value](https://www.investopedia.com/ask/answers/04/032604.asp) (NAV) at a constant of $1 per share, so typically only their yields fluctuate. Investor losses in these vehicles are quite rare, but not impossible. A money market’s per share NAV may fall below $1 if its investments perform unusually poorly. ### A money market is composed of highly liquid, short-term assets. Unlike a money market deposit account at a bank, money market funds are not federally insured, but the SEC regulates them under the Investment Company Act of 1940. These regulations prohibit money market funds from acquiring any investment that is not short-term, meaning that the money market fund can receive its full principal and interest within 397 days. Money market [investments must have minimal credit risk](https://www.investopedia.com/articles/etfs-mutual-funds/070916/top-4-money-market-fund-etfs-2016-shv-near.asp) and be either highly rated or found comparable in quality to highly rated securities. There are several basic types of money market funds, and each includes different kinds of investments. ## U.S. Treasury Funds As the name suggests, U.S. Treasury funds invest in [treasury funds](https://www.investopedia.com/terms/u/united-states-treasury-money-mutual-funds.asp). They offer lower yields than other types of money market funds, but they also provide the lowest risk. Additionally, they are tax-exempt. Treasury funds are well-suited for investors with a low-risk tolerance who want to make a percent or two more in return than they earn in an interest-yielding bank account. ## U.S. Government and Agency Funds U.S. government and agency funds invest in bonds and notes of federal government agencies, which are guaranteed by the U.S. Treasury and Congress. Some also invest in foreign markets, emerging markets, and mortgage-related securities. These funds are slightly riskier than U.S. Treasury funds, but they offer slightly higher yields. Like U.S. Treasury funds, they are tax-exempt. ## Diversified Taxable Funds Funds that do not focus on government paper tend to have higher [expense ratios](https://www.investopedia.com/terms/e/expenseratio.asp), but they have been known to return more interest income. Diversified taxable funds invest in U.S. corporations' and foreign companies' commercial paper, such as repurchase agreements. Some also invest assets in deposits issued by foreign banks. Diversified taxable funds are riskier than many other money market funds but also have higher yields. As the name suggests, their income is taxable. ## Tax-Free Funds Tax-free funds invest in short-term, tax-exempt securities of local and state governments. Naturally, these funds are exempt from federal taxes. They can be quite complicated. Some of them don’t invest outside of a single state. They are also the riskiest type of mutual fund. Tax-free funds are best suited to investors in a higher tax bracket or those who live in high-tax states. For example, T. Rowe Price offers a New York Tax-Free Money Fund (NYTXX), which attempts to build a short-term, liquid portfolio of assets that is exempt from federal, New York state, and New York City [income taxes](https://www.investopedia.com/terms/i/incometax.asp). It is only one of several such New York tax-preferred money funds. Similar funds are found for California, Maryland, and other high-tax states. ## The Bottom Line While money market funds are safe, the long-term returns on them are lower than those of bonds and substantially lower than those of stocks. As such, money market funds are typically used as a place to store cash, either by investors and institutions when they are waiting for investment opportunities, or by older investors who value safety overgrowth. They can also be used as [an alternative to traditional savings accounts](https://www.investopedia.com/ask/answers/051415/what-are-benefits-investing-money-market-fund.asp) for investors in low-interest-rate environments or may be included in asset allocation to provide balance in the portfolio.
Money market funds are mutual funds designed to be low-risk, liquid, and short-term investments. They are usually offered by companies that have invested in other money market instruments and are almost always composed of highly rated paper. Investors can choose between municipal money funds, state-level debt funds, Treasury funds, or funds that focus on private commercial money market exposure. Key Takeaways Money market funds are mutual funds designed to be low-risk, liquid, and short-term investments.A market can be described as a money market if it is composed of highly liquid, short-term assets.Money market funds typically invest in government securities, certificates of deposit, commercial paper of companies, and other highly liquid, low-risk securities. What Makes a Money Market? A market can be described as a money market if it is composed of highly liquid, short-term assets. Maturities should not exceed one year on instruments, and they can be as short as one day. This includes assets such as certificates of deposit (CDs), interbank loans, money market funds, Treasury bills (T-bills), repurchase agreements, commercial paper, and short-term securities loans. The Federal Reserve Board tracks money markets through its flow of funds survey. It is standard for money markets to account for nearly one-third of all credit in the United States. Money Market Funds Money market funds were developed in the 1970s to provide an opportunity to buy a “group” of securities that typically offer higher returns than interest-bearing bank accounts while assuming a substantially lower risk than a typical stock investment. The product quickly grew popular; currently, around $5 trillion in assets are invested in these money market funds. Money market funds typically invest in government securities, certificates of deposit, commercial paper of companies, and other highly liquid, low-risk securities. The funds attempt to keep their net asset value (NAV) at a constant of $1 per share, so typically only their yields fluctuate. Investor losses in these vehicles are quite rare, but not impossible. A money market’s per share NAV may fall below $1 if its investments perform unusually poorly. A money market is composed of highly liquid, short-term assets. Unlike a money market deposit account at a bank, money market funds are not federally insured, but the SEC regulates them under the Investment Company Act of 1940. These regulations prohibit money market funds from acquiring any investment that is not short-term, meaning that the money market fund can receive its full principal and interest within 397 days. Money market investments must have minimal credit risk and be either highly rated or found comparable in quality to highly rated securities. There are several basic types of money market funds, and each includes different kinds of investments. U.S. Treasury Funds As the name suggests, U.S. Treasury funds invest in treasury funds. They offer lower yields than other types of money market funds, but they also provide the lowest risk. Additionally, they are tax-exempt. Treasury funds are well-suited for investors with a low-risk tolerance who want to make a percent or two more in return than they earn in an interest-yielding bank account. U.S. Government and Agency Funds U.S. government and agency funds invest in bonds and notes of federal government agencies, which are guaranteed by the U.S. Treasury and Congress. Some also invest in foreign markets, emerging markets, and mortgage-related securities. These funds are slightly riskier than U.S. Treasury funds, but they offer slightly higher yields. Like U.S. Treasury funds, they are tax-exempt. Diversified Taxable Funds Funds that do not focus on government paper tend to have higher expense ratios, but they have been known to return more interest income. Diversified taxable funds invest in U.S. corporations' and foreign companies' commercial paper, such as repurchase agreements. Some also invest assets in deposits issued by foreign banks. Diversified taxable funds are riskier than many other money market funds but also have higher yields. As the name suggests, their income is taxable. Tax-Free Funds Tax-free funds invest in short-term, tax-exempt securities of local and state governments. Naturally, these funds are exempt from federal taxes. They can be quite complicated. Some of them don’t invest outside of a single state. They are also the riskiest type of mutual fund. Tax-free funds are best suited to investors in a higher tax bracket or those who live in high-tax states. For example, T. Rowe Price offers a New York Tax-Free Money Fund (NYTXX), which attempts to build a short-term, liquid portfolio of assets that is exempt from federal, New York state, and New York City income taxes. It is only one of several such New York tax-preferred money funds. Similar funds are found for California, Maryland, and other high-tax states. The Bottom Line While money market funds are safe, the long-term returns on them are lower than those of bonds and substantially lower than those of stocks. As such, money market funds are typically used as a place to store cash, either by investors and institutions when they are waiting for investment opportunities, or by older investors who value safety overgrowth. They can also be used as an alternative to traditional savings accounts for investors in low-interest-rate environments or may be included in asset allocation to provide balance in the portfolio.
[ [ "mutual funds", "https://www.investopedia.com/terms/m/mutualfund.asp" ], [ "Investors", "https://www.investopedia.com/terms/i/investor.asp" ], [ "market exposure", "https://www.investopedia.com/terms/m/marketexposure.asp" ], [ "certificates of deposit", "https://www.investopedia.com/terms/c/certificateofdeposit.asp" ], [ "net asset value", "https://www.investopedia.com/ask/answers/04/032604.asp" ], [ "investments must have minimal credit risk", "https://www.investopedia.com/articles/etfs-mutual-funds/070916/top-4-money-market-fund-etfs-2016-shv-near.asp" ], [ "treasury funds", "https://www.investopedia.com/terms/u/united-states-treasury-money-mutual-funds.asp" ], [ "expense ratios", "https://www.investopedia.com/terms/e/expenseratio.asp" ], [ "income taxes", "https://www.investopedia.com/terms/i/incometax.asp" ], [ "an alternative to traditional savings accounts", "https://www.investopedia.com/ask/answers/051415/what-are-benefits-investing-money-market-fund.asp" ] ]
https://www.investopedia.com/terms/b/bigfigure.asp
Big Figure: What it Means, How it Works, Strategy
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-big-figure-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"> Big Figure: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The term big figure refers to the stem, or whole dollar value, of a price quote. It is most often used in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/i/international-currency-markets.asp" rel="noopener noreferrer">international currency markets</a>, where it is often abbreviated as "big fig." In the U.S., big figure is also referred to as the "handle." </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 big figure is usually omitted when traders post quotations in fast-paced markets such as the interbank currency market. The assumption is that the full number is common knowledge and does not need to be specified.  </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>Currency traders are expected to know the big figure, or round sum value, of a currency they are trading.</li><li>The big figure is quoted only when the big figure is moving fast or approaching a new level, requiring clarification.</li><li>Retail investors will normally see the full figure, not an abbreviation of it.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-big-figure"></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 Big Figure </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> As an example, assume that the Japanese yen is trading versus the U.S. dollar in the interbank <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spotmarket.asp" rel="noopener noreferrer">spot market</a> at 95.50 (bid) / 95.55 (offered). The big figure here is 95, but interbank traders will quote the price as 50 / 55. Any participant in the spot market will know the current big-figure level of the yen, which fluctuates in value between roughly 90 to 110 yen per dollar. </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 omitting the big figure is accepted practice in interbank and institutional markets, it is seldom done when dealing with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retailinvestor.asp" rel="noopener noreferrer">retail investors</a>. </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"> Even in the interbank markets, traders may need clarification on the big figure if the exchange rate is moving very rapidly. That can happen, for instance, during currency interventions by a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/centralbank.asp" rel="noopener noreferrer">central bank</a>. </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 big figure may also be clarified when the exchange rate approaches round numbers, such as 86.00 yen or 1.3500 euros to the US dollar. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-subheading__text"> How Big Figure Trades Work </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Big figure trades aim to take advantage of retail investors' limits. With the right strategy, trading against retail forex investors can be quite profitable. </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 market often trades at levels that are critical at various times, which could be due to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fibonacciretracement.asp" rel="noopener noreferrer">Fibonacci level</a> or a trendline. </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"> But at times, it also could be a Forex big figure level.  </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"> Forex traders often see one-sided movements. That is, there are sharp intra-day price movements. As a price reaches a critical level, traders often think that it can’t go higher, so traders start to take short positions near that critical level. </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"> This strategy ends in tears for one party or the other and should not be undertaken lightly. </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"> A Strategy for a Big Figure Trade </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> The best way to make a big figure forex trade is to identify markets that move in one direction and side. These trends help a trader find targets that are obvious. Other guidelines: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> <li>Set orders in such a way that you can take advantage of a series of quick <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pip.asp" rel="noopener noreferrer">pips</a>, or price movements.</li> <li>Sell intelligently at various stops in order to make one, five, or ten pips.</li> <li>Don't wait more than 15 minutes for a trade to work. Bail out before you lose more.</li> </ul> <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"> This kind of trade works in most cases and therefore carries less risk. Even if you lose, the losses are controlled. </p></div>
## Big Figure: An Overview The term big figure refers to the stem, or whole dollar value, of a price quote. It is most often used in [international currency markets](https://www.investopedia.com/terms/forex/i/international-currency-markets.asp), where it is often abbreviated as "big fig." In the U.S., big figure is also referred to as the "handle." The big figure is usually omitted when traders post quotations in fast-paced markets such as the interbank currency market. The assumption is that the full number is common knowledge and does not need to be specified.  ### Key Takeaways * Currency traders are expected to know the big figure, or round sum value, of a currency they are trading. * The big figure is quoted only when the big figure is moving fast or approaching a new level, requiring clarification. * Retail investors will normally see the full figure, not an abbreviation of it. ## Understanding the Big Figure As an example, assume that the Japanese yen is trading versus the U.S. dollar in the interbank [spot market](https://www.investopedia.com/terms/s/spotmarket.asp) at 95.50 (bid) / 95.55 (offered). The big figure here is 95, but interbank traders will quote the price as 50 / 55. Any participant in the spot market will know the current big-figure level of the yen, which fluctuates in value between roughly 90 to 110 yen per dollar. While omitting the big figure is accepted practice in interbank and institutional markets, it is seldom done when dealing with [retail investors](https://www.investopedia.com/terms/r/retailinvestor.asp). Even in the interbank markets, traders may need clarification on the big figure if the exchange rate is moving very rapidly. That can happen, for instance, during currency interventions by a [central bank](https://www.investopedia.com/terms/c/centralbank.asp). The big figure may also be clarified when the exchange rate approaches round numbers, such as 86.00 yen or 1.3500 euros to the US dollar. ### How Big Figure Trades Work Big figure trades aim to take advantage of retail investors' limits. With the right strategy, trading against retail forex investors can be quite profitable. The market often trades at levels that are critical at various times, which could be due to a [Fibonacci level](https://www.investopedia.com/terms/f/fibonacciretracement.asp) or a trendline. But at times, it also could be a Forex big figure level.  Forex traders often see one-sided movements. That is, there are sharp intra-day price movements. As a price reaches a critical level, traders often think that it can’t go higher, so traders start to take short positions near that critical level. This strategy ends in tears for one party or the other and should not be undertaken lightly. ### A Strategy for a Big Figure Trade The best way to make a big figure forex trade is to identify markets that move in one direction and side. These trends help a trader find targets that are obvious. Other guidelines: * Set orders in such a way that you can take advantage of a series of quick [pips](https://www.investopedia.com/terms/p/pip.asp), or price movements. * Sell intelligently at various stops in order to make one, five, or ten pips. * Don't wait more than 15 minutes for a trade to work. Bail out before you lose more. This kind of trade works in most cases and therefore carries less risk. Even if you lose, the losses are controlled.
Big Figure: An Overview The term big figure refers to the stem, or whole dollar value, of a price quote. It is most often used in international currency markets, where it is often abbreviated as "big fig." In the U.S., big figure is also referred to as the "handle." The big figure is usually omitted when traders post quotations in fast-paced markets such as the interbank currency market. The assumption is that the full number is common knowledge and does not need to be specified.  Key Takeaways Currency traders are expected to know the big figure, or round sum value, of a currency they are trading.The big figure is quoted only when the big figure is moving fast or approaching a new level, requiring clarification.Retail investors will normally see the full figure, not an abbreviation of it. Understanding the Big Figure As an example, assume that the Japanese yen is trading versus the U.S. dollar in the interbank spot market at 95.50 (bid) / 95.55 (offered). The big figure here is 95, but interbank traders will quote the price as 50 / 55. Any participant in the spot market will know the current big-figure level of the yen, which fluctuates in value between roughly 90 to 110 yen per dollar. While omitting the big figure is accepted practice in interbank and institutional markets, it is seldom done when dealing with retail investors. Even in the interbank markets, traders may need clarification on the big figure if the exchange rate is moving very rapidly. That can happen, for instance, during currency interventions by a central bank. The big figure may also be clarified when the exchange rate approaches round numbers, such as 86.00 yen or 1.3500 euros to the US dollar. How Big Figure Trades Work Big figure trades aim to take advantage of retail investors' limits. With the right strategy, trading against retail forex investors can be quite profitable. The market often trades at levels that are critical at various times, which could be due to a Fibonacci level or a trendline. But at times, it also could be a Forex big figure level.  Forex traders often see one-sided movements. That is, there are sharp intra-day price movements. As a price reaches a critical level, traders often think that it can’t go higher, so traders start to take short positions near that critical level. This strategy ends in tears for one party or the other and should not be undertaken lightly. A Strategy for a Big Figure Trade The best way to make a big figure forex trade is to identify markets that move in one direction and side. These trends help a trader find targets that are obvious. Other guidelines: Set orders in such a way that you can take advantage of a series of quick pips, or price movements. Sell intelligently at various stops in order to make one, five, or ten pips. Don't wait more than 15 minutes for a trade to work. Bail out before you lose more. This kind of trade works in most cases and therefore carries less risk. Even if you lose, the losses are controlled.
[ [ "international currency markets", "https://www.investopedia.com/terms/forex/i/international-currency-markets.asp" ], [ "spot market", "https://www.investopedia.com/terms/s/spotmarket.asp" ], [ "retail investors", "https://www.investopedia.com/terms/r/retailinvestor.asp" ], [ "central bank", "https://www.investopedia.com/terms/c/centralbank.asp" ], [ "Fibonacci level", "https://www.investopedia.com/terms/f/fibonacciretracement.asp" ], [ "pips", "https://www.investopedia.com/terms/p/pip.asp" ] ]
https://www.investopedia.com/how-to-get-covid-19-student-loan-relief-4845047
How to Get Student Loan Relief
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 three-year pause on federal student loan payments imposed as a COVID-19 relief measure is over, and the bills started coming due again in October 2023. A Biden Administration plan to forgive billions in student debt went down in flames at the Supreme Court.<span class="ql-inline-citation" data-cite="49"></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"> That's not the end of the story. The White House has unveiled new programs that help distressed borrowers lower their monthly payments to a reasonable level. Even <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/student-loan-forgiveness.asp">student loan forgiveness</a> is still possible for some public service employees, non-profit workers, and disabled people. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Saving on a Valuable Education (SAVE) plan lowers monthly payments for student loan borrowers based on income and family size.</li><li>Payments can be reduced to $0 per month in some cases.</li><li>Despite the Supreme Court ruling, loan forgiveness is still available for some public service workers, non-profit employees, and disabled people. <br/></li></ul></div></div></div> <span class="heading-toc" id="toc-federal-student-loan-forbearance-ends"></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"> Federal Student Loan Forbearance Ends </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/coronavirus-aid-relief-and-economic-security-cares-act-4800707">Coronavirus Aid, Relief and Economic Security (CARES) Act</a> granted federal student loan borrowers automatic forbearance for loans owned by the U.S. Department of Education. The pause on repayments, originally passed on March 13, 2020, was extended repeatedly and finally expired on Oct. 1, 2023.<span class="ql-inline-citation" data-cite="50"></span><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_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Interest charges began accruing on Sept. 1, 2023, and the monthly bills started going out again in October.<span class="ql-inline-citation" data-cite="19"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The loan forbearance program meant: </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>Your interest rate was 0%.</li> <li>You didn't have to make payments.</li> <li>You weren't charged any late fees.</li> <li>Interest didn't accrue.</li> <li>The interest you owed on March 12, 2020, was not added to your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a> balance.</li> <li>You didn't have to contact your loan servicer to request these benefits if you were eligible for them.<span class="ql-inline-citation" data-cite="50"></span></li> </ul> <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>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-rescue-plan-definition-5095694">American Rescue Plan</a>, passed by Congress and signed by President Biden in March 2021, included a provision that student loan forgiveness issued between Jan. 1, 2021, and Dec. 31, 2025, will not be taxable to the recipient.<span class="ql-inline-citation" data-cite="11"></span></p></div></div></div> <span class="heading-toc" id="toc-the-saving-on-a-valuable-education-save-plan"></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 Saving on a Valuable Education (SAVE) Plan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Thwarted by the Supreme Court ruling against a massive student loan forgiveness program, the Biden-Harris administration immediately rolled out their next strategy for student loan relief—the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/saving-on-a-valuable-education-plan-7559022">Saving on a Valuable Education (SAVE)</a> plan. The SAVE plan is an income-driven repayment (IDR) plan that promises to lower or eliminate loan payments depending on your discretionary income.<span class="ql-inline-citation" data-cite="36"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Benefits for Borrowers </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The SAVE plan is open to anyone with an eligible loan. While similar to last year's Revised Pay As You Earn (REPAYE) plan, the SAVE plan has additional benefits and is more widely available. People who enrolled in REPAYE will automatically be added to SAVE. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The plan will: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <li><strong>Reduce the percent of discretionary income used to determine loan payments</strong>: The REPAYE plan required payments of 10% of discretionary income on undergraduate loans. The SAVE plan lowers that to 5%. For borrowers with both undergraduate and graduate loans, the amount will be a weighted average between 5% and 10%.</li><li><strong>Adjust what counts as discretionary income</strong>: On prior plans, discretionary income was 150% of their adjusted gross income over the federal poverty guidelines. The SAVE plan raises the income limit to 225% of the poverty guidelines, making the plan accessible to many more borrowers. For some borrowers, their monthly payments will be $0. For those making more, the government expects most borrowers to save up to $1,000 per year.</li><li><strong>Forgive some loan interest.</strong> For example, if your loan payment is $25 monthly, but your loan accrues $35 in interest, the additional $10 will not be added to your balance. For borrowers making extremely low payments, this means their loan amount will not grow as long as they are making payments.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span><li><strong>Forgive some payments</strong>: While prior programs expected 20 years of payment before forgiveness, the SAVE plan lowers this threshold for low-balance borrowers. If your original loan amount was under $12,000, loans can be forgiven after 120 qualifying payments. Each $1,000 over that amount requires 12 additional payments, with undergraduate loans capping out at 20 years and graduate loans at 25 years. If loans were consolidated, payments made before consolidation count towards the payment total.<span class="ql-inline-citation" data-cite="35"></span></li> </ul> <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-save-loan-eligibility"></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"> SAVE Loan Eligibility </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Since the SAVE plan is a federal program, only the following loans are eligible: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> <li>Direct subsidized loans</li><li>Direct unsubsidized loans</li><li>Direct PLUS loans for graduate and professional students</li><li>Direct consolidation loans that did not repay PLUS loans made to parents</li> </ul> <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"> Other loans may be eligible if first consolidated into a direct consolidation loan. Loans made to parents for their children or loans in default are not eligible for the program.<span class="ql-inline-citation" data-cite="36"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-timeline-and-how-to-apply"></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"> Timeline and How to Apply </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The SAVE plan is available now. Borrowers who are currently signed up for the REPAYE program will be automatically transferred to the SAVE plan. Anyone else eligible can apply immediately.<span class="ql-inline-citation" data-cite="36"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The application is available online at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://studentaid.gov/announcements-events/save-plan">StudentAid.gov</a>, and it takes roughly 10 minutes to fill out. To apply, log into StudentAid.gov. You'll need your financial information, personal information, and your spouse's information if married filing jointly. </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-other-student-loan-relief-programs"></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"> Other Student Loan Relief Programs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Despite the Supreme Court decision, student loan forgiveness is still available to certain people in certain circumstances. Those most likely to be eligible include teachers and other public service employees, workers at non-profit organizations, and disabled people. </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><strong>Public Service Loan Forgiveness</strong>: The PSLF program offers loan forgiveness after 10 years of payment for borrowers who work in a field that benefits their community, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loans-health-care-workers-8412309">such as healthcare</a>, fire departments, social work, or government agencies.<span class="ql-inline-citation" data-cite="47"></span></li> <li><strong>Income-Based Repayment</strong>: IBR allows qualifying borrowers, regardless of industry, the opportunity to pay 10%–15% of their discretionary income in payments. They are eligible for forgiveness after 20 or 25 years.<span class="ql-inline-citation" data-cite="46"></span></li> <li><strong>Teacher Loan Forgiveness</strong>: If you have been a full-time elementary or secondary teacher for at least five years in a low-income school, you may qualify for up to $5,000 in loan forgiveness. Math and science teachers may qualify for up to $17,500.<span class="ql-inline-citation" data-cite="45"></span><br/></li> </ul> <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-check-your-states-website-for-relief-options"></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"> Check Your State's Website for Relief Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Visit your state's website to see what <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/settle-student-loan-debt-guide-8547140">student loan relief</a> options lenders are providing where you live. Depending on your industry, you may be eligible for state-funded relief. </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"> You can visit your loan servicer's website to see what options they're offering all borrowers, and you can also call or email your loan servicer to find out what specific options may be available to you, given your circumstances. </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"> Besides the possibilities described above, you may also be able to request economic hardship or unemployment deferment. You may also be able to get a temporary reduction in your interest rate or a loan modification.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-when-do-student-loan-payments-resume"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Do Student Loan Payments Resume?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Student loan payments resumed in October 2023. Interest began accruing on federal loans on Sept. 1, 2023.<span class="ql-inline-citation" data-cite="19"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-will-biden-extend-the-student-loan-pause"></span> <h2 class="mntl-sc-block-questionandanswer__question">Will Biden Extend the Student Loan Pause?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The student loan payment pause is done for good. The monthly bills started going out on Oct. 1, 2023.<span class="ql-inline-citation" data-cite="51"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_56-0"><span class="heading-toc" id="toc-is-the-save-plan-the-same-as-student-loan-forgiveness"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is the SAVE Plan the Same As Student Loan Forgiveness?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The SAVE Plan reduces monthly payments on student loans for eligible borrowers, based on their discretionary income. In some cases, it includes partial loan forgiveness but only after years of steady repayment.<span class="ql-inline-citation" data-cite="36"></span></p><p>The far more ambitious one-time student loan forgiveness plan was deemed unconstitutional by the U.S. Supreme Court and will not go forward.<span class="ql-inline-citation" data-cite="49"></span></p><p>A limited number of borrowers are eligible for student loan forgiveness. They include some public service employees and workers for non-profit organizations. Outright loan forgiveness is available only to some public service workers, non-profit employees, and disabled people.<span class="ql-inline-citation" data-cite="52"></span><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-will-student-loans-be-forgiven-under-the-save-plan"></span> <h2 class="mntl-sc-block-questionandanswer__question">Will Student Loans Be Forgiven Under the SAVE Plan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Many borrowers will be able to reach loan forgiveness eventually through the SAVE plan. It can put an end date on the loan repayments after a certain number of years for those with low initial balances. A one-time adjustment for past payments will also move the needle by counting all months in repayment, even if the borrower was in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-forbearance-vs-deferment-8607428">deferment or forbearance</a>.<span class="ql-inline-citation" data-cite="36"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_60-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Student loan forbearance was one of the longest-lasting pandemic-relief measures, but it ended for good in October 2023. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> If you are having trouble meeting your student loan commitments, consider applying for relief through the SAVE program. It can lower your monthly bill to a manageable level. </p></div>
The three-year pause on federal student loan payments imposed as a COVID-19 relief measure is over, and the bills started coming due again in October 2023. A Biden Administration plan to forgive billions in student debt went down in flames at the Supreme Court. That's not the end of the story. The White House has unveiled new programs that help distressed borrowers lower their monthly payments to a reasonable level. Even [student loan forgiveness](https://www.investopedia.com/terms/s/student-loan-forgiveness.asp) is still possible for some public service employees, non-profit workers, and disabled people. ### Key Takeaways * The Saving on a Valuable Education (SAVE) plan lowers monthly payments for student loan borrowers based on income and family size. * Payments can be reduced to $0 per month in some cases. * Despite the Supreme Court ruling, loan forgiveness is still available for some public service workers, non-profit employees, and disabled people. ## Federal Student Loan Forbearance Ends The [Coronavirus Aid, Relief and Economic Security (CARES) Act](https://www.investopedia.com/coronavirus-aid-relief-and-economic-security-cares-act-4800707) granted federal student loan borrowers automatic forbearance for loans owned by the U.S. Department of Education. The pause on repayments, originally passed on March 13, 2020, was extended repeatedly and finally expired on Oct. 1, 2023. Interest charges began accruing on Sept. 1, 2023, and the monthly bills started going out again in October. The loan forbearance program meant: * Your interest rate was 0%. * You didn't have to make payments. * You weren't charged any late fees. * Interest didn't accrue. * The interest you owed on March 12, 2020, was not added to your [principal](https://www.investopedia.com/terms/p/principal.asp) balance. * You didn't have to contact your loan servicer to request these benefits if you were eligible for them. ### The [American Rescue Plan](https://www.investopedia.com/american-rescue-plan-definition-5095694), passed by Congress and signed by President Biden in March 2021, included a provision that student loan forgiveness issued between Jan. 1, 2021, and Dec. 31, 2025, will not be taxable to the recipient. ## The Saving on a Valuable Education (SAVE) Plan Thwarted by the Supreme Court ruling against a massive student loan forgiveness program, the Biden-Harris administration immediately rolled out their next strategy for student loan relief—the [Saving on a Valuable Education (SAVE)](https://www.investopedia.com/saving-on-a-valuable-education-plan-7559022) plan. The SAVE plan is an income-driven repayment (IDR) plan that promises to lower or eliminate loan payments depending on your discretionary income. ### Benefits for Borrowers The SAVE plan is open to anyone with an eligible loan. While similar to last year's Revised Pay As You Earn (REPAYE) plan, the SAVE plan has additional benefits and is more widely available. People who enrolled in REPAYE will automatically be added to SAVE. The plan will: * **Reduce the percent of discretionary income used to determine loan payments**: The REPAYE plan required payments of 10% of discretionary income on undergraduate loans. The SAVE plan lowers that to 5%. For borrowers with both undergraduate and graduate loans, the amount will be a weighted average between 5% and 10%. * **Adjust what counts as discretionary income**: On prior plans, discretionary income was 150% of their adjusted gross income over the federal poverty guidelines. The SAVE plan raises the income limit to 225% of the poverty guidelines, making the plan accessible to many more borrowers. For some borrowers, their monthly payments will be $0. For those making more, the government expects most borrowers to save up to $1,000 per year. * **Forgive some loan interest.** For example, if your loan payment is $25 monthly, but your loan accrues $35 in interest, the additional $10 will not be added to your balance. For borrowers making extremely low payments, this means their loan amount will not grow as long as they are making payments. * **Forgive some payments**: While prior programs expected 20 years of payment before forgiveness, the SAVE plan lowers this threshold for low-balance borrowers. If your original loan amount was under $12,000, loans can be forgiven after 120 qualifying payments. Each $1,000 over that amount requires 12 additional payments, with undergraduate loans capping out at 20 years and graduate loans at 25 years. If loans were consolidated, payments made before consolidation count towards the payment total. ## SAVE Loan Eligibility Since the SAVE plan is a federal program, only the following loans are eligible: * Direct subsidized loans * Direct unsubsidized loans * Direct PLUS loans for graduate and professional students * Direct consolidation loans that did not repay PLUS loans made to parents Other loans may be eligible if first consolidated into a direct consolidation loan. Loans made to parents for their children or loans in default are not eligible for the program. ## Timeline and How to Apply The SAVE plan is available now. Borrowers who are currently signed up for the REPAYE program will be automatically transferred to the SAVE plan. Anyone else eligible can apply immediately. The application is available online at [StudentAid.gov](https://studentaid.gov/announcements-events/save-plan), and it takes roughly 10 minutes to fill out. To apply, log into StudentAid.gov. You'll need your financial information, personal information, and your spouse's information if married filing jointly. ## Other Student Loan Relief Programs Despite the Supreme Court decision, student loan forgiveness is still available to certain people in certain circumstances. Those most likely to be eligible include teachers and other public service employees, workers at non-profit organizations, and disabled people. * **Public Service Loan Forgiveness**: The PSLF program offers loan forgiveness after 10 years of payment for borrowers who work in a field that benefits their community, [such as healthcare](https://www.investopedia.com/personal-loans-health-care-workers-8412309), fire departments, social work, or government agencies. * **Income-Based Repayment**: IBR allows qualifying borrowers, regardless of industry, the opportunity to pay 10%–15% of their discretionary income in payments. They are eligible for forgiveness after 20 or 25 years. * **Teacher Loan Forgiveness**: If you have been a full-time elementary or secondary teacher for at least five years in a low-income school, you may qualify for up to $5,000 in loan forgiveness. Math and science teachers may qualify for up to $17,500. ## Check Your State's Website for Relief Options Visit your state's website to see what [student loan relief](https://www.investopedia.com/settle-student-loan-debt-guide-8547140) options lenders are providing where you live. Depending on your industry, you may be eligible for state-funded relief. You can visit your loan servicer's website to see what options they're offering all borrowers, and you can also call or email your loan servicer to find out what specific options may be available to you, given your circumstances. Besides the possibilities described above, you may also be able to request economic hardship or unemployment deferment. You may also be able to get a temporary reduction in your interest rate or a loan modification. ## When Do Student Loan Payments Resume? Student loan payments resumed in October 2023. Interest began accruing on federal loans on Sept. 1, 2023. ## Will Biden Extend the Student Loan Pause? The student loan payment pause is done for good. The monthly bills started going out on Oct. 1, 2023. ## Is the SAVE Plan the Same As Student Loan Forgiveness? The SAVE Plan reduces monthly payments on student loans for eligible borrowers, based on their discretionary income. In some cases, it includes partial loan forgiveness but only after years of steady repayment. The far more ambitious one-time student loan forgiveness plan was deemed unconstitutional by the U.S. Supreme Court and will not go forward. A limited number of borrowers are eligible for student loan forgiveness. They include some public service employees and workers for non-profit organizations. Outright loan forgiveness is available only to some public service workers, non-profit employees, and disabled people. ## Will Student Loans Be Forgiven Under the SAVE Plan? Many borrowers will be able to reach loan forgiveness eventually through the SAVE plan. It can put an end date on the loan repayments after a certain number of years for those with low initial balances. A one-time adjustment for past payments will also move the needle by counting all months in repayment, even if the borrower was in [deferment or forbearance](https://www.investopedia.com/student-loan-forbearance-vs-deferment-8607428). ## The Bottom Line Student loan forbearance was one of the longest-lasting pandemic-relief measures, but it ended for good in October 2023. If you are having trouble meeting your student loan commitments, consider applying for relief through the SAVE program. It can lower your monthly bill to a manageable level.
The three-year pause on federal student loan payments imposed as a COVID-19 relief measure is over, and the bills started coming due again in October 2023. A Biden Administration plan to forgive billions in student debt went down in flames at the Supreme Court. That's not the end of the story. The White House has unveiled new programs that help distressed borrowers lower their monthly payments to a reasonable level. Even student loan forgiveness is still possible for some public service employees, non-profit workers, and disabled people. Key Takeaways The Saving on a Valuable Education (SAVE) plan lowers monthly payments for student loan borrowers based on income and family size.Payments can be reduced to $0 per month in some cases.Despite the Supreme Court ruling, loan forgiveness is still available for some public service workers, non-profit employees, and disabled people.  Federal Student Loan Forbearance Ends The Coronavirus Aid, Relief and Economic Security (CARES) Act granted federal student loan borrowers automatic forbearance for loans owned by the U.S. Department of Education. The pause on repayments, originally passed on March 13, 2020, was extended repeatedly and finally expired on Oct. 1, 2023. Interest charges began accruing on Sept. 1, 2023, and the monthly bills started going out again in October. The loan forbearance program meant: Your interest rate was 0%. You didn't have to make payments. You weren't charged any late fees. Interest didn't accrue. The interest you owed on March 12, 2020, was not added to your principal balance. You didn't have to contact your loan servicer to request these benefits if you were eligible for them. The American Rescue Plan, passed by Congress and signed by President Biden in March 2021, included a provision that student loan forgiveness issued between Jan. 1, 2021, and Dec. 31, 2025, will not be taxable to the recipient. The Saving on a Valuable Education (SAVE) Plan Thwarted by the Supreme Court ruling against a massive student loan forgiveness program, the Biden-Harris administration immediately rolled out their next strategy for student loan relief—the Saving on a Valuable Education (SAVE) plan. The SAVE plan is an income-driven repayment (IDR) plan that promises to lower or eliminate loan payments depending on your discretionary income. Benefits for Borrowers The SAVE plan is open to anyone with an eligible loan. While similar to last year's Revised Pay As You Earn (REPAYE) plan, the SAVE plan has additional benefits and is more widely available. People who enrolled in REPAYE will automatically be added to SAVE. The plan will: Reduce the percent of discretionary income used to determine loan payments: The REPAYE plan required payments of 10% of discretionary income on undergraduate loans. The SAVE plan lowers that to 5%. For borrowers with both undergraduate and graduate loans, the amount will be a weighted average between 5% and 10%.Adjust what counts as discretionary income: On prior plans, discretionary income was 150% of their adjusted gross income over the federal poverty guidelines. The SAVE plan raises the income limit to 225% of the poverty guidelines, making the plan accessible to many more borrowers. For some borrowers, their monthly payments will be $0. For those making more, the government expects most borrowers to save up to $1,000 per year.Forgive some loan interest. For example, if your loan payment is $25 monthly, but your loan accrues $35 in interest, the additional $10 will not be added to your balance. For borrowers making extremely low payments, this means their loan amount will not grow as long as they are making payments.Forgive some payments: While prior programs expected 20 years of payment before forgiveness, the SAVE plan lowers this threshold for low-balance borrowers. If your original loan amount was under $12,000, loans can be forgiven after 120 qualifying payments. Each $1,000 over that amount requires 12 additional payments, with undergraduate loans capping out at 20 years and graduate loans at 25 years. If loans were consolidated, payments made before consolidation count towards the payment total. SAVE Loan Eligibility Since the SAVE plan is a federal program, only the following loans are eligible: Direct subsidized loansDirect unsubsidized loansDirect PLUS loans for graduate and professional studentsDirect consolidation loans that did not repay PLUS loans made to parents Other loans may be eligible if first consolidated into a direct consolidation loan. Loans made to parents for their children or loans in default are not eligible for the program. Timeline and How to Apply The SAVE plan is available now. Borrowers who are currently signed up for the REPAYE program will be automatically transferred to the SAVE plan. Anyone else eligible can apply immediately. The application is available online at StudentAid.gov, and it takes roughly 10 minutes to fill out. To apply, log into StudentAid.gov. You'll need your financial information, personal information, and your spouse's information if married filing jointly. Other Student Loan Relief Programs Despite the Supreme Court decision, student loan forgiveness is still available to certain people in certain circumstances. Those most likely to be eligible include teachers and other public service employees, workers at non-profit organizations, and disabled people. Public Service Loan Forgiveness: The PSLF program offers loan forgiveness after 10 years of payment for borrowers who work in a field that benefits their community, such as healthcare, fire departments, social work, or government agencies. Income-Based Repayment: IBR allows qualifying borrowers, regardless of industry, the opportunity to pay 10%–15% of their discretionary income in payments. They are eligible for forgiveness after 20 or 25 years. Teacher Loan Forgiveness: If you have been a full-time elementary or secondary teacher for at least five years in a low-income school, you may qualify for up to $5,000 in loan forgiveness. Math and science teachers may qualify for up to $17,500. Check Your State's Website for Relief Options Visit your state's website to see what student loan relief options lenders are providing where you live. Depending on your industry, you may be eligible for state-funded relief. You can visit your loan servicer's website to see what options they're offering all borrowers, and you can also call or email your loan servicer to find out what specific options may be available to you, given your circumstances. Besides the possibilities described above, you may also be able to request economic hardship or unemployment deferment. You may also be able to get a temporary reduction in your interest rate or a loan modification. When Do Student Loan Payments Resume? Student loan payments resumed in October 2023. Interest began accruing on federal loans on Sept. 1, 2023. Will Biden Extend the Student Loan Pause? The student loan payment pause is done for good. The monthly bills started going out on Oct. 1, 2023. Is the SAVE Plan the Same As Student Loan Forgiveness? The SAVE Plan reduces monthly payments on student loans for eligible borrowers, based on their discretionary income. In some cases, it includes partial loan forgiveness but only after years of steady repayment.The far more ambitious one-time student loan forgiveness plan was deemed unconstitutional by the U.S. Supreme Court and will not go forward.A limited number of borrowers are eligible for student loan forgiveness. They include some public service employees and workers for non-profit organizations. Outright loan forgiveness is available only to some public service workers, non-profit employees, and disabled people. Will Student Loans Be Forgiven Under the SAVE Plan? Many borrowers will be able to reach loan forgiveness eventually through the SAVE plan. It can put an end date on the loan repayments after a certain number of years for those with low initial balances. A one-time adjustment for past payments will also move the needle by counting all months in repayment, even if the borrower was in deferment or forbearance. The Bottom Line Student loan forbearance was one of the longest-lasting pandemic-relief measures, but it ended for good in October 2023. If you are having trouble meeting your student loan commitments, consider applying for relief through the SAVE program. It can lower your monthly bill to a manageable level.
[ [ "student loan forgiveness", "https://www.investopedia.com/terms/s/student-loan-forgiveness.asp" ], [ "Coronavirus Aid, Relief and Economic Security (CARES) Act", "https://www.investopedia.com/coronavirus-aid-relief-and-economic-security-cares-act-4800707" ], [ "principal", "https://www.investopedia.com/terms/p/principal.asp" ], [ "American Rescue Plan", "https://www.investopedia.com/american-rescue-plan-definition-5095694" ], [ "Saving on a Valuable Education (SAVE)", "https://www.investopedia.com/saving-on-a-valuable-education-plan-7559022" ], [ "StudentAid.gov", "https://studentaid.gov/announcements-events/save-plan" ], [ "such as healthcare", "https://www.investopedia.com/personal-loans-health-care-workers-8412309" ], [ "student loan relief", "https://www.investopedia.com/settle-student-loan-debt-guide-8547140" ], [ "deferment or forbearance", "https://www.investopedia.com/student-loan-forbearance-vs-deferment-8607428" ] ]
https://www.investopedia.com/reasons-why-your-credit-score-drops-8612511
Reasons Why Your Credit Score Drops
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Lenders use 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> to judge how likely you are to repay a loan or credit card if they issue you one. In general, the higher your credit score, the more likely they think you are to pay off your debts in a timely manner. So if your credit score drops, it's important to understand the reasons that might have happened. Actions that could result in a lower credit score include late or missed payments, applying for too much new credit, or using too much of the credit you already have. This article looks at those and other potential causes.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways </h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>Late or missed payments can have a negative impact on credit scores.</li> <li>Applying for new credit can cause a temporary drop in credit scores.</li> <li>High <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 ratios</a> can lower credit scores.</li> <li>Changes in credit history, such as closing a credit card account, can lead to a drop in your score.</li> <li>Reductions in credit limits by lenders can negatively affect credit scores.</li> </ul></div></div></div> <span class="heading-toc" id="toc-late-or-missed-payments"></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"> Late or Missed Payments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Payment history is the most important factor that scoring models use when calculating your credit score. In fact, for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ficoscore.asp">FICO scores</a>—the most widely used scoring models–payment history accounts for 35% of your total credit score.<span class="ql-inline-citation" data-cite="1"></span> That's why it's essential to pay your credit bills on time. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> While one or two late payments won't greatly harm your credit score, continued late or missed payments certainly will. And it will take time to recover from them even when you resume a timely payment schedule. <br> </br></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"> Tips on How to Avoid Late or Missed Payments </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> To ensure that you always make your payments on time, consider these moves:<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> <li><strong>Set up automatic payments on your credit accounts.</strong> By doing so, you won't have to worry about missed or late payments.</li> <li><strong>Create a budget, and pay your bills on the same date each month.</strong> This helps you make sure you have the necessary funds to pay your bills in advance of their due date. </li> <li><strong>Reach out to your creditors if you need assistance paying your bills.</strong> Creditors will often work with their customers to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/040315/how-not-paying-cable-bills-could-hurt-credit-score.asp">make sure bills are paid on time</a>. If you have trouble paying your bills, talk to your creditors and see if you can come up with a solution that benefits you both. This could include reducing the minimum amount due, spreading payments over a longer period, or lowering the interest rate. <br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-too-many-recent-credit-applications"></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"> Too Many Recent Credit Applications </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Applying for a lot of new credit in a short period of time can temporarily lower your credit score, because those potential creditors 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 report. These inquiries remain on your credit report for two years. While each scoring model evaluates them differently, and the impact can vary by type of credit, several hard inquires at once could hurt your credit score.<span class="ql-inline-citation" data-cite="9"></span> Lenders may take that as a signal that you are becoming financially overextended.  <br/> </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"> In addition, taking out new credit can slightly lower your credit score because it reduces the average age of your credit accounts, one factor in 15% of your score. In general, the older your accounts are, the higher your credit score will be.<span class="ql-inline-citation" data-cite="3"></span> <br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <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"> How to Manage Credit Applications to Minimize the Impact on Credit Scores </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <li>Most scoring models make allowances for "rate shopping." Having multiple inquires on your credit report when searching for a car loan or home mortgage may not have any impact on your credit score as long as they occur within a limited period, say between 14 and 45 days.<span class="ql-inline-citation" data-cite="10"></span> However, if you spread out your search for several months, that could negatively impact your credit score. <br/></li><li>With credit cards, resist the urge to take up every offer that comes along. If you want to apply for a particular card, check the issuer's website to see if you meet the minimum credit score and other requirements, so that you don't file an application only to be rejected.<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <span class="heading-toc" id="toc-a-high-credit-utilization-ratio"></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"> A High Credit Utilization Ratio </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Using your credit won't negatively affect your credit score unless you are maxing out your available credit. Your credit utilization ratio looks at the amount of credit you are using compared to the total credit available to you. For instance, if you have credit cards with a total credit limit of $10,000 and your credit card balances add up to $7,500, your credit utilization ratio is 75%. That's considered high. Ideally, you should try to keep your credit utilization ratio below 30% to avoid hurting your credit score.<span class="ql-inline-citation" data-cite="11"></span><br/> </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"> Strategies for Reducing Credit Utilization and Improving Credit Scores </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> There are several ways to reduce your credit utilization and, in turn, boost your credit score:<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_28-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <li><strong>Pay down the balance on your credit cards.</strong> Reducing how much you owe on your cards will increase your available credit and, thus, your credit utilization ratio. </li> <li><strong>Keep old credit card accounts open even if you paid them off.</strong> When you pay off a credit card, you may be tempted to close the account. But by doing so, you reduce your total available credit, which could spike your credit utilization ratio. </li> <li><strong>Ask your credit card issuers to raise your credit limit.</strong> Some will <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0212/6-benefits-to-increasing-your-credit-limit.aspx">increase your credit limit</a> if your credit score is high enough to justify it.</li> <li><strong>Use time to your advantage.</strong> Opening a new credit account can temporarily lower your credit score, but over time it will <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-improve-your-credit-score-4590097">boost your score</a> because it will increase your available credit. Provided you don't max it out, your credit utilization ratio will improve. <br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-changes-in-credit-history"></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"> Changes in Credit History </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The information in your credit reports can go back seven, and in some cases 10, years.<span class="ql-inline-citation" data-cite="7"></span> When something changes, that can affect your credit score—for better or for worse. For example, if you have years of on-time monthly payments on your report but you've been late with several of them recently, credit score could take a hit. And as we've mentioned, closing a credit card account can also lower your score because it will reduce your available credit and raise your credit utilization ratio. <br> </br></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"> Similarly, because the scoring models favor accounts with a long payment history, adding several new credit accounts could lower your credit score at first by reducing your accounts' average age.<span class="ql-inline-citation" data-cite="3"></span> As those accounts age, though, they will raise your credit score, as long as you keep up with the payments. <br/> </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"> Tips on Managing Credit History to Maintain or Improve Credit Scores </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> <li>Always make on-time payments.</li><li>Leave credit card accounts open even if you paid off the balance and don't plan to use that card again. </li><li>Limit new credit accounts. </li><li>Check your credit reports periodically for errors (as explained below).<br/></li> </ul> <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-credit-limit-reductions"></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"> Credit Limit Reductions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> If your lender reduces your credit limit, as sometimes happens, that will reduce your total available credit and increase your credit utilization ratio, impairing your credit score. </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"> Keep in mind that it's usually best to hold your credit utilization ratio below 30%. If you have total available credit of $10,000 and you're currently using $3,000 of it, your credit utilization ratio is 30%. But if your lender reduces your credit limit, dropping your total available credit to $6,000, your credit utilization ratio will jump to 50%. This can cause a drop in your credit score. <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"> How to Monitor Credit Limits and Manage Credit Utilization to Mitigate the Effects of Credit Limit Reductions </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> <li>Don't max out your credit cards. Keep balances low so a credit limit reduction won't severely hurt your credit score. </li><li>If one lender reduces your credit limit, check with another to see if it will increase your limit to keep your total available credit steady. </li><li>Watch your mail or email for any notices from your card issuers. According to the Consumer Financial Protection Bureau, they are generally required to send you an "adverse action notice" if they lower your limit or close your account.<span class="ql-inline-citation" data-cite="8"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-identity-theft-and-fraudulent-activity"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> Identity Theft and Fraudulent Activity </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> When bad actors steal your identity and open new credit accounts in your name, it could lower your credit score in multiple ways. The first is by opening a lot of new credit accounts at once. The second is not paying on those accounts, resulting in missed payments. The third is maxing out those credit cards, increasing your credit utilization ratio. Likewise, if someone steals your credit card information and makes a lot of charges, it could increase your credit utilization ratio. <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"> Therefore, it's important to review your credit account activity often to ensure that you haven' been a victim of <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> or other crimes.<br/> </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"> How to Monitor Credit Reports and Address Identity Theft or Fraudulent Activity </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> <li>Always review your monthly credit card statements, or check more often online, for any transactions you don't recognize.</li> <li>If you see fraudulent activity on your credit statements, call your lender immediately to report it. </li> <li>Review your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit reports</a> frequently to look for suspicious activity. Under federal law, you are entitled to a free copy of your credit report at least once a year from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion.<span class="ql-inline-citation" data-cite="5"></span> The official website for that purpose is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.annualcreditreport.com/index.action" rel="sponsored nofollow">AnnualCreditReport.com</a>.</li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-freeze-and-unfreeze-your-credit-5075527">Freeze your credit</a>. If you don't plan to apply for new credit in the near future, you can "freeze" your credit file with each credit reporting agency.<span class="ql-inline-citation" data-cite="6"></span> That can make it difficult or impossible for anyone to obtain for credit in your name. When you're ready to apply for new credit, you can temporarily unfreeze your files. </li> <li>If you have spotted fraudulent activity on your credit report, ask the credit reporting agencies to place a fraud alert on your credit reports.<span class="ql-inline-citation" data-cite="5"></span> This notifies lenders to ask for more verification to ensure it's you when some applies for credit in your name.<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-how-can-i-avoid-late-or-missed-payments-and-maintain-a-good-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Avoid Late or Missed Payments and Maintain a Good Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One easy way to keep from missing payments is to set up automatic payments through your bank checking account.</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-steps-can-i-take-to-minimize-the-impact-of-credit-applications-on-my-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Steps Can I Take to Minimize the Impact of Credit Applications on My Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you are rate shopping for a mortgage or other loan, obtain all your quotes within a short time frame. Scoring models typically recognize these for what they are to minimize the impact on your credit score.<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_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-does-credit-utilization-affect-my-credit-score-and-how-can-i-reduce-it"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does Credit Utilization Affect My Credit Score, and How Can I Reduce It?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Your credit utilization ratio looks at how much of your total available credit you currently use. You can reduce it by paying down your debts or adding more credit accounts. </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-how-can-i-protect-myself-from-identity-theft-and-fraudulent-activity-that-may-impact-my-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Protect Myself From Identity Theft and Fraudulent Activity That May Impact My Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Freezing your credit file can help protect your credit score by preventing criminals from opening accounts in your name. Also keep a close eye on your credit cards and don't give out your numbers to any person or company you aren't absolutely sure of. Finally, monitor your free credit reports for suspicious activity.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> There are several reasons why your credit score could drop. This includes making late payments or missing payments altogether, maxing out your credit cards, or taking out a lot of new credit all at once. Avoiding these situations can help you maintain a good credit score. By doing so, you will keep your credit history strong, which lenders will look favorably upon when you are ready to apply for new credit. Having a solid credit score can also lead to lower car insurance rates, approval for an apartment lease, or landing a new job.  </p></div>
Lenders use your [credit score](https://www.investopedia.com/terms/c/credit_score.asp) to judge how likely you are to repay a loan or credit card if they issue you one. In general, the higher your credit score, the more likely they think you are to pay off your debts in a timely manner. So if your credit score drops, it's important to understand the reasons that might have happened. Actions that could result in a lower credit score include late or missed payments, applying for too much new credit, or using too much of the credit you already have. This article looks at those and other potential causes. ### Key Takeaways * Late or missed payments can have a negative impact on credit scores. * Applying for new credit can cause a temporary drop in credit scores. * High [credit utilization ratios](https://www.investopedia.com/terms/c/credit-utilization-rate.asp) can lower credit scores. * Changes in credit history, such as closing a credit card account, can lead to a drop in your score. * Reductions in credit limits by lenders can negatively affect credit scores. ## Late or Missed Payments Payment history is the most important factor that scoring models use when calculating your credit score. In fact, for [FICO scores](https://www.investopedia.com/terms/f/ficoscore.asp)—the most widely used scoring models–payment history accounts for 35% of your total credit score. That's why it's essential to pay your credit bills on time.  While one or two late payments won't greatly harm your credit score, continued late or missed payments certainly will. And it will take time to recover from them even when you resume a timely payment schedule.  ### Tips on How to Avoid Late or Missed Payments To ensure that you always make your payments on time, consider these moves: * **Set up automatic payments on your credit accounts.** By doing so, you won't have to worry about missed or late payments. * **Create a budget, and pay your bills on the same date each month.** This helps you make sure you have the necessary funds to pay your bills in advance of their due date. * **Reach out to your creditors if you need assistance paying your bills.** Creditors will often work with their customers to [make sure bills are paid on time](https://www.investopedia.com/articles/personal-finance/040315/how-not-paying-cable-bills-could-hurt-credit-score.asp). If you have trouble paying your bills, talk to your creditors and see if you can come up with a solution that benefits you both. This could include reducing the minimum amount due, spreading payments over a longer period, or lowering the interest rate. ## Too Many Recent Credit Applications Applying for a lot of new credit in a short period of time can temporarily lower your credit score, because those potential creditors will run a [hard inquiry](https://www.investopedia.com/terms/h/hard-inquiry.asp) on your credit report. These inquiries remain on your credit report for two years. While each scoring model evaluates them differently, and the impact can vary by type of credit, several hard inquires at once could hurt your credit score. Lenders may take that as a signal that you are becoming financially overextended.   In addition, taking out new credit can slightly lower your credit score because it reduces the average age of your credit accounts, one factor in 15% of your score. In general, the older your accounts are, the higher your credit score will be.  ### How to Manage Credit Applications to Minimize the Impact on Credit Scores * Most scoring models make allowances for "rate shopping." Having multiple inquires on your credit report when searching for a car loan or home mortgage may not have any impact on your credit score as long as they occur within a limited period, say between 14 and 45 days. However, if you spread out your search for several months, that could negatively impact your credit score. * With credit cards, resist the urge to take up every offer that comes along. If you want to apply for a particular card, check the issuer's website to see if you meet the minimum credit score and other requirements, so that you don't file an application only to be rejected. ## A High Credit Utilization Ratio Using your credit won't negatively affect your credit score unless you are maxing out your available credit. Your credit utilization ratio looks at the amount of credit you are using compared to the total credit available to you. For instance, if you have credit cards with a total credit limit of $10,000 and your credit card balances add up to $7,500, your credit utilization ratio is 75%. That's considered high. Ideally, you should try to keep your credit utilization ratio below 30% to avoid hurting your credit score. ### Strategies for Reducing Credit Utilization and Improving Credit Scores There are several ways to reduce your credit utilization and, in turn, boost your credit score:  * **Pay down the balance on your credit cards.** Reducing how much you owe on your cards will increase your available credit and, thus, your credit utilization ratio. * **Keep old credit card accounts open even if you paid them off.** When you pay off a credit card, you may be tempted to close the account. But by doing so, you reduce your total available credit, which could spike your credit utilization ratio. * **Ask your credit card issuers to raise your credit limit.** Some will [increase your credit limit](https://www.investopedia.com/financial-edge/0212/6-benefits-to-increasing-your-credit-limit.aspx) if your credit score is high enough to justify it. * **Use time to your advantage.** Opening a new credit account can temporarily lower your credit score, but over time it will [boost your score](https://www.investopedia.com/how-to-improve-your-credit-score-4590097) because it will increase your available credit. Provided you don't max it out, your credit utilization ratio will improve. ## Changes in Credit History The information in your credit reports can go back seven, and in some cases 10, years. When something changes, that can affect your credit score—for better or for worse. For example, if you have years of on-time monthly payments on your report but you've been late with several of them recently, credit score could take a hit. And as we've mentioned, closing a credit card account can also lower your score because it will reduce your available credit and raise your credit utilization ratio.  Similarly, because the scoring models favor accounts with a long payment history, adding several new credit accounts could lower your credit score at first by reducing your accounts' average age. As those accounts age, though, they will raise your credit score, as long as you keep up with the payments.  ### Tips on Managing Credit History to Maintain or Improve Credit Scores * Always make on-time payments. * Leave credit card accounts open even if you paid off the balance and don't plan to use that card again. * Limit new credit accounts. * Check your credit reports periodically for errors (as explained below). ## Credit Limit Reductions If your lender reduces your credit limit, as sometimes happens, that will reduce your total available credit and increase your credit utilization ratio, impairing your credit score. Keep in mind that it's usually best to hold your credit utilization ratio below 30%. If you have total available credit of $10,000 and you're currently using $3,000 of it, your credit utilization ratio is 30%. But if your lender reduces your credit limit, dropping your total available credit to $6,000, your credit utilization ratio will jump to 50%. This can cause a drop in your credit score.  ### How to Monitor Credit Limits and Manage Credit Utilization to Mitigate the Effects of Credit Limit Reductions * Don't max out your credit cards. Keep balances low so a credit limit reduction won't severely hurt your credit score. * If one lender reduces your credit limit, check with another to see if it will increase your limit to keep your total available credit steady. * Watch your mail or email for any notices from your card issuers. According to the Consumer Financial Protection Bureau, they are generally required to send you an "adverse action notice" if they lower your limit or close your account. ## Identity Theft and Fraudulent Activity When bad actors steal your identity and open new credit accounts in your name, it could lower your credit score in multiple ways. The first is by opening a lot of new credit accounts at once. The second is not paying on those accounts, resulting in missed payments. The third is maxing out those credit cards, increasing your credit utilization ratio. Likewise, if someone steals your credit card information and makes a lot of charges, it could increase your credit utilization ratio.  Therefore, it's important to review your credit account activity often to ensure that you haven' been a victim of [identity theft](https://www.investopedia.com/terms/i/identitytheft.asp) or other crimes. ### How to Monitor Credit Reports and Address Identity Theft or Fraudulent Activity * Always review your monthly credit card statements, or check more often online, for any transactions you don't recognize. * If you see fraudulent activity on your credit statements, call your lender immediately to report it. * Review your [credit reports](https://www.investopedia.com/terms/c/creditreport.asp) frequently to look for suspicious activity. Under federal law, you are entitled to a free copy of your credit report at least once a year from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion. The official website for that purpose is [AnnualCreditReport.com](https://www.annualcreditreport.com/index.action). * [Freeze your credit](https://www.investopedia.com/how-to-freeze-and-unfreeze-your-credit-5075527). If you don't plan to apply for new credit in the near future, you can "freeze" your credit file with each credit reporting agency. That can make it difficult or impossible for anyone to obtain for credit in your name. When you're ready to apply for new credit, you can temporarily unfreeze your files. * If you have spotted fraudulent activity on your credit report, ask the credit reporting agencies to place a fraud alert on your credit reports. This notifies lenders to ask for more verification to ensure it's you when some applies for credit in your name. ## How Can I Avoid Late or Missed Payments and Maintain a Good Credit Score? One easy way to keep from missing payments is to set up automatic payments through your bank checking account. ## What Steps Can I Take to Minimize the Impact of Credit Applications on My Credit Score? If you are rate shopping for a mortgage or other loan, obtain all your quotes within a short time frame. Scoring models typically recognize these for what they are to minimize the impact on your credit score. ## How Does Credit Utilization Affect My Credit Score, and How Can I Reduce It? Your credit utilization ratio looks at how much of your total available credit you currently use. You can reduce it by paying down your debts or adding more credit accounts.  ## How Can I Protect Myself From Identity Theft and Fraudulent Activity That May Impact My Credit Score? Freezing your credit file can help protect your credit score by preventing criminals from opening accounts in your name. Also keep a close eye on your credit cards and don't give out your numbers to any person or company you aren't absolutely sure of. Finally, monitor your free credit reports for suspicious activity. ## The Bottom Line There are several reasons why your credit score could drop. This includes making late payments or missing payments altogether, maxing out your credit cards, or taking out a lot of new credit all at once. Avoiding these situations can help you maintain a good credit score. By doing so, you will keep your credit history strong, which lenders will look favorably upon when you are ready to apply for new credit. Having a solid credit score can also lead to lower car insurance rates, approval for an apartment lease, or landing a new job. 
Lenders use your credit score to judge how likely you are to repay a loan or credit card if they issue you one. In general, the higher your credit score, the more likely they think you are to pay off your debts in a timely manner. So if your credit score drops, it's important to understand the reasons that might have happened. Actions that could result in a lower credit score include late or missed payments, applying for too much new credit, or using too much of the credit you already have. This article looks at those and other potential causes. Key Takeaways Late or missed payments can have a negative impact on credit scores. Applying for new credit can cause a temporary drop in credit scores. High credit utilization ratios can lower credit scores. Changes in credit history, such as closing a credit card account, can lead to a drop in your score. Reductions in credit limits by lenders can negatively affect credit scores. Late or Missed Payments Payment history is the most important factor that scoring models use when calculating your credit score. In fact, for FICO scores—the most widely used scoring models–payment history accounts for 35% of your total credit score. That's why it's essential to pay your credit bills on time.  While one or two late payments won't greatly harm your credit score, continued late or missed payments certainly will. And it will take time to recover from them even when you resume a timely payment schedule.  Tips on How to Avoid Late or Missed Payments To ensure that you always make your payments on time, consider these moves: Set up automatic payments on your credit accounts. By doing so, you won't have to worry about missed or late payments. Create a budget, and pay your bills on the same date each month. This helps you make sure you have the necessary funds to pay your bills in advance of their due date.  Reach out to your creditors if you need assistance paying your bills. Creditors will often work with their customers to make sure bills are paid on time. If you have trouble paying your bills, talk to your creditors and see if you can come up with a solution that benefits you both. This could include reducing the minimum amount due, spreading payments over a longer period, or lowering the interest rate.  Too Many Recent Credit Applications Applying for a lot of new credit in a short period of time can temporarily lower your credit score, because those potential creditors will run a hard inquiry on your credit report. These inquiries remain on your credit report for two years. While each scoring model evaluates them differently, and the impact can vary by type of credit, several hard inquires at once could hurt your credit score. Lenders may take that as a signal that you are becoming financially overextended.   In addition, taking out new credit can slightly lower your credit score because it reduces the average age of your credit accounts, one factor in 15% of your score. In general, the older your accounts are, the higher your credit score will be.  How to Manage Credit Applications to Minimize the Impact on Credit Scores Most scoring models make allowances for "rate shopping." Having multiple inquires on your credit report when searching for a car loan or home mortgage may not have any impact on your credit score as long as they occur within a limited period, say between 14 and 45 days. However, if you spread out your search for several months, that could negatively impact your credit score. With credit cards, resist the urge to take up every offer that comes along. If you want to apply for a particular card, check the issuer's website to see if you meet the minimum credit score and other requirements, so that you don't file an application only to be rejected. A High Credit Utilization Ratio Using your credit won't negatively affect your credit score unless you are maxing out your available credit. Your credit utilization ratio looks at the amount of credit you are using compared to the total credit available to you. For instance, if you have credit cards with a total credit limit of $10,000 and your credit card balances add up to $7,500, your credit utilization ratio is 75%. That's considered high. Ideally, you should try to keep your credit utilization ratio below 30% to avoid hurting your credit score. Strategies for Reducing Credit Utilization and Improving Credit Scores There are several ways to reduce your credit utilization and, in turn, boost your credit score:  Pay down the balance on your credit cards. Reducing how much you owe on your cards will increase your available credit and, thus, your credit utilization ratio.  Keep old credit card accounts open even if you paid them off. When you pay off a credit card, you may be tempted to close the account. But by doing so, you reduce your total available credit, which could spike your credit utilization ratio.  Ask your credit card issuers to raise your credit limit. Some will increase your credit limit if your credit score is high enough to justify it. Use time to your advantage. Opening a new credit account can temporarily lower your credit score, but over time it will boost your score because it will increase your available credit. Provided you don't max it out, your credit utilization ratio will improve.  Changes in Credit History The information in your credit reports can go back seven, and in some cases 10, years. When something changes, that can affect your credit score—for better or for worse. For example, if you have years of on-time monthly payments on your report but you've been late with several of them recently, credit score could take a hit. And as we've mentioned, closing a credit card account can also lower your score because it will reduce your available credit and raise your credit utilization ratio.  Similarly, because the scoring models favor accounts with a long payment history, adding several new credit accounts could lower your credit score at first by reducing your accounts' average age. As those accounts age, though, they will raise your credit score, as long as you keep up with the payments.  Tips on Managing Credit History to Maintain or Improve Credit Scores Always make on-time payments.Leave credit card accounts open even if you paid off the balance and don't plan to use that card again. Limit new credit accounts. Check your credit reports periodically for errors (as explained below). Credit Limit Reductions If your lender reduces your credit limit, as sometimes happens, that will reduce your total available credit and increase your credit utilization ratio, impairing your credit score. Keep in mind that it's usually best to hold your credit utilization ratio below 30%. If you have total available credit of $10,000 and you're currently using $3,000 of it, your credit utilization ratio is 30%. But if your lender reduces your credit limit, dropping your total available credit to $6,000, your credit utilization ratio will jump to 50%. This can cause a drop in your credit score.  How to Monitor Credit Limits and Manage Credit Utilization to Mitigate the Effects of Credit Limit Reductions Don't max out your credit cards. Keep balances low so a credit limit reduction won't severely hurt your credit score. If one lender reduces your credit limit, check with another to see if it will increase your limit to keep your total available credit steady. Watch your mail or email for any notices from your card issuers. According to the Consumer Financial Protection Bureau, they are generally required to send you an "adverse action notice" if they lower your limit or close your account. Identity Theft and Fraudulent Activity When bad actors steal your identity and open new credit accounts in your name, it could lower your credit score in multiple ways. The first is by opening a lot of new credit accounts at once. The second is not paying on those accounts, resulting in missed payments. The third is maxing out those credit cards, increasing your credit utilization ratio. Likewise, if someone steals your credit card information and makes a lot of charges, it could increase your credit utilization ratio.  Therefore, it's important to review your credit account activity often to ensure that you haven' been a victim of identity theft or other crimes. How to Monitor Credit Reports and Address Identity Theft or Fraudulent Activity Always review your monthly credit card statements, or check more often online, for any transactions you don't recognize. If you see fraudulent activity on your credit statements, call your lender immediately to report it.  Review your credit reports frequently to look for suspicious activity. Under federal law, you are entitled to a free copy of your credit report at least once a year from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion. The official website for that purpose is AnnualCreditReport.com. Freeze your credit. If you don't plan to apply for new credit in the near future, you can "freeze" your credit file with each credit reporting agency. That can make it difficult or impossible for anyone to obtain for credit in your name. When you're ready to apply for new credit, you can temporarily unfreeze your files.  If you have spotted fraudulent activity on your credit report, ask the credit reporting agencies to place a fraud alert on your credit reports. This notifies lenders to ask for more verification to ensure it's you when some applies for credit in your name. How Can I Avoid Late or Missed Payments and Maintain a Good Credit Score? One easy way to keep from missing payments is to set up automatic payments through your bank checking account. What Steps Can I Take to Minimize the Impact of Credit Applications on My Credit Score? If you are rate shopping for a mortgage or other loan, obtain all your quotes within a short time frame. Scoring models typically recognize these for what they are to minimize the impact on your credit score. How Does Credit Utilization Affect My Credit Score, and How Can I Reduce It? Your credit utilization ratio looks at how much of your total available credit you currently use. You can reduce it by paying down your debts or adding more credit accounts.  How Can I Protect Myself From Identity Theft and Fraudulent Activity That May Impact My Credit Score? Freezing your credit file can help protect your credit score by preventing criminals from opening accounts in your name. Also keep a close eye on your credit cards and don't give out your numbers to any person or company you aren't absolutely sure of. Finally, monitor your free credit reports for suspicious activity. The Bottom Line There are several reasons why your credit score could drop. This includes making late payments or missing payments altogether, maxing out your credit cards, or taking out a lot of new credit all at once. Avoiding these situations can help you maintain a good credit score. By doing so, you will keep your credit history strong, which lenders will look favorably upon when you are ready to apply for new credit. Having a solid credit score can also lead to lower car insurance rates, approval for an apartment lease, or landing a new job. 
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https://www.investopedia.com/navy-federal-credit-union-review-5069816
Navy Federal Credit Union Review
<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="comp product-review-content product-review-content--finance product-review--base" id="product-review-content--finance_1-0"> <div class="comp js-toc-appear article-container article-intro mntl-block" id="article-intro_1-0"> <div class="comp product-card" data-tracking-container="true" data-tracking-id="product-card" id="product-card_1-0" style="--imgWidth: 0px"> <div class="product-card__content"> <div class="product-card__intro expert-content"> <figure class="comp figure-article figure-2x1 product-card__image litho-figure-article mntl-universal-primary-image primary-image" id="product-card__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="NFCU" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/Fl7FEhvV5foylAQw2RvQZVXYHws=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/navy-federal-credit-union_3x1-b8655c093c9842b1b79e67273a076a64.png" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDgAFAPEAAAAAAAA3Z2J/pwAAACH5BAEAAAAALAAAAAAOAAUAQQgdAAMAEAigoMGDAxEqHCgwQMOFCRUKOOiwosOFAQEAOw==')" width="1500"/> <noscript> <img alt="NFCU" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/Fl7FEhvV5foylAQw2RvQZVXYHws=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/navy-federal-credit-union_3x1-b8655c093c9842b1b79e67273a076a64.png" width="1500"/> </noscript> </div> </div> </figure><!-- end: comp figure-article figure-2x1 product-card__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp js-sticky-riser-show product-card__cta commerce-block mntl-block" id="product-card__cta_1-0"> <a class="commerce-button mntl-text-link" data-tracking-container="false" href="https://www.navyfederal.org/" id="commerce-button_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp js-sticky-riser-show product-card__cta commerce-block mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.navyfederal.org/" rel="sponsored nofollow">Navy Federal Credit Union</a> is the largest <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> in the world. With nearly 13 million members, it is a force in the banking universe, especially for those who serve or have served in the armed forces.<span class="ql-inline-citation" data-cite="1"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block" data-click-action="Product Tab Click" data-tracking-container="true" data-tracking-id="Full Product Review"> <ul class="tabbed-sc-block__tabs"> <li class="tabbed-sc-block__tab js-tabbed-tab is-active is-initial-load" data-tab-index="1"><span class="tabbed-sc-block__title">Pros &amp; Cons</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="2"><span class="tabbed-sc-block__title">Company Overview</span></li> </ul> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content is-active is-initial-load" data-tab-index="1"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_1-0-2"> <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>Competitive rates on certificates</p></li> <li><p>No monthly fees on most savings and checking accounts</p></li> <li><p>Large fee-free ATM network</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>Small branch network</p></li> <li><p>Strict membership requirements</p></li> <li><p>Low interest rates compared with online banks</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Company Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="2"> <div class="comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block" id="mntl-sc-block_1-0-4"> <div class="comp product-spec-tool definition-list" id="product-spec-tool_1-0"> <ul class="definition-list__container"> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Year Founded</span> <span class="definition-list__item-content definition-list__item-content-0"> 1933 </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Official Website</span> <span class="definition-list__item-content definition-list__item-content-1"> www.navyfederal.org </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Banking Products Offered</span> <span class="definition-list__item-content definition-list__item-content-2"> Savings, checking, certificates, MMA, credit cards </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Customer Service</span> <span class="definition-list__item-content definition-list__item-content-3"> Phone line: 888-842-6328 (Domestic) &amp; 703-255-8837 (International) </span> </span> </li> </ul> </div><!-- end: comp product-spec-tool definition-list --> </div><!-- end: comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block --> </div> </div> </div> </div><!-- end: comp product-card --> </div><!-- end: comp js-toc-appear article-container article-intro mntl-block --> <div class="loc body-content article-container"> <div class="comp article-body article-content mntl-block" id="article-content_1-0"> <div class="comp left-nav js-sticky-container product-review__left-nav mntl-block" id="product-review__left-nav_1-0"> <div class="comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block" data-desktop-bp="54em" data-tracking-container="true" id="product-review__toc_1-0"> <div class="comp sticky-toc-widget__product-container mntl-block" id="sticky-toc-widget__product-container_1-0"> <figure class="comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image" id="sticky-toc-widget__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="NFCU" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/Fl7FEhvV5foylAQw2RvQZVXYHws=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/navy-federal-credit-union_3x1-b8655c093c9842b1b79e67273a076a64.png" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDgAFAPEAAAAAAAA3Z2J/pwAAACH5BAEAAAAALAAAAAAOAAUAQQgdAAMAEAigoMGDAxEqHCgwQMOFCRUKOOiwosOFAQEAOw==')" width="1500"/> <noscript> <img alt="NFCU" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/Fl7FEhvV5foylAQw2RvQZVXYHws=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/navy-federal-credit-union_3x1-b8655c093c9842b1b79e67273a076a64.png" width="1500"/> </noscript> </div> </div> </figure><!-- end: comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp sticky-toc-widget__cta commerce-block mntl-block" id="sticky-toc-widget__cta_1-0"> <a class="commerce-button mntl-text-link" data-tracking-container="false" href="https://www.navyfederal.org/" id="commerce-button_2-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp sticky-toc-widget__cta commerce-block mntl-block --> </div><!-- end: comp sticky-toc-widget__product-container mntl-block --> <div class="comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="sticky-toc-widget__toc_3-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_3-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_3-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_5-0"> Table of Contents</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_3-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="View All" id="mntl-toc-toggle__btn_3-0"> View All</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-Navy Federal Credit Union Review" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_6-0"> Navy Federal Credit Union Review</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_3-0"> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Pros Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pros-explained" id="mntl-toc__list-item-link_3-0" rel="nocaes"><span class="link__wrapper">Pros Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Cons Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-cons-explained" id="mntl-toc__list-item-link_3-0-1" rel="nocaes"><span class="link__wrapper">Cons Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Best For" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-who-is-navy-federal-credit-union-best-for" id="mntl-toc__list-item-link_3-0-2" rel="nocaes"><span class="link__wrapper">Best For</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Bank Offerings" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-what-does-navy-federal-credit-union-offer" id="mntl-toc__list-item-link_3-0-3" rel="nocaes"><span class="link__wrapper">Bank Offerings</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Other Products" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-other-financial-products-offered-by-navy-federal" id="mntl-toc__list-item-link_3-0-4" rel="nocaes"><span class="link__wrapper">Other Products</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-5"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Service" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-navy-federal-customer-service" id="mntl-toc__list-item-link_3-0-5" rel="nocaes"><span class="link__wrapper">Customer Service</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-6"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-6"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How to Bank" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-bank-through-navy-federal-credit-union" id="mntl-toc__list-item-link_3-0-6" rel="nocaes"><span class="link__wrapper">How to Bank</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-7"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-7"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_3-0-7" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block --> </div><!-- end: comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block --> </div><!-- end: comp left-nav js-sticky-container product-review__left-nav mntl-block --> <div class="comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block" data-tracking-container="true" id="product-review__content_1-0"> <span class="heading-toc" id="toc-pros-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0"> <span class="mntl-sc-block-heading__text"> Pros Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-1"> <li><strong>Competitive rates on certificates</strong>: There are four certificate options available through Navy Federal, and many of them offer better rates than found at most national banks.</li><li><strong>No monthly fees on most savings and checking accounts</strong>: Most deposit accounts through Navy Federal have no monthly maintenance fee.</li><li><strong>Large fee-free ATM network</strong>: Navy Federal members have access to more than 30,000 fee-free ATMs.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-cons-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-2"> <span class="mntl-sc-block-heading__text"> Cons Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-3"> <li><strong>Small branch network</strong>: Although it’s the largest credit union, the number of local branches available aren’t as widespread as its members.</li><li><strong>Strict membership requirements</strong>: Many credit unions offer a way to make a donation to charity to gain membership if you don’t meet the other requirements. Navy Federal doesn’t do that.</li><li><strong>Low interest rates compared with online banks</strong>: While some of the available rates might catch your eye, they still don’t compare with the top interest rates found at many online-only banks.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-who-is-navy-federal-credit-union-best-for"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-4"> <span class="mntl-sc-block-heading__text"> Who Is Navy Federal Credit Union Best For? </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-5"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.navyfederal.org/" rel="noopener noreferrer sponsored nofollow">Navy Federal Credit Union</a> is a full-service credit union offering a wide range of products and services. It’s a good fit for customers who: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-6"> <li>Are part of the armed forces or related to someone who is a member</li><li>Want a full-service credit union for all of their banking needs</li><li>Are looking for simple bank accounts that earn interest</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-what-does-navy-federal-credit-union-offer"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-7"> <span class="mntl-sc-block-heading__text"> What Does Navy Federal Credit Union Offer? </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-8"> As the largest credit union in America, Navy Federal Credit Union offers a host of banking products: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-9"> <li>Checking accounts</li> <li>Savings account</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymarketaccount.asp" rel="noopener noreferrer">Money market accounts</a></li> <li>Certificates</li> <li>Credit cards</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-10"> <span class="mntl-sc-block-subheading__text"> Checking Accounts </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-11"> Navy Federal has five checking accounts available currently. Each varies slightly, which means the credit union has an account for almost every need. Three of the checking accounts currently earn a 0.05% annual percentage yield (APY) except Everyday checking, which earns 0.01% and Flagship checking, which earns between 0.35% and 0.45% APY. Here’s a breakdown of each checking option: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-12"> <li><strong>Free Active Duty Checking</strong>: This checking account is designed for both active duty military and retired military. There is no monthly fee with a qualifying military direct deposit. There’s also no minimum balance requirement. Customers get free personalized checks and up to $240 in out-of-network ATM fee reimbursements annually.</li> <li><strong>Free Easy Checking</strong>: This is a simple checking account with no minimum balance requirement and no monthly fee with a qualifying military direct deposit. It comes with up to $120 in out-of-network ATM fee reimbursements annually. </li> <li><strong>Free Campus Checking</strong>: Designed for members ages 14 to 24, this checking account features no monthly fee and no minimum balance requirements. Accounts also come with up to $120 in out-of-network ATM fee reimbursements annually. </li> <li><strong>Free Everyday Checking</strong>: This is a no-frills checking account. It has no monthly fee or minimum balance requirement but not much else.</li> <li><strong>Flagship Checking</strong>: Navy Federal’s premier checking account, Flagship Checking has a $10 monthly fee, which can be waived by keeping an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/averagedailybalance.asp">average daily balance</a> of more than $1,500 each month. It earns up to $120 in out-of-network ATM reimbursements with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/directdeposit.asp">direct deposit</a>. Only balances over $25,000 earn the highest interest rate of 0.45% APY.</li> </ul><!-- 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_2-0-13"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>Interest dividends are credited monthly to all checking accounts.</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 --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-14"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 169px;"></colgroup> <colgroup span="1" style="width: 50px;"></colgroup> <colgroup span="1" style="width: 119px;"></colgroup> <colgroup span="1" style="width: 256px;"></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Navy Federal Credit Union Checking Accounts</th> </tr> </thead> <tbody data-check="-1"> <tr> <td>Account Name</td> <td>Minimum Opening Deposit</td> <td>Monthly Fee</td> <td>Annual Percentage Yield (APY)</td> </tr> <tr> <td>Free Active Duty Checking </td> <td>$0</td> <td>$0</td> <td>0.05%</td> </tr> <tr> <td>Free Easy Checking</td> <td>$0</td> <td>$0</td> <td>0.05%</td> </tr> <tr> <td>Free Campus Checking</td> <td>$0</td> <td>$0</td> <td>0.05%</td> </tr> <tr> <td>Free EveryDay Checking</td> <td>$0</td> <td>$0</td> <td>0.01%</td> </tr> <tr> <td>Flagship Checking </td> <td>$0</td> <td>$10 (if balance below $1,500)</td> <td>Under $10,000: 0.35%; $10,000 to $24,999: 0.40%; $25,000+: 0.45%</td> </tr> </tbody> </table> <figcaption>(As of May 20, 2024)</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-15"> <span class="mntl-sc-block-subheading__text"> Savings Account </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-16"> Navy Federal offers a Membership Share Savings Account, which is required to join the credit union. It is a basic savings account that earns a 0.25% APY. It requires an initial deposit of $5 to open a savings account. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-17"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 237px;"></colgroup> <colgroup span="1" style="width: 95px;"></colgroup> <colgroup span="1" style="width: 88px;"></colgroup> <colgroup span="1" style="width: 50px;"></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Navy Federal Credit Union Share Savings Account</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><strong>Account Name</strong></td> <td><strong>Min Opening Deposit </strong></td> <td><strong>Monthly Fee </strong></td> <td><strong>APY</strong></td> </tr> <tr> <td>Membership Share Savings Account </td> <td>$5</td> <td>$0</td> <td>0.25%</td> </tr> </tbody> </table> <figcaption>(As of May 20, 2024)</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-18"> <span class="mntl-sc-block-subheading__text"> Money Market Accounts </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-19"> There are two money market accounts available through Navy Federal Credit Union: Money Market Savings Account and Jumbo Money Market Savings Account. Both offer competitive rates near <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/111516/5-mistakes-youre-making-money-market-accounts.asp" rel="noopener noreferrer">what’s offered with the best money market accounts</a>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-20"> <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">Navy Federal Money Market Savings Accounts</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Minimum Deposit </b></td> <td><b>APY</b></td> </tr> <tr> <td>$2,500 to $9,999</td> <td>0.95%</td> </tr> <tr> <td>$10,000 to $24,999</td> <td>1.06%</td> </tr> <tr> <td>$25,000 to $49,999</td> <td>1.10%</td> </tr> <tr> <td>$50,000 and over</td> <td>1.50%</td> </tr> </tbody> </table> <figcaption>(As of May 20, 2024)</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-21"> <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">Navy Federal Jumbo Money Market Savings Accounts</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Minimum Deposit </b></td> <td><b>APY</b></td> </tr> <tr> <td>$0 to $99,999</td> <td>0.25%</td> </tr> <tr> <td>$100,000 to $249,999</td> <td>1.65%</td> </tr> <tr> <td>$250,000 to $499,999</td> <td>1.85%</td> </tr> <tr> <td>$500,000 to $999,999</td> <td>2.05%</td> </tr> <tr> <td>$1,000,000 and over</td> <td>2.25%</td> </tr> </tbody> </table> <figcaption>(As of May 20, 2024)</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-22"> <span class="mntl-sc-block-subheading__text"> Certificates of Deposit (CDs) </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-23"> Another popular account option through Navy Federal is its certificates, which are comparable to <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>. There are five CD options available through Navy Federal. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-24"> <li><strong>Standard Certificates</strong>: Navy Federal’s primary certificate has terms from three months to seven years and earns up to a 4.85% APY. To earn the highest interest tier, you’ll need a balance of more than $100,000. It comes with a minimum deposit as low as $1,000.</li><li><strong>Special EasyStart Certificates</strong>: This certificate comes with just one term length: 12 months. It earns up to a 5.30% APY and can be opened for as little as $50. You do need to have a checking account and direct deposit set up to open this certificate, and there’s a $3,000 maximum purchase.</li><li><strong>SaveFirst Account</strong>: This certificate comes with a minimum deposit as low as $5 with terms from three months to five years, earning as much as a 0.40% APY.</li> </ul><!-- 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_2-0-25"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>Standard certificate rates are based on both term length and balance amount. Only accounts with a balance of $100,000 or more <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/navy-federal-cd-rates-7499476">earn the highest interest rates</a>.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-important mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-26"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Navy Federal Standard Certificates</th> </tr> </thead> <tbody data-check="-1"> <tr> <td>Term</td> <td>APY $1K Min</td> <td>APY $20K Min</td> <td>APY $100K Min</td> </tr> <tr> <td>3 Months</td> <td>2.75%</td> <td>2.75%</td> <td>2.80%</td> </tr> <tr> <td>1 Year</td> <td>4.80%</td> <td>4.80%</td> <td>4.85%</td> </tr> <tr> <td>18 Months</td> <td>4.50%</td> <td>4.50%</td> <td>4.55%</td> </tr> <tr> <td>2 Years</td> <td>4.20%</td> <td>4.20%</td> <td>4.25%</td> </tr> <tr> <td>3 Years</td> <td>4.00%</td> <td>4.00%</td> <td>4.05%</td> </tr> <tr> <td>5 Years</td> <td>3.80%</td> <td>3.80%</td> <td>3.85%</td> </tr> <tr> <td>7 Years</td> <td>3.80%</td> <td>3.80%</td> <td>3.85%</td> </tr> </tbody> </table> <figcaption>(As of May 20, 2024)</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-27"> <span class="mntl-sc-block-subheading__text"> Credit Cards </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-28"> Navy Federal Credit Union offers a handful of credit cards too, including several rewards credit cards, a cash back card, and a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/securedcard.asp">secured credit card</a>. Here is the entire list of its offerings: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-29"> <li>cashRewards Card</li><li>Navy Federal More Rewards American Express Card</li><li>Visa Signature Flagship Rewards Card</li><li>Go Rewards Card</li><li>Platinum Card</li><li>nRewards Secured Card</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-other-financial-products-offered-by-navy-federal"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-30"> <span class="mntl-sc-block-heading__text"> Other Financial Products Offered by Navy Federal </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-31"> Navy Federal offers a host of other products and services: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-32"> <li>Retirement savings accounts</li> <li>Money market and jumbo money market accounts</li> <li>Certificates</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coverdellesa.asp">Education Savings Accounts (ESA)</a></li> <li>Education money market accounts</li> <li>Education certificates</li> <li>Prepaid and gift cards</li> <li>Mortgage loans</li> <li>Home Equity Loans (currently suspended)</li> <li>Home Equity Lines of Credit (currently suspended)</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/navy-federal-credit-union-student-loans-review-5069953">Student loans</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/navy-federal-credit-union-personal-loans-review-4844366">Personal loans</a></li> <li>Auto loans</li> <li>Motorcycle, boat, and RV loans</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-navy-federal-customer-service"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-33"> <span class="mntl-sc-block-heading__text"> Navy Federal Customer Service </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-34"> Navy Federal members have access to a wide range of support options from the credit union. Phone support is available 24 hours a day, seven days a week, with options for domestic and international callers: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-35"> <li>Domestic: 888-842-6328</li><li>International: 703-255-8837</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-36"> Other support options include chat, email, mail, and social media channels. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-37"> Navy Federal does give members online and mobile access, which aren’t options at many credit unions. Members can check balances, make payments, transfer money, and order checks from almost anywhere. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-bank-through-navy-federal-credit-union"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-38"> <span class="mntl-sc-block-heading__text"> How to Bank Through Navy Federal Credit Union </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-39"> To bank at Navy Federal requires membership, which isn’t open to everyone. To become a member of Navy Federal, you must be an active duty, retired, or veteran member of the armed forces, which includes: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-40"> <li>Army</li><li>Marine Corps</li><li>Navy</li><li>Air Force</li><li>Coast Guard</li><li>National Guard</li><li>Space Force</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-41"> Family members of military members, including minors, are eligible to become members of the credit union, too. Membership is also an option for the Department of Defense civilians, including retirees and annuitants, and other select citizens. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-42"> You can apply for a membership only on the Navy Federal website or by calling 888-842-6328. You’ll need to have personal information on hand to verify your identity—including your Social Security number, driver's license, or other valid ID—as well as a credit card or bank account routing number to fund your Navy Federal account. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-finalverdict 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_2-0-43"> <span class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"> Verdict</span><!-- end: comp mntl-sc-block-callout-heading mntl-text-block --> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-2"> <p>If you’re someone who is eligible for membership, Navy Federal Credit Union offers enough accounts and services to meet most banking needs. It’s a full-service credit union that rivals national banks. If you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-unions-vs-banks-4590218">prefer a credit union to a bank</a>, Navy Federal may be the best place to keep your savings. It’s not for everyone, though, especially if you don’t qualify for membership. Despite its size, it still doesn’t have enough local branches to offer in-person services to all of its members. You may find better rates on most deposit accounts at an online bank.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-finalverdict mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-44"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-45"> Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks—including products available, interest rates, fees, and accessibility—to ensure that our content helps users make the right decision for their savings and banking needs. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-link-closest-header="false" data-tracking-container="true" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_2-0-46"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="none" data-tracking-container="true" href="https://www.navyfederal.org/" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div><!-- end: comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block --> </div><!-- end: comp article-body article-content mntl-block --> </div> </div><!-- end: comp product-review-content product-review-content--finance product-review--base --> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-1"><p>Navy Federal Credit Union. 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![NFCU](https://www.investopedia.com/thmb/Fl7FEhvV5foylAQw2RvQZVXYHws=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/navy-federal-credit-union_3x1-b8655c093c9842b1b79e67273a076a64.png) ![NFCU](https://www.investopedia.com/thmb/Fl7FEhvV5foylAQw2RvQZVXYHws=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/navy-federal-credit-union_3x1-b8655c093c9842b1b79e67273a076a64.png) [Open Account](https://www.navyfederal.org/) [Navy Federal Credit Union](https://www.navyfederal.org/) is the largest [credit union](https://www.investopedia.com/terms/c/creditunion.asp) in the world. With nearly 13 million members, it is a force in the banking universe, especially for those who serve or have served in the armed forces. * Pros & Cons * Company Overview Pros & Cons Pros * Competitive rates on certificates * No monthly fees on most savings and checking accounts * Large fee-free ATM network Cons * Small branch network * Strict membership requirements * Low interest rates compared with online banks Company Overview * Year Founded 1933 * Official Website www.navyfederal.org * Banking Products Offered Savings, checking, certificates, MMA, credit cards * Customer Service Phone line: 888-842-6328 (Domestic) & 703-255-8837 (International) ![NFCU](https://www.investopedia.com/thmb/Fl7FEhvV5foylAQw2RvQZVXYHws=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/navy-federal-credit-union_3x1-b8655c093c9842b1b79e67273a076a64.png) ![NFCU](https://www.investopedia.com/thmb/Fl7FEhvV5foylAQw2RvQZVXYHws=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/navy-federal-credit-union_3x1-b8655c093c9842b1b79e67273a076a64.png) [Open Account](https://www.navyfederal.org/) Table of Contents View All Navy Federal Credit Union Review * [Pros Explained](#toc-pros-explained) * [Cons Explained](#toc-cons-explained) * [Best For](#toc-who-is-navy-federal-credit-union-best-for) * [Bank Offerings](#toc-what-does-navy-federal-credit-union-offer) * [Other Products](#toc-other-financial-products-offered-by-navy-federal) * [Customer Service](#toc-navy-federal-customer-service) * [How to Bank](#toc-how-to-bank-through-navy-federal-credit-union) * [Methodology](#toc-methodology) ## Pros Explained * **Competitive rates on certificates**: There are four certificate options available through Navy Federal, and many of them offer better rates than found at most national banks. * **No monthly fees on most savings and checking accounts**: Most deposit accounts through Navy Federal have no monthly maintenance fee. * **Large fee-free ATM network**: Navy Federal members have access to more than 30,000 fee-free ATMs. ## Cons Explained * **Small branch network**: Although it’s the largest credit union, the number of local branches available aren’t as widespread as its members. * **Strict membership requirements**: Many credit unions offer a way to make a donation to charity to gain membership if you don’t meet the other requirements. Navy Federal doesn’t do that. * **Low interest rates compared with online banks**: While some of the available rates might catch your eye, they still don’t compare with the top interest rates found at many online-only banks. ## Who Is Navy Federal Credit Union Best For? [Navy Federal Credit Union](https://www.navyfederal.org/) is a full-service credit union offering a wide range of products and services. It’s a good fit for customers who: * Are part of the armed forces or related to someone who is a member * Want a full-service credit union for all of their banking needs * Are looking for simple bank accounts that earn interest ## What Does Navy Federal Credit Union Offer? As the largest credit union in America, Navy Federal Credit Union offers a host of banking products: * Checking accounts * Savings account * [Money market accounts](https://www.investopedia.com/terms/m/moneymarketaccount.asp) * Certificates * Credit cards ### Checking Accounts Navy Federal has five checking accounts available currently. Each varies slightly, which means the credit union has an account for almost every need. Three of the checking accounts currently earn a 0.05% annual percentage yield (APY) except Everyday checking, which earns 0.01% and Flagship checking, which earns between 0.35% and 0.45% APY. Here’s a breakdown of each checking option: * **Free Active Duty Checking**: This checking account is designed for both active duty military and retired military. There is no monthly fee with a qualifying military direct deposit. There’s also no minimum balance requirement. Customers get free personalized checks and up to $240 in out-of-network ATM fee reimbursements annually. * **Free Easy Checking**: This is a simple checking account with no minimum balance requirement and no monthly fee with a qualifying military direct deposit. It comes with up to $120 in out-of-network ATM fee reimbursements annually. * **Free Campus Checking**: Designed for members ages 14 to 24, this checking account features no monthly fee and no minimum balance requirements. Accounts also come with up to $120 in out-of-network ATM fee reimbursements annually. * **Free Everyday Checking**: This is a no-frills checking account. It has no monthly fee or minimum balance requirement but not much else. * **Flagship Checking**: Navy Federal’s premier checking account, Flagship Checking has a $10 monthly fee, which can be waived by keeping an [average daily balance](https://www.investopedia.com/terms/a/averagedailybalance.asp) of more than $1,500 each month. It earns up to $120 in out-of-network ATM reimbursements with [direct deposit](https://www.investopedia.com/terms/d/directdeposit.asp). Only balances over $25,000 earn the highest interest rate of 0.45% APY. Interest dividends are credited monthly to all checking accounts. | Navy Federal Credit Union Checking Accounts | | | | | --- | --- | --- | --- | | Account Name | Minimum Opening Deposit | Monthly Fee | Annual Percentage Yield (APY) | | Free Active Duty Checking | $0 | $0 | 0.05% | | Free Easy Checking | $0 | $0 | 0.05% | | Free Campus Checking | $0 | $0 | 0.05% | | Free EveryDay Checking | $0 | $0 | 0.01% | | Flagship Checking | $0 | $10 (if balance below $1,500) | Under $10,000: 0.35%; $10,000 to $24,999: 0.40%; $25,000+: 0.45% | (As of May 20, 2024) ### Savings Account Navy Federal offers a Membership Share Savings Account, which is required to join the credit union. It is a basic savings account that earns a 0.25% APY. It requires an initial deposit of $5 to open a savings account. | Navy Federal Credit Union Share Savings Account | | | | | --- | --- | --- | --- | | **Account Name** | **Min Opening Deposit** | **Monthly Fee** | **APY** | | Membership Share Savings Account | $5 | $0 | 0.25% | (As of May 20, 2024) ### Money Market Accounts There are two money market accounts available through Navy Federal Credit Union: Money Market Savings Account and Jumbo Money Market Savings Account. Both offer competitive rates near [what’s offered with the best money market accounts](https://www.investopedia.com/articles/personal-finance/111516/5-mistakes-youre-making-money-market-accounts.asp). | Navy Federal Money Market Savings Accounts | | | --- | --- | | **Minimum Deposit** | **APY** | | $2,500 to $9,999 | 0.95% | | $10,000 to $24,999 | 1.06% | | $25,000 to $49,999 | 1.10% | | $50,000 and over | 1.50% | (As of May 20, 2024) | Navy Federal Jumbo Money Market Savings Accounts | | | --- | --- | | **Minimum Deposit** | **APY** | | $0 to $99,999 | 0.25% | | $100,000 to $249,999 | 1.65% | | $250,000 to $499,999 | 1.85% | | $500,000 to $999,999 | 2.05% | | $1,000,000 and over | 2.25% | (As of May 20, 2024) ### Certificates of Deposit (CDs) Another popular account option through Navy Federal is its certificates, which are comparable to [certificates of deposit (CDs)](https://www.investopedia.com/terms/c/certificateofdeposit.asp). There are five CD options available through Navy Federal. * **Standard Certificates**: Navy Federal’s primary certificate has terms from three months to seven years and earns up to a 4.85% APY. To earn the highest interest tier, you’ll need a balance of more than $100,000. It comes with a minimum deposit as low as $1,000. * **Special EasyStart Certificates**: This certificate comes with just one term length: 12 months. It earns up to a 5.30% APY and can be opened for as little as $50. You do need to have a checking account and direct deposit set up to open this certificate, and there’s a $3,000 maximum purchase. * **SaveFirst Account**: This certificate comes with a minimum deposit as low as $5 with terms from three months to five years, earning as much as a 0.40% APY. Standard certificate rates are based on both term length and balance amount. Only accounts with a balance of $100,000 or more [earn the highest interest rates](https://www.investopedia.com/navy-federal-cd-rates-7499476). | Navy Federal Standard Certificates | | | | | --- | --- | --- | --- | | Term | APY $1K Min | APY $20K Min | APY $100K Min | | 3 Months | 2.75% | 2.75% | 2.80% | | 1 Year | 4.80% | 4.80% | 4.85% | | 18 Months | 4.50% | 4.50% | 4.55% | | 2 Years | 4.20% | 4.20% | 4.25% | | 3 Years | 4.00% | 4.00% | 4.05% | | 5 Years | 3.80% | 3.80% | 3.85% | | 7 Years | 3.80% | 3.80% | 3.85% | (As of May 20, 2024) ### Credit Cards Navy Federal Credit Union offers a handful of credit cards too, including several rewards credit cards, a cash back card, and a [secured credit card](https://www.investopedia.com/terms/s/securedcard.asp). Here is the entire list of its offerings: * cashRewards Card * Navy Federal More Rewards American Express Card * Visa Signature Flagship Rewards Card * Go Rewards Card * Platinum Card * nRewards Secured Card ## Other Financial Products Offered by Navy Federal Navy Federal offers a host of other products and services: * Retirement savings accounts * Money market and jumbo money market accounts * Certificates * [Education Savings Accounts (ESA)](https://www.investopedia.com/terms/c/coverdellesa.asp) * Education money market accounts * Education certificates * Prepaid and gift cards * Mortgage loans * Home Equity Loans (currently suspended) * Home Equity Lines of Credit (currently suspended) * [Student loans](https://www.investopedia.com/navy-federal-credit-union-student-loans-review-5069953) * [Personal loans](https://www.investopedia.com/navy-federal-credit-union-personal-loans-review-4844366) * Auto loans * Motorcycle, boat, and RV loans ## Navy Federal Customer Service Navy Federal members have access to a wide range of support options from the credit union. Phone support is available 24 hours a day, seven days a week, with options for domestic and international callers: * Domestic: 888-842-6328 * International: 703-255-8837 Other support options include chat, email, mail, and social media channels. Navy Federal does give members online and mobile access, which aren’t options at many credit unions. Members can check balances, make payments, transfer money, and order checks from almost anywhere. ## How to Bank Through Navy Federal Credit Union To bank at Navy Federal requires membership, which isn’t open to everyone. To become a member of Navy Federal, you must be an active duty, retired, or veteran member of the armed forces, which includes: * Army * Marine Corps * Navy * Air Force * Coast Guard * National Guard * Space Force Family members of military members, including minors, are eligible to become members of the credit union, too. Membership is also an option for the Department of Defense civilians, including retirees and annuitants, and other select citizens. You can apply for a membership only on the Navy Federal website or by calling 888-842-6328. You’ll need to have personal information on hand to verify your identity—including your Social Security number, driver's license, or other valid ID—as well as a credit card or bank account routing number to fund your Navy Federal account. Verdict If you’re someone who is eligible for membership, Navy Federal Credit Union offers enough accounts and services to meet most banking needs. It’s a full-service credit union that rivals national banks. If you [prefer a credit union to a bank](https://www.investopedia.com/credit-unions-vs-banks-4590218), Navy Federal may be the best place to keep your savings. It’s not for everyone, though, especially if you don’t qualify for membership. Despite its size, it still doesn’t have enough local branches to offer in-person services to all of its members. You may find better rates on most deposit accounts at an online bank. ## Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks—including products available, interest rates, fees, and accessibility—to ensure that our content helps users make the right decision for their savings and banking needs. [Open Account](https://www.navyfederal.org/) 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. Navy Federal Credit Union. "[2023 Fact Sheet](https://www.navyfederal.org/content/dam/nfculibs/pdfs/membership/fact-sheet.pdf)." 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Open Account Navy Federal Credit Union is the largest credit union in the world. With nearly 13 million members, it is a force in the banking universe, especially for those who serve or have served in the armed forces. Pros & Cons Company Overview Pros & Cons Pros Competitive rates on certificates No monthly fees on most savings and checking accounts Large fee-free ATM network Cons Small branch network Strict membership requirements Low interest rates compared with online banks Company Overview Year Founded 1933 Official Website www.navyfederal.org Banking Products Offered Savings, checking, certificates, MMA, credit cards Customer Service Phone line: 888-842-6328 (Domestic) & 703-255-8837 (International) Open Account Table of Contents View All Navy Federal Credit Union Review Pros Explained Cons Explained Best For Bank Offerings Other Products Customer Service How to Bank Methodology Pros Explained Competitive rates on certificates: There are four certificate options available through Navy Federal, and many of them offer better rates than found at most national banks.No monthly fees on most savings and checking accounts: Most deposit accounts through Navy Federal have no monthly maintenance fee.Large fee-free ATM network: Navy Federal members have access to more than 30,000 fee-free ATMs. Cons Explained Small branch network: Although it’s the largest credit union, the number of local branches available aren’t as widespread as its members.Strict membership requirements: Many credit unions offer a way to make a donation to charity to gain membership if you don’t meet the other requirements. Navy Federal doesn’t do that.Low interest rates compared with online banks: While some of the available rates might catch your eye, they still don’t compare with the top interest rates found at many online-only banks. Who Is Navy Federal Credit Union Best For? Navy Federal Credit Union is a full-service credit union offering a wide range of products and services. It’s a good fit for customers who: Are part of the armed forces or related to someone who is a memberWant a full-service credit union for all of their banking needsAre looking for simple bank accounts that earn interest What Does Navy Federal Credit Union Offer? As the largest credit union in America, Navy Federal Credit Union offers a host of banking products: Checking accounts Savings account Money market accounts Certificates Credit cards Checking Accounts Navy Federal has five checking accounts available currently. Each varies slightly, which means the credit union has an account for almost every need. Three of the checking accounts currently earn a 0.05% annual percentage yield (APY) except Everyday checking, which earns 0.01% and Flagship checking, which earns between 0.35% and 0.45% APY. Here’s a breakdown of each checking option: Free Active Duty Checking: This checking account is designed for both active duty military and retired military. There is no monthly fee with a qualifying military direct deposit. There’s also no minimum balance requirement. Customers get free personalized checks and up to $240 in out-of-network ATM fee reimbursements annually. Free Easy Checking: This is a simple checking account with no minimum balance requirement and no monthly fee with a qualifying military direct deposit. It comes with up to $120 in out-of-network ATM fee reimbursements annually.  Free Campus Checking: Designed for members ages 14 to 24, this checking account features no monthly fee and no minimum balance requirements. Accounts also come with up to $120 in out-of-network ATM fee reimbursements annually.  Free Everyday Checking: This is a no-frills checking account. It has no monthly fee or minimum balance requirement but not much else. Flagship Checking: Navy Federal’s premier checking account, Flagship Checking has a $10 monthly fee, which can be waived by keeping an average daily balance of more than $1,500 each month. It earns up to $120 in out-of-network ATM reimbursements with direct deposit. Only balances over $25,000 earn the highest interest rate of 0.45% APY. Interest dividends are credited monthly to all checking accounts. Navy Federal Credit Union Checking Accounts Account Name Minimum Opening Deposit Monthly Fee Annual Percentage Yield (APY) Free Active Duty Checking  $0 $0 0.05% Free Easy Checking $0 $0 0.05% Free Campus Checking $0 $0 0.05% Free EveryDay Checking $0 $0 0.01% Flagship Checking  $0 $10 (if balance below $1,500) Under $10,000: 0.35%; $10,000 to $24,999: 0.40%; $25,000+: 0.45% (As of May 20, 2024) Savings Account Navy Federal offers a Membership Share Savings Account, which is required to join the credit union. It is a basic savings account that earns a 0.25% APY. It requires an initial deposit of $5 to open a savings account. Navy Federal Credit Union Share Savings Account Account Name Min Opening Deposit  Monthly Fee  APY Membership Share Savings Account  $5 $0 0.25% (As of May 20, 2024) Money Market Accounts There are two money market accounts available through Navy Federal Credit Union: Money Market Savings Account and Jumbo Money Market Savings Account. Both offer competitive rates near what’s offered with the best money market accounts. Navy Federal Money Market Savings Accounts Minimum Deposit  APY $2,500 to $9,999 0.95% $10,000 to $24,999 1.06% $25,000 to $49,999 1.10% $50,000 and over 1.50% (As of May 20, 2024) Navy Federal Jumbo Money Market Savings Accounts Minimum Deposit  APY $0 to $99,999 0.25% $100,000 to $249,999 1.65% $250,000 to $499,999 1.85% $500,000 to $999,999 2.05% $1,000,000 and over 2.25% (As of May 20, 2024) Certificates of Deposit (CDs) Another popular account option through Navy Federal is its certificates, which are comparable to certificates of deposit (CDs). There are five CD options available through Navy Federal. Standard Certificates: Navy Federal’s primary certificate has terms from three months to seven years and earns up to a 4.85% APY. To earn the highest interest tier, you’ll need a balance of more than $100,000. It comes with a minimum deposit as low as $1,000.Special EasyStart Certificates: This certificate comes with just one term length: 12 months. It earns up to a 5.30% APY and can be opened for as little as $50. You do need to have a checking account and direct deposit set up to open this certificate, and there’s a $3,000 maximum purchase.SaveFirst Account: This certificate comes with a minimum deposit as low as $5 with terms from three months to five years, earning as much as a 0.40% APY. Standard certificate rates are based on both term length and balance amount. Only accounts with a balance of $100,000 or more earn the highest interest rates. Navy Federal Standard Certificates Term APY $1K Min APY $20K Min APY $100K Min 3 Months 2.75% 2.75% 2.80% 1 Year 4.80% 4.80% 4.85% 18 Months 4.50% 4.50% 4.55% 2 Years 4.20% 4.20% 4.25% 3 Years 4.00% 4.00% 4.05% 5 Years 3.80% 3.80% 3.85% 7 Years 3.80% 3.80% 3.85% (As of May 20, 2024) Credit Cards Navy Federal Credit Union offers a handful of credit cards too, including several rewards credit cards, a cash back card, and a secured credit card. Here is the entire list of its offerings: cashRewards CardNavy Federal More Rewards American Express CardVisa Signature Flagship Rewards CardGo Rewards CardPlatinum CardnRewards Secured Card Other Financial Products Offered by Navy Federal Navy Federal offers a host of other products and services: Retirement savings accounts Money market and jumbo money market accounts Certificates Education Savings Accounts (ESA) Education money market accounts Education certificates Prepaid and gift cards Mortgage loans Home Equity Loans (currently suspended) Home Equity Lines of Credit (currently suspended) Student loans Personal loans Auto loans Motorcycle, boat, and RV loans Navy Federal Customer Service Navy Federal members have access to a wide range of support options from the credit union. Phone support is available 24 hours a day, seven days a week, with options for domestic and international callers: Domestic: 888-842-6328International: 703-255-8837 Other support options include chat, email, mail, and social media channels. Navy Federal does give members online and mobile access, which aren’t options at many credit unions. Members can check balances, make payments, transfer money, and order checks from almost anywhere. How to Bank Through Navy Federal Credit Union To bank at Navy Federal requires membership, which isn’t open to everyone. To become a member of Navy Federal, you must be an active duty, retired, or veteran member of the armed forces, which includes: ArmyMarine CorpsNavyAir ForceCoast GuardNational GuardSpace Force Family members of military members, including minors, are eligible to become members of the credit union, too. Membership is also an option for the Department of Defense civilians, including retirees and annuitants, and other select citizens. You can apply for a membership only on the Navy Federal website or by calling 888-842-6328. You’ll need to have personal information on hand to verify your identity—including your Social Security number, driver's license, or other valid ID—as well as a credit card or bank account routing number to fund your Navy Federal account. Verdict If you’re someone who is eligible for membership, Navy Federal Credit Union offers enough accounts and services to meet most banking needs. It’s a full-service credit union that rivals national banks. If you prefer a credit union to a bank, Navy Federal may be the best place to keep your savings. It’s not for everyone, though, especially if you don’t qualify for membership. Despite its size, it still doesn’t have enough local branches to offer in-person services to all of its members. You may find better rates on most deposit accounts at an online bank. Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks—including products available, interest rates, fees, and accessibility—to ensure that our content helps users make the right decision for their savings and banking needs. Open Account 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. Navy Federal Credit Union. "2023 Fact Sheet." Related Articles Regions Bank Review 2024 KeyBank Review 2024 Navy Federal CD Rates: May 2024 Banking M&T Bank Review 2024 Best Free Business Accounts for May 2024
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https://www.investopedia.com/ask/answers/102714/how-do-you-calculate-beta-excel.asp
How Do You Calculate Beta in Excel?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> In financial/investment terminology, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beta.asp">beta</a> is a measurement of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> or risk. Expressed as a numeral, it shows how the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/variance.asp">variance</a> of an asset—anything from an individual <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp">security</a> to an entire <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a>—relates to the <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/covariance.asp">covariance</a> of that <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/what-is-an-asset.asp">asset</a> and the <a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockmarket.asp">stock market</a> (or whatever benchmark is being used) as a whole. Or as a formula: </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"> <span data-value="\begin{aligned}&amp;\beta_p=\frac{Cov(r_p,r_b)}{Var(r_b)}\end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mi> β </mi> <mi> p </mi> </msub> <mo> = </mo> <mfrac> <mrow> <mi> C </mi> <mi> o </mi> <mi> v </mi> <mo> ( </mo> <msub> <mi> r </mi> <mi> p </mi> </msub> <mo> , </mo> <msub> <mi> r </mi> <mi> b </mi> </msub> <mo> ) </mo> </mrow> <mrow> <mi> V </mi> <mi> a </mi> <mi> r </mi> <mo> ( </mo> <msub> <mi> r </mi> <mi> b </mi> </msub> <mo> ) </mo> </mrow> </mfrac> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned}&amp;\beta_p=\frac{Cov(r_p,r_b)}{Var(r_b)}\end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord mathdefault">β</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord mathdefault">V</span><span class="mord mathdefault">a</span><span class="mord mathdefault">r</span><span class="mopen">(</span><span class="mord"><span class="mord mathdefault">r</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">b</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mclose">)</span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord mathdefault">C</span><span class="mord mathdefault">o</span><span class="mord mathdefault">v</span><span class="mopen">(</span><span class="mord"><span class="mord mathdefault">r</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mpunct">,</span><span class="mspace"></span><span class="mord"><span class="mord mathdefault">r</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathdefault mtight">b</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mclose">)</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <span class="heading-toc" id="toc-what-is-beta"></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 Beta? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Let’s break down this definition further. When you have exposure to <em>any </em>market, whether it’s 1% of your funds or 100%, you are exposed to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/systematicrisk.asp">systematic risk</a>. Systematic risk is undiversifiable, measurable, inherent, and unavoidable. The concept of risk is expressed as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/standarddeviation.asp">standard deviation</a> of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp">return</a>. When it comes to past returns—be they up, down, whatever—we want to determine the amount of <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/variance.asp">variance</a> in them. By finding this historical variance, we can estimate future variance. In other words, we are taking the known returns of an asset over some period and using these returns to find the variance over that period. This is the denominator in the calculation of beta. </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"> Next, we need to compare this variance to <em>something.</em> The <em>something</em> is usually “the market.” Although “the market” really means “the entire market” (as in all risk assets in the universe), when most people refer to “the market,” they are typically referring to the U.S. stock market—and, more specifically, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&amp;P 500</a>. In any event, by comparing our asset’s variance to that of “the market,” we can see its inherent amount of risk relative to the overall market’s inherent risk. This measurement is called covariance. This is the numerator in the calculation of beta.  </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"> Interpreting betas is a core component in many financial projections and investment strategies.  </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-calculating-beta-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"> Calculating Beta in Excel </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> It may seem redundant to calculate beta because it’s a widely used and publicly available metric. But there’s one reason to do it manually: the fact that different sources use different time periods in calculating returns. Though beta always involves the measurement of variance and covariance over a period, there is no universal, agreed-upon length of that period. Therefore, one financial vendor may use five years of monthly data (60 periods over five years), while another may use one year of weekly data (52 periods over one year) in coming up with a beta number. The resultant differences in beta may not be huge, but consistency can be crucial in making comparisons.  </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 calculate beta 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>Download historical security prices for the asset whose beta you want to measure.</li><li>Download historical security prices for the comparison benchmark.</li><li>Calculate the percent change period to period for both the asset and the benchmark. If using daily data, it’s each day; for weekly data, it’s each week, etc.</li><li>Find the variance of the benchmark using =VAR.S(all the percent changes of the benchmark).</li><li>Find the covariance of asset to the benchmark using =COVARIANCE.S(all the percent changes of the asset and all the percent changes of the benchmark).</li> </ol> <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-issues-with-beta"></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"> Issues With Beta </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> If something has a beta of 1, then it’s often assumed that asset will go up or down exactly as much as the market. This is definitely a bastardization of the concept. If something has a beta of 1, then it really means that, given a change in the benchmark, its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sensitivity.asp">sensitivity</a> of returns is equal to that of the benchmark.  </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"> What if there aren't daily, weekly, or monthly changes to assess? For example, a rare collection of baseball cards still has a beta, but it cannot be calculated using the above method if the last collector sold it 10 years ago and you get it appraised at today’s value. By using only two data points (purchase price 10 years ago and value today), you would dramatically underestimate the true variance of those returns.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The solution is to calculate a project beta using the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pureplay.asp">pure play</a> method. This method takes the beta of a publicly traded comparable, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unleveredbeta.asp">unlevers</a> it, then re-levers it to match the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalstructure.asp">capital structure</a> of the project.  </p></div>
In financial/investment terminology, [beta](https://www.investopedia.com/terms/b/beta.asp) is a measurement of [volatility](https://www.investopedia.com/terms/v/volatility.asp) or risk. Expressed as a numeral, it shows how the [variance](https://www.investopedia.com/terms/v/variance.asp) of an asset—anything from an individual [security](https://www.investopedia.com/terms/s/security.asp) to an entire [portfolio](https://www.investopedia.com/terms/p/portfolio.asp)—relates to the [covariance](https://www.investopedia.com/terms/c/covariance.asp) of that [asset](https://www.investopedia.com/ask/answers/12/what-is-an-asset.asp) and the [stock market](https://www.investopedia.com/terms/s/stockmarket.asp) (or whatever benchmark is being used) as a whole. Or as a formula: β p = C o v ( r p , r b ) V a r ( r b ) \begin{aligned}&\beta\_p=\frac{Cov(r\_p,r\_b)}{Var(r\_b)}\end{aligned} ​βp​=Var(rb​)Cov(rp​,rb​)​​ ## What Is Beta? Let’s break down this definition further. When you have exposure to *any*market, whether it’s 1% of your funds or 100%, you are exposed to [systematic risk](https://www.investopedia.com/terms/s/systematicrisk.asp). Systematic risk is undiversifiable, measurable, inherent, and unavoidable. The concept of risk is expressed as a [standard deviation](https://www.investopedia.com/terms/s/standarddeviation.asp) of [return](https://www.investopedia.com/terms/r/return.asp). When it comes to past returns—be they up, down, whatever—we want to determine the amount of [variance](https://www.investopedia.com/terms/v/variance.asp) in them. By finding this historical variance, we can estimate future variance. In other words, we are taking the known returns of an asset over some period and using these returns to find the variance over that period. This is the denominator in the calculation of beta. Next, we need to compare this variance to *something.* The *something* is usually “the market.” Although “the market” really means “the entire market” (as in all risk assets in the universe), when most people refer to “the market,” they are typically referring to the U.S. stock market—and, more specifically, the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp). In any event, by comparing our asset’s variance to that of “the market,” we can see its inherent amount of risk relative to the overall market’s inherent risk. This measurement is called covariance. This is the numerator in the calculation of beta.  Interpreting betas is a core component in many financial projections and investment strategies.  ## Calculating Beta in Excel It may seem redundant to calculate beta because it’s a widely used and publicly available metric. But there’s one reason to do it manually: the fact that different sources use different time periods in calculating returns. Though beta always involves the measurement of variance and covariance over a period, there is no universal, agreed-upon length of that period. Therefore, one financial vendor may use five years of monthly data (60 periods over five years), while another may use one year of weekly data (52 periods over one year) in coming up with a beta number. The resultant differences in beta may not be huge, but consistency can be crucial in making comparisons.  To calculate beta in Excel: 1. Download historical security prices for the asset whose beta you want to measure. 2. Download historical security prices for the comparison benchmark. 3. Calculate the percent change period to period for both the asset and the benchmark. If using daily data, it’s each day; for weekly data, it’s each week, etc. 4. Find the variance of the benchmark using =VAR.S(all the percent changes of the benchmark). 5. Find the covariance of asset to the benchmark using =COVARIANCE.S(all the percent changes of the asset and all the percent changes of the benchmark). ## Issues With Beta If something has a beta of 1, then it’s often assumed that asset will go up or down exactly as much as the market. This is definitely a bastardization of the concept. If something has a beta of 1, then it really means that, given a change in the benchmark, its [sensitivity](https://www.investopedia.com/terms/s/sensitivity.asp) of returns is equal to that of the benchmark.  What if there aren't daily, weekly, or monthly changes to assess? For example, a rare collection of baseball cards still has a beta, but it cannot be calculated using the above method if the last collector sold it 10 years ago and you get it appraised at today’s value. By using only two data points (purchase price 10 years ago and value today), you would dramatically underestimate the true variance of those returns.  The solution is to calculate a project beta using the [pure play](https://www.investopedia.com/terms/p/pureplay.asp) method. This method takes the beta of a publicly traded comparable, [unlevers](https://www.investopedia.com/terms/u/unleveredbeta.asp) it, then re-levers it to match the [capital structure](https://www.investopedia.com/terms/c/capitalstructure.asp) of the project. 
In financial/investment terminology, beta is a measurement of volatility or risk. Expressed as a numeral, it shows how the variance of an asset—anything from an individual security to an entire portfolio—relates to the covariance of that asset and the stock market (or whatever benchmark is being used) as a whole. Or as a formula: β p = C o v ( r p , r b ) V a r ( r b ) \begin{aligned}&\beta_p=\frac{Cov(r_p,r_b)}{Var(r_b)}\end{aligned} ​βp​=Var(rb​)Cov(rp​,rb​)​​ What Is Beta? Let’s break down this definition further. When you have exposure to any market, whether it’s 1% of your funds or 100%, you are exposed to systematic risk. Systematic risk is undiversifiable, measurable, inherent, and unavoidable. The concept of risk is expressed as a standard deviation of return. When it comes to past returns—be they up, down, whatever—we want to determine the amount of variance in them. By finding this historical variance, we can estimate future variance. In other words, we are taking the known returns of an asset over some period and using these returns to find the variance over that period. This is the denominator in the calculation of beta. Next, we need to compare this variance to something. The something is usually “the market.” Although “the market” really means “the entire market” (as in all risk assets in the universe), when most people refer to “the market,” they are typically referring to the U.S. stock market—and, more specifically, the S&P 500. In any event, by comparing our asset’s variance to that of “the market,” we can see its inherent amount of risk relative to the overall market’s inherent risk. This measurement is called covariance. This is the numerator in the calculation of beta.  Interpreting betas is a core component in many financial projections and investment strategies.  Calculating Beta in Excel It may seem redundant to calculate beta because it’s a widely used and publicly available metric. But there’s one reason to do it manually: the fact that different sources use different time periods in calculating returns. Though beta always involves the measurement of variance and covariance over a period, there is no universal, agreed-upon length of that period. Therefore, one financial vendor may use five years of monthly data (60 periods over five years), while another may use one year of weekly data (52 periods over one year) in coming up with a beta number. The resultant differences in beta may not be huge, but consistency can be crucial in making comparisons.  To calculate beta in Excel: Download historical security prices for the asset whose beta you want to measure.Download historical security prices for the comparison benchmark.Calculate the percent change period to period for both the asset and the benchmark. If using daily data, it’s each day; for weekly data, it’s each week, etc.Find the variance of the benchmark using =VAR.S(all the percent changes of the benchmark).Find the covariance of asset to the benchmark using =COVARIANCE.S(all the percent changes of the asset and all the percent changes of the benchmark). Issues With Beta If something has a beta of 1, then it’s often assumed that asset will go up or down exactly as much as the market. This is definitely a bastardization of the concept. If something has a beta of 1, then it really means that, given a change in the benchmark, its sensitivity of returns is equal to that of the benchmark.  What if there aren't daily, weekly, or monthly changes to assess? For example, a rare collection of baseball cards still has a beta, but it cannot be calculated using the above method if the last collector sold it 10 years ago and you get it appraised at today’s value. By using only two data points (purchase price 10 years ago and value today), you would dramatically underestimate the true variance of those returns.  The solution is to calculate a project beta using the pure play method. This method takes the beta of a publicly traded comparable, unlevers it, then re-levers it to match the capital structure of the project. 
[ [ "beta", "https://www.investopedia.com/terms/b/beta.asp" ], [ "volatility", "https://www.investopedia.com/terms/v/volatility.asp" ], [ "variance", "https://www.investopedia.com/terms/v/variance.asp" ], [ "security", "https://www.investopedia.com/terms/s/security.asp" ], [ "portfolio", "https://www.investopedia.com/terms/p/portfolio.asp" ], [ "covariance", "https://www.investopedia.com/terms/c/covariance.asp" ], [ "asset", "https://www.investopedia.com/ask/answers/12/what-is-an-asset.asp" ], [ "stock market", "https://www.investopedia.com/terms/s/stockmarket.asp" ], [ "systematic risk", "https://www.investopedia.com/terms/s/systematicrisk.asp" ], [ "standard deviation", "https://www.investopedia.com/terms/s/standarddeviation.asp" ], [ "return", "https://www.investopedia.com/terms/r/return.asp" ], [ "variance", "https://www.investopedia.com/terms/v/variance.asp" ], [ "S&P 500", "https://www.investopedia.com/terms/s/sp500.asp" ], [ "sensitivity", "https://www.investopedia.com/terms/s/sensitivity.asp" ], [ "pure play", "https://www.investopedia.com/terms/p/pureplay.asp" ], [ "unlevers", "https://www.investopedia.com/terms/u/unleveredbeta.asp" ], [ "capital structure", "https://www.investopedia.com/terms/c/capitalstructure.asp" ] ]
https://www.investopedia.com/ask/answers/061215/how-can-i-calculate-expected-return-my-portfolio.asp
How to Calculate Expected Portfolio Return
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 a well-informed investor, you naturally want to know the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expectedreturn.asp">expected return</a> of your portfolio—its anticipated performance and the overall profit or loss it's racking up. Expected return is just that: expected. It is not guaranteed, as it is based on historical returns and used to generate expectations, but it is not a prediction. </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 expected return of a portfolio will depend on the expected returns of the individual securities within the portfolio on a weighted-average basis. A well-diversified portfolio will therefore need to take into account the expected returns of several assets. </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>To calculate a portfolio's expected return, an investor needs to calculate the expected return of each of its holdings, as well as the overall weight of each holding.</li><li>The basic expected return formula involves multiplying each asset's weight in the portfolio by its expected return, then adding all those figures together.</li><li>In other words, a portfolio's expected return is the weighted average of its individual components' returns.</li><li>The expected return is usually based on historical data and is therefore not guaranteed.</li><li>The standard deviation or riskiness of a portfolio is not as straightforward of a calculation as its expected return.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-to-calculate-expected-return"></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 Calculate Expected Return </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> To <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/072715/how-do-i-calculate-expected-return-my-portfolio-excel.asp">calculate</a> the expected return of a portfolio, the investor needs to know the expected return of each of the securities in their portfolio as well as the overall weight of each security in the portfolio. That means the investor needs to add up the weighted averages of each security's anticipated <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rateofreturn.asp">rates of return (RoR)</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"> An investor bases the estimates of the expected return of a security on the assumption that what has been proven true in the past will continue to be proven true in the future. The investor does not use a structural view of the market to calculate the expected return. Instead, they find the weight of each security in the portfolio by taking the value of each of the securities and dividing it by the total value of the security. </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"> Once the expected return of each security is known and the weight of each security has been calculated, an investor simply multiplies the expected return of each security by the weight of the same security and adds up the product of each security. </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-formula-for-expected-return"></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"> Formula for Expected Return </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Let's say your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a> contains three securities. The equation for its expected return is as follows:<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <blockquote class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <em>Ep = w<sub>1</sub>E<sub>1 </sub>+ w<sub>2</sub>E<sub>2</sub> + w<sub>3</sub>E<sub>3</sub></em> </blockquote> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> where: w<sub>n</sub> refers to the portfolio weight of each asset and E<sub>n </sub>its expected return. </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 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 portfolio's expected return and its standard deviation (i.e., its risk) are used together in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/modernportfoliotheory.asp">modern portfolio theory (MPT)</a>. In particular, it uses a process of mean-variance optimization (MVO) to provide the best asset allocations that maximize expected return for a given level of risk (or, alternatively minimize the risk for a given expected return).<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-limitations-of-expected-return"></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"> Limitations of Expected Return </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Since the market is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatile</a> and unpredictable, calculating the expected return of a security is more guesswork than definite. So it could cause inaccuracy in the resultant expected return of the overall portfolio. </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"> Expected returns do not paint a complete picture, so making investment decisions based on them alone can be dangerous. For instance, expected returns do not take volatility into account. Securities that range from high gains to losses from year to year can have the same expected returns as steady ones that stay in a lower range. And as expected returns are backward-looking, they do not factor in current market conditions, political and economic climate, legal and regulatory changes, and other elements. </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-do-i-calculate-the-standard-deviation-of-a-portfolio"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Calculate the Standard Deviation of a Portfolio?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The standard deviation of a portfolio is a proxy for its risk level. Unlike the straightforward weighted average calculation for portfolio expected return, portfolio standard deviation must take into account the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/correlationcoefficient.asp">correlations</a> between each asset class. The implication is that adding uncorrelated assets to a portfolio can result in a higher expected return at the same time it lowers portfolio risk. As a result, the calculation can quickly become complex and cumbersome as more assets are added. For a 2-asset portfolio, the formula for its standard deviation is:</p><p><em>σ = (w<sub>1</sub><sup>2</sup>σ<sub>1</sub><sup>2 </sup>+ w<sub>2</sub><sup>2</sup>σ<sub>2</sub><sup>2 </sup>+ 2w<sub>1</sub>w<sub>2</sub>Cov<sub>1,2</sub>)<sup>1/2</sup></em></p><p>where: w<sub>n </sub>is the portfolio weight of either asset, <em>σ<sub>n</sub><sup>2 </sup>its variance, and Cov<sub>1,2, </sub></em>the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/covariance.asp">covariance</a> between the two assets.</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-how-can-i-find-the-expected-return-of-a-portfolio"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Find the Expected Return of a Portfolio?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some online brokers or certain financial advisors may be able to provide you with your portfolio's standard deviation at a glance, as it is automatically calculated via software in the background. To compute it by hand, you simply need to work out the weighted average of the expected returns of each individual holding.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_32-0"><span class="heading-toc" id="toc-what-is-the-excel-formula-for-investment-portfolio-returns"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Excel Formula for Investment Portfolio Returns?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Excel can quickly compute the expected return of a portfolio using the same basic formula.</p><ul><li>Enter the current value and expected rate of return for each investment.</li><li>Indicate the weight of each investment.</li><li>Multiply the weight by its expected return</li><li>Sum these all up</li></ul></div> </div></div>
As a well-informed investor, you naturally want to know the [expected return](https://www.investopedia.com/terms/e/expectedreturn.asp) of your portfolio—its anticipated performance and the overall profit or loss it's racking up. Expected return is just that: expected. It is not guaranteed, as it is based on historical returns and used to generate expectations, but it is not a prediction. The expected return of a portfolio will depend on the expected returns of the individual securities within the portfolio on a weighted-average basis. A well-diversified portfolio will therefore need to take into account the expected returns of several assets. ### Key Takeaways * To calculate a portfolio's expected return, an investor needs to calculate the expected return of each of its holdings, as well as the overall weight of each holding. * The basic expected return formula involves multiplying each asset's weight in the portfolio by its expected return, then adding all those figures together. * In other words, a portfolio's expected return is the weighted average of its individual components' returns. * The expected return is usually based on historical data and is therefore not guaranteed. * The standard deviation or riskiness of a portfolio is not as straightforward of a calculation as its expected return. ## How to Calculate Expected Return To [calculate](https://www.investopedia.com/ask/answers/072715/how-do-i-calculate-expected-return-my-portfolio-excel.asp) the expected return of a portfolio, the investor needs to know the expected return of each of the securities in their portfolio as well as the overall weight of each security in the portfolio. That means the investor needs to add up the weighted averages of each security's anticipated [rates of return (RoR)](https://www.investopedia.com/terms/r/rateofreturn.asp). An investor bases the estimates of the expected return of a security on the assumption that what has been proven true in the past will continue to be proven true in the future. The investor does not use a structural view of the market to calculate the expected return. Instead, they find the weight of each security in the portfolio by taking the value of each of the securities and dividing it by the total value of the security. Once the expected return of each security is known and the weight of each security has been calculated, an investor simply multiplies the expected return of each security by the weight of the same security and adds up the product of each security. ## Formula for Expected Return Let's say your [portfolio](https://www.investopedia.com/terms/p/portfolio.asp) contains three securities. The equation for its expected return is as follows: > *Ep = w1E1 + w2E2 + w3E3* where: wn refers to the portfolio weight of each asset and En its expected return. ### A portfolio's expected return and its standard deviation (i.e., its risk) are used together in [modern portfolio theory (MPT)](https://www.investopedia.com/terms/m/modernportfoliotheory.asp). In particular, it uses a process of mean-variance optimization (MVO) to provide the best asset allocations that maximize expected return for a given level of risk (or, alternatively minimize the risk for a given expected return). ## Limitations of Expected Return Since the market is [volatile](https://www.investopedia.com/terms/v/volatility.asp) and unpredictable, calculating the expected return of a security is more guesswork than definite. So it could cause inaccuracy in the resultant expected return of the overall portfolio. Expected returns do not paint a complete picture, so making investment decisions based on them alone can be dangerous. For instance, expected returns do not take volatility into account. Securities that range from high gains to losses from year to year can have the same expected returns as steady ones that stay in a lower range. And as expected returns are backward-looking, they do not factor in current market conditions, political and economic climate, legal and regulatory changes, and other elements. ## How Do I Calculate the Standard Deviation of a Portfolio? The standard deviation of a portfolio is a proxy for its risk level. Unlike the straightforward weighted average calculation for portfolio expected return, portfolio standard deviation must take into account the [correlations](https://www.investopedia.com/terms/c/correlationcoefficient.asp) between each asset class. The implication is that adding uncorrelated assets to a portfolio can result in a higher expected return at the same time it lowers portfolio risk. As a result, the calculation can quickly become complex and cumbersome as more assets are added. For a 2-asset portfolio, the formula for its standard deviation is: *σ = (w12σ12+ w22σ22+ 2w1w2Cov1,2)1/2* where: wn is the portfolio weight of either asset, *σn2 its variance, and Cov1,2,* the [covariance](https://www.investopedia.com/terms/c/covariance.asp) between the two assets. ## How Can I Find the Expected Return of a Portfolio? Some online brokers or certain financial advisors may be able to provide you with your portfolio's standard deviation at a glance, as it is automatically calculated via software in the background. To compute it by hand, you simply need to work out the weighted average of the expected returns of each individual holding. ## What Is the Excel Formula for Investment Portfolio Returns? Excel can quickly compute the expected return of a portfolio using the same basic formula. * Enter the current value and expected rate of return for each investment. * Indicate the weight of each investment. * Multiply the weight by its expected return * Sum these all up
As a well-informed investor, you naturally want to know the expected return of your portfolio—its anticipated performance and the overall profit or loss it's racking up. Expected return is just that: expected. It is not guaranteed, as it is based on historical returns and used to generate expectations, but it is not a prediction. The expected return of a portfolio will depend on the expected returns of the individual securities within the portfolio on a weighted-average basis. A well-diversified portfolio will therefore need to take into account the expected returns of several assets. Key Takeaways To calculate a portfolio's expected return, an investor needs to calculate the expected return of each of its holdings, as well as the overall weight of each holding.The basic expected return formula involves multiplying each asset's weight in the portfolio by its expected return, then adding all those figures together.In other words, a portfolio's expected return is the weighted average of its individual components' returns.The expected return is usually based on historical data and is therefore not guaranteed.The standard deviation or riskiness of a portfolio is not as straightforward of a calculation as its expected return. How to Calculate Expected Return To calculate the expected return of a portfolio, the investor needs to know the expected return of each of the securities in their portfolio as well as the overall weight of each security in the portfolio. That means the investor needs to add up the weighted averages of each security's anticipated rates of return (RoR). An investor bases the estimates of the expected return of a security on the assumption that what has been proven true in the past will continue to be proven true in the future. The investor does not use a structural view of the market to calculate the expected return. Instead, they find the weight of each security in the portfolio by taking the value of each of the securities and dividing it by the total value of the security. Once the expected return of each security is known and the weight of each security has been calculated, an investor simply multiplies the expected return of each security by the weight of the same security and adds up the product of each security. Formula for Expected Return Let's say your portfolio contains three securities. The equation for its expected return is as follows: Ep = w1E1 + w2E2 + w3E3 where: wn refers to the portfolio weight of each asset and En its expected return. A portfolio's expected return and its standard deviation (i.e., its risk) are used together in modern portfolio theory (MPT). In particular, it uses a process of mean-variance optimization (MVO) to provide the best asset allocations that maximize expected return for a given level of risk (or, alternatively minimize the risk for a given expected return). Limitations of Expected Return Since the market is volatile and unpredictable, calculating the expected return of a security is more guesswork than definite. So it could cause inaccuracy in the resultant expected return of the overall portfolio. Expected returns do not paint a complete picture, so making investment decisions based on them alone can be dangerous. For instance, expected returns do not take volatility into account. Securities that range from high gains to losses from year to year can have the same expected returns as steady ones that stay in a lower range. And as expected returns are backward-looking, they do not factor in current market conditions, political and economic climate, legal and regulatory changes, and other elements. How Do I Calculate the Standard Deviation of a Portfolio? The standard deviation of a portfolio is a proxy for its risk level. Unlike the straightforward weighted average calculation for portfolio expected return, portfolio standard deviation must take into account the correlations between each asset class. The implication is that adding uncorrelated assets to a portfolio can result in a higher expected return at the same time it lowers portfolio risk. As a result, the calculation can quickly become complex and cumbersome as more assets are added. For a 2-asset portfolio, the formula for its standard deviation is:σ = (w12σ12 + w22σ22 + 2w1w2Cov1,2)1/2where: wn is the portfolio weight of either asset, σn2 its variance, and Cov1,2, the covariance between the two assets. How Can I Find the Expected Return of a Portfolio? Some online brokers or certain financial advisors may be able to provide you with your portfolio's standard deviation at a glance, as it is automatically calculated via software in the background. To compute it by hand, you simply need to work out the weighted average of the expected returns of each individual holding. What Is the Excel Formula for Investment Portfolio Returns? Excel can quickly compute the expected return of a portfolio using the same basic formula.Enter the current value and expected rate of return for each investment.Indicate the weight of each investment.Multiply the weight by its expected returnSum these all up
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https://www.investopedia.com/articles/forex/11/golds-effect-currencies.asp
How Gold Affects Currencies
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Ah, the enduring appeal—and influence—of gold. Even though it is no longer used as a primary form of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency.asp" rel="noopener noreferrer">currency</a> in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/developed-economy.asp" rel="noopener noreferrer">developed</a> nations, the yellow metal continues to have a strong impact on the value of those currencies. Moreover, there is a strong correlation between its value and the strength of currencies trading on <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreign-exchange.asp" rel="noopener noreferrer">foreign exchanges</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> To help illustrate this relationship between gold and foreign exchange trading, consider these five important features of the yellow stuff: </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>Throughout human history, gold has been used as a money form in one way or another.</li><li>From gold coins to paper notes backed by the gold standard, only recently has money moved to a fiat system that is not backed by a physical commodity.</li><li>Since then, inflation and a declining dollar have meant rising gold prices. By purchasing gold, people can also shelter themselves from times of global economic uncertainty.</li><li>Gold levels may also influence national economies engaged in global trade and international finance.</li></ul><p><br/></p></div></div></div> <span class="heading-toc" id="toc-gold-was-once-used-to-back-up-currencies"></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"> Gold Was Once Used to Back up Currencies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> As early as the Byzantine Empire, gold was used to support national currencies—that is, those considered legal tender in their nation of origin. Gold was also used as the world <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reservecurrency.asp">reserve currency</a> up through most of the 20th century; the United States used the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/goldstandard.asp">gold standard</a> until 1971 when President Nixon discontinued it.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Until the gold standard was abandoned, countries couldn't simply print their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiatmoney.asp">fiat currencies</a> <em>ad nauseam. </em>The paper money had to be backed up by an equal amount of gold in their reserves (then, as now, countries kept supplies of gold <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bullion.asp">bullion</a> on hand). Although the gold standard has long fallen out of in the developed world, some economists feel we should return to it due to the volatility of the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/u/usd-united-states-dollar.asp">U.S. dollar</a> and other currencies; they like that it limited the amount of money nations were allowed to print. </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-used-to-hedge-against-inflation"></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 Used to Hedge Against Inflation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">Investors</a> typically buy large quantities of gold when their country is experiencing high levels of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a>. The demand for gold increases during inflationary times due to its inherent value and limited <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/supply.asp">supply</a>. As it cannot be diluted, gold is able to retain value much better than other forms of currency. </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, in April 2011, investors feared declining values of fiat currency and drove the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/031915/what-moves-gold-prices.asp">price of gold</a> to a staggering $1,500 an ounce.<span class="ql-inline-citation" data-cite="2"></span> This indicates there was little confidence in the currencies on the world market and that expectations of future economic stability were grim. </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>Note that economists are split over whether gold has proved to be as good of an inflation hedge as its promoters claim, since the data is inconsistent. Sometimes exceeding the inflation rate, and sometimes falling well short over periods of time. gold has been shown to be a much more effective hedge against economic downturns.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-the-price-of-gold-affects-countries-that-import-and-export-it"></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 Price of Gold Affects Countries That Import and Export It </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The value of a nation's currency is strongly tied to the value of its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/import.asp">imports</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/export.asp">exports</a>. When a country imports more than it exports, the value of its currency will decline. On the other hand, the value of its currency will increase when a country is a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/netexporter.asp">net exporter</a>. Thus, a country that exports gold or has access to gold reserves will see an increase in the strength of its currency when <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0311/what-drives-the-price-of-gold.aspx">gold prices</a> increase, since this increases the value of the country's total exports. </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 other words, an increase in the price of gold can create a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trade-surplus.asp">trade surplus</a> or help offset a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trade_deficit.asp">trade deficit</a>. </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"> Conversely, countries that are large importers of gold will inevitably end up having a weaker currency when the price of gold rises. For example, countries that specialize in producing products made with gold, but lack their own reserves, will be large importers of gold. Thus, they will be particularly susceptible to increases in the price of gold. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> When <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/centralbank.asp">central banks</a> purchase gold, it affects the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/11/intro-supply-demand.asp">supply and demand</a> of the domestic currency and may result in inflation. This is largely due to the fact that banks rely on printing more money to buy gold, thereby creating an excess supply of fiat currency. </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-gold-prices-are-often-used-to-measure-the-value-of-a-local-currency"></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"> Gold Prices Are Often Used to Measure the Value of a Local Currency </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Many people mistakenly use gold as a definitive <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/proxy.asp">proxy</a> for valuing a country's currency. Although there is undoubtedly a relationship between gold prices and the value of a fiat currency, it is not always an inverse relationship as many people assume. </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 example, if there is a high demand from an industry that requires gold for production, it will cause gold prices to rise. But this will say nothing about the local currency, which may very well be highly valued at the same time. Thus, while the price of gold can often be used as a reflection of the value of the U.S. dollar, or any currency, conditions need to be analyzed to determine if an inverse relationship is indeed appropriate. </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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Gold has a profound impact on the value of world currencies. Even though the gold standard has been abandoned, gold as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodity.asp">commodity</a> can act as a substitute for fiat currencies and be used as an effective <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp">hedge</a> against inflation. There is no doubt that gold will continue to play an integral role in the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/f/foreign-exchange-markets.asp">foreign exchange markets</a>. Therefore, it is an important metal to follow and analyze for its unique ability to represent the health of both local and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/061115/what-are-advantages-and-disadvantages-international-monetary-fund.asp">international economies</a>. </p></div>
Ah, the enduring appeal—and influence—of gold. Even though it is no longer used as a primary form of [currency](https://www.investopedia.com/terms/c/currency.asp) in [developed](https://www.investopedia.com/terms/d/developed-economy.asp) nations, the yellow metal continues to have a strong impact on the value of those currencies. Moreover, there is a strong correlation between its value and the strength of currencies trading on [foreign exchanges](https://www.investopedia.com/terms/f/foreign-exchange.asp). To help illustrate this relationship between gold and foreign exchange trading, consider these five important features of the yellow stuff: ### Key Takeaways * Throughout human history, gold has been used as a money form in one way or another. * From gold coins to paper notes backed by the gold standard, only recently has money moved to a fiat system that is not backed by a physical commodity. * Since then, inflation and a declining dollar have meant rising gold prices. By purchasing gold, people can also shelter themselves from times of global economic uncertainty. * Gold levels may also influence national economies engaged in global trade and international finance. ## Gold Was Once Used to Back up Currencies As early as the Byzantine Empire, gold was used to support national currencies—that is, those considered legal tender in their nation of origin. Gold was also used as the world [reserve currency](https://www.investopedia.com/terms/r/reservecurrency.asp) up through most of the 20th century; the United States used the [gold standard](https://www.investopedia.com/terms/g/goldstandard.asp) until 1971 when President Nixon discontinued it. Until the gold standard was abandoned, countries couldn't simply print their [fiat currencies](https://www.investopedia.com/terms/f/fiatmoney.asp) *ad nauseam.* The paper money had to be backed up by an equal amount of gold in their reserves (then, as now, countries kept supplies of gold [bullion](https://www.investopedia.com/terms/b/bullion.asp) on hand). Although the gold standard has long fallen out of in the developed world, some economists feel we should return to it due to the volatility of the [U.S. dollar](https://www.investopedia.com/terms/forex/u/usd-united-states-dollar.asp) and other currencies; they like that it limited the amount of money nations were allowed to print. ## Gold Used to Hedge Against Inflation [Investors](https://www.investopedia.com/terms/i/investor.asp) typically buy large quantities of gold when their country is experiencing high levels of [inflation](https://www.investopedia.com/terms/i/inflation.asp). The demand for gold increases during inflationary times due to its inherent value and limited [supply](https://www.investopedia.com/terms/s/supply.asp). As it cannot be diluted, gold is able to retain value much better than other forms of currency. For example, in April 2011, investors feared declining values of fiat currency and drove the [price of gold](https://www.investopedia.com/articles/active-trading/031915/what-moves-gold-prices.asp) to a staggering $1,500 an ounce. This indicates there was little confidence in the currencies on the world market and that expectations of future economic stability were grim. ### Note that economists are split over whether gold has proved to be as good of an inflation hedge as its promoters claim, since the data is inconsistent. Sometimes exceeding the inflation rate, and sometimes falling well short over periods of time. gold has been shown to be a much more effective hedge against economic downturns. ## The Price of Gold Affects Countries That Import and Export It The value of a nation's currency is strongly tied to the value of its [imports](https://www.investopedia.com/terms/i/import.asp) and [exports](https://www.investopedia.com/terms/e/export.asp). When a country imports more than it exports, the value of its currency will decline. On the other hand, the value of its currency will increase when a country is a [net exporter](https://www.investopedia.com/terms/n/netexporter.asp). Thus, a country that exports gold or has access to gold reserves will see an increase in the strength of its currency when [gold prices](https://www.investopedia.com/financial-edge/0311/what-drives-the-price-of-gold.aspx) increase, since this increases the value of the country's total exports. In other words, an increase in the price of gold can create a [trade surplus](https://www.investopedia.com/terms/t/trade-surplus.asp) or help offset a [trade deficit](https://www.investopedia.com/terms/t/trade_deficit.asp). Conversely, countries that are large importers of gold will inevitably end up having a weaker currency when the price of gold rises. For example, countries that specialize in producing products made with gold, but lack their own reserves, will be large importers of gold. Thus, they will be particularly susceptible to increases in the price of gold. When [central banks](https://www.investopedia.com/terms/c/centralbank.asp) purchase gold, it affects the [supply and demand](https://www.investopedia.com/articles/economics/11/intro-supply-demand.asp) of the domestic currency and may result in inflation. This is largely due to the fact that banks rely on printing more money to buy gold, thereby creating an excess supply of fiat currency. ## Gold Prices Are Often Used to Measure the Value of a Local Currency Many people mistakenly use gold as a definitive [proxy](https://www.investopedia.com/terms/p/proxy.asp) for valuing a country's currency. Although there is undoubtedly a relationship between gold prices and the value of a fiat currency, it is not always an inverse relationship as many people assume. For example, if there is a high demand from an industry that requires gold for production, it will cause gold prices to rise. But this will say nothing about the local currency, which may very well be highly valued at the same time. Thus, while the price of gold can often be used as a reflection of the value of the U.S. dollar, or any currency, conditions need to be analyzed to determine if an inverse relationship is indeed appropriate. ## The Bottom Line Gold has a profound impact on the value of world currencies. Even though the gold standard has been abandoned, gold as a [commodity](https://www.investopedia.com/terms/c/commodity.asp) can act as a substitute for fiat currencies and be used as an effective [hedge](https://www.investopedia.com/terms/h/hedge.asp) against inflation. There is no doubt that gold will continue to play an integral role in the [foreign exchange markets](https://www.investopedia.com/terms/forex/f/foreign-exchange-markets.asp). Therefore, it is an important metal to follow and analyze for its unique ability to represent the health of both local and [international economies](https://www.investopedia.com/ask/answers/061115/what-are-advantages-and-disadvantages-international-monetary-fund.asp).
Ah, the enduring appeal—and influence—of gold. Even though it is no longer used as a primary form of currency in developed nations, the yellow metal continues to have a strong impact on the value of those currencies. Moreover, there is a strong correlation between its value and the strength of currencies trading on foreign exchanges. To help illustrate this relationship between gold and foreign exchange trading, consider these five important features of the yellow stuff: Key Takeaways Throughout human history, gold has been used as a money form in one way or another.From gold coins to paper notes backed by the gold standard, only recently has money moved to a fiat system that is not backed by a physical commodity.Since then, inflation and a declining dollar have meant rising gold prices. By purchasing gold, people can also shelter themselves from times of global economic uncertainty.Gold levels may also influence national economies engaged in global trade and international finance. Gold Was Once Used to Back up Currencies As early as the Byzantine Empire, gold was used to support national currencies—that is, those considered legal tender in their nation of origin. Gold was also used as the world reserve currency up through most of the 20th century; the United States used the gold standard until 1971 when President Nixon discontinued it. Until the gold standard was abandoned, countries couldn't simply print their fiat currencies ad nauseam. The paper money had to be backed up by an equal amount of gold in their reserves (then, as now, countries kept supplies of gold bullion on hand). Although the gold standard has long fallen out of in the developed world, some economists feel we should return to it due to the volatility of the U.S. dollar and other currencies; they like that it limited the amount of money nations were allowed to print. Gold Used to Hedge Against Inflation Investors typically buy large quantities of gold when their country is experiencing high levels of inflation. The demand for gold increases during inflationary times due to its inherent value and limited supply. As it cannot be diluted, gold is able to retain value much better than other forms of currency. For example, in April 2011, investors feared declining values of fiat currency and drove the price of gold to a staggering $1,500 an ounce. This indicates there was little confidence in the currencies on the world market and that expectations of future economic stability were grim. Note that economists are split over whether gold has proved to be as good of an inflation hedge as its promoters claim, since the data is inconsistent. Sometimes exceeding the inflation rate, and sometimes falling well short over periods of time. gold has been shown to be a much more effective hedge against economic downturns. The Price of Gold Affects Countries That Import and Export It The value of a nation's currency is strongly tied to the value of its imports and exports. When a country imports more than it exports, the value of its currency will decline. On the other hand, the value of its currency will increase when a country is a net exporter. Thus, a country that exports gold or has access to gold reserves will see an increase in the strength of its currency when gold prices increase, since this increases the value of the country's total exports. In other words, an increase in the price of gold can create a trade surplus or help offset a trade deficit. Conversely, countries that are large importers of gold will inevitably end up having a weaker currency when the price of gold rises. For example, countries that specialize in producing products made with gold, but lack their own reserves, will be large importers of gold. Thus, they will be particularly susceptible to increases in the price of gold. When central banks purchase gold, it affects the supply and demand of the domestic currency and may result in inflation. This is largely due to the fact that banks rely on printing more money to buy gold, thereby creating an excess supply of fiat currency. Gold Prices Are Often Used to Measure the Value of a Local Currency Many people mistakenly use gold as a definitive proxy for valuing a country's currency. Although there is undoubtedly a relationship between gold prices and the value of a fiat currency, it is not always an inverse relationship as many people assume. For example, if there is a high demand from an industry that requires gold for production, it will cause gold prices to rise. But this will say nothing about the local currency, which may very well be highly valued at the same time. Thus, while the price of gold can often be used as a reflection of the value of the U.S. dollar, or any currency, conditions need to be analyzed to determine if an inverse relationship is indeed appropriate. The Bottom Line Gold has a profound impact on the value of world currencies. Even though the gold standard has been abandoned, gold as a commodity can act as a substitute for fiat currencies and be used as an effective hedge against inflation. There is no doubt that gold will continue to play an integral role in the foreign exchange markets. Therefore, it is an important metal to follow and analyze for its unique ability to represent the health of both local and international economies.
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https://www.investopedia.com/intel-extends-losses-as-analysts-say-chipmaker-faces-more-headwinds-than-tailwinds-8624141
Intel Extends Losses as Analysts Say Chipmaker Faces 'More Headwinds Than Tailwinds'
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Intel shares tumbled Wednesday, a day after the company disclosed a widening loss in its foundry segment, with analysts saying they see more headwinds than tailwinds in the first half of this year. </li><li>Intel reported that its foundry segment generated an operating loss of nearly $7 billion in 2023, up from a $5.17 billion loss in 2022, and suggested it could take longer to break even than previously anticipated.</li><li>The chipmaker is set to report first-quarter earnings later this month on April 25, which could provide investors with additional clarity on the company's financials and outlook.<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"> Intel (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=intc">INTC</a>) shares tumbled over 7% in intraday trading Wednesday, extending losses a day after the chipmaker reported a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/intel-stock-drops-as-loss-widens-sales-decline-in-chipmakers-foundry-business-8623971">widening loss in its foundry business</a>, with analysts saying they see "more headwinds than tailwinds" for the chipmaker in the first half of this 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_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Intel reported Tuesday that its foundry or semiconductor manufacturing segment generated an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/operating-loss.asp">operating loss</a> of nearly $7 billion in 2023, widening from a loss of $5.17 billion in 2022.<span class="ql-inline-citation" data-cite="1"></span> Its revenue at $18.91 billion in 2023 was lower than 2022's $27.5 billion in sales. Intel suggested it could take until 2030 for the foundry business to reach break-even operating margins, longer than many investors anticipated.<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_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> "It was not pretty," Rosenblatt analysts said, "but we applaud management for the chutzpah to admit that the Foundry business will take years to scale properly."<span class="ql-inline-citation" data-cite="9"></span> It was the first time Intel reported revenue totals for its foundry business alone, as part of the company's transition strategy to operating its foundry business as a more independent 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_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Wedbush analysts pointed to concerns "around Intel's ambition to achieve 60% GM/40% OM in 2030," noting "while the target echoes Intel's prior long-term model, the timing is 3-4 years subsequent to Intel's prior expectation." </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"> Company executives had <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/4-key-takeaways-from-intel-s-earnings-call-8550093">previously indicated</a> that the company anticipated "peak startup costs in 2024" and that the majority of revenue would be realized in 2025 for the foundry segment. </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"> Analysts also raised concerns that Intel could miss the "current semiconductor AI/up cycle" as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI)</a> boom boosts other semiconductor stocks like <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nvidia-stock-had-a-blockbuster-q1-amid-ai-driven-frenzy-8622011">Nvidia</a> (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda">NVDA</a>) and Advanced Micro Devices (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amd">AMD</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"> Bank of America analysts said that "competition (vs. NVDA, AMD, AVGO, TSMC, Samsung) remains tough and INTC's topline still depends significantly on legacy/low-growth PC and traditional server CPU markets exposed to longer replacement cycles and challenged by emerging ARM-based rivals."<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_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The company is expected to report earnings for the first quarter of 2024 later this month on April 25, which could provide investors with additional insight into the company's financials and outlook. </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"> Intel shares were down 7.6% at $40.59 as of 2:20 p.m. ET Wednesday. They've lost about 15% of their value since the start of 2024.<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 * Intel shares tumbled Wednesday, a day after the company disclosed a widening loss in its foundry segment, with analysts saying they see more headwinds than tailwinds in the first half of this year. * Intel reported that its foundry segment generated an operating loss of nearly $7 billion in 2023, up from a $5.17 billion loss in 2022, and suggested it could take longer to break even than previously anticipated. * The chipmaker is set to report first-quarter earnings later this month on April 25, which could provide investors with additional clarity on the company's financials and outlook. Intel ([INTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=intc)) shares tumbled over 7% in intraday trading Wednesday, extending losses a day after the chipmaker reported a [widening loss in its foundry business](https://www.investopedia.com/intel-stock-drops-as-loss-widens-sales-decline-in-chipmakers-foundry-business-8623971), with analysts saying they see "more headwinds than tailwinds" for the chipmaker in the first half of this year. Intel reported Tuesday that its foundry or semiconductor manufacturing segment generated an [operating loss](https://www.investopedia.com/terms/o/operating-loss.asp) of nearly $7 billion in 2023, widening from a loss of $5.17 billion in 2022. Its revenue at $18.91 billion in 2023 was lower than 2022's $27.5 billion in sales. Intel suggested it could take until 2030 for the foundry business to reach break-even operating margins, longer than many investors anticipated. "It was not pretty," Rosenblatt analysts said, "but we applaud management for the chutzpah to admit that the Foundry business will take years to scale properly." It was the first time Intel reported revenue totals for its foundry business alone, as part of the company's transition strategy to operating its foundry business as a more independent unit. Wedbush analysts pointed to concerns "around Intel's ambition to achieve 60% GM/40% OM in 2030," noting "while the target echoes Intel's prior long-term model, the timing is 3-4 years subsequent to Intel's prior expectation." Company executives had [previously indicated](https://www.investopedia.com/4-key-takeaways-from-intel-s-earnings-call-8550093) that the company anticipated "peak startup costs in 2024" and that the majority of revenue would be realized in 2025 for the foundry segment. Analysts also raised concerns that Intel could miss the "current semiconductor AI/up cycle" as an [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) boom boosts other semiconductor stocks like [Nvidia](https://www.investopedia.com/nvidia-stock-had-a-blockbuster-q1-amid-ai-driven-frenzy-8622011) ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda)) and Advanced Micro Devices ([AMD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amd)). Bank of America analysts said that "competition (vs. NVDA, AMD, AVGO, TSMC, Samsung) remains tough and INTC's topline still depends significantly on legacy/low-growth PC and traditional server CPU markets exposed to longer replacement cycles and challenged by emerging ARM-based rivals." The company is expected to report earnings for the first quarter of 2024 later this month on April 25, which could provide investors with additional insight into the company's financials and outlook. Intel shares were down 7.6% at $40.59 as of 2:20 p.m. ET Wednesday. They've lost about 15% of their value since the start of 2024. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
Key Takeaways Intel shares tumbled Wednesday, a day after the company disclosed a widening loss in its foundry segment, with analysts saying they see more headwinds than tailwinds in the first half of this year. Intel reported that its foundry segment generated an operating loss of nearly $7 billion in 2023, up from a $5.17 billion loss in 2022, and suggested it could take longer to break even than previously anticipated.The chipmaker is set to report first-quarter earnings later this month on April 25, which could provide investors with additional clarity on the company's financials and outlook. Intel (INTC) shares tumbled over 7% in intraday trading Wednesday, extending losses a day after the chipmaker reported a widening loss in its foundry business, with analysts saying they see "more headwinds than tailwinds" for the chipmaker in the first half of this year. Intel reported Tuesday that its foundry or semiconductor manufacturing segment generated an operating loss of nearly $7 billion in 2023, widening from a loss of $5.17 billion in 2022. Its revenue at $18.91 billion in 2023 was lower than 2022's $27.5 billion in sales. Intel suggested it could take until 2030 for the foundry business to reach break-even operating margins, longer than many investors anticipated. "It was not pretty," Rosenblatt analysts said, "but we applaud management for the chutzpah to admit that the Foundry business will take years to scale properly." It was the first time Intel reported revenue totals for its foundry business alone, as part of the company's transition strategy to operating its foundry business as a more independent unit. Wedbush analysts pointed to concerns "around Intel's ambition to achieve 60% GM/40% OM in 2030," noting "while the target echoes Intel's prior long-term model, the timing is 3-4 years subsequent to Intel's prior expectation." Company executives had previously indicated that the company anticipated "peak startup costs in 2024" and that the majority of revenue would be realized in 2025 for the foundry segment. Analysts also raised concerns that Intel could miss the "current semiconductor AI/up cycle" as an artificial intelligence (AI) boom boosts other semiconductor stocks like Nvidia (NVDA) and Advanced Micro Devices (AMD). Bank of America analysts said that "competition (vs. NVDA, AMD, AVGO, TSMC, Samsung) remains tough and INTC's topline still depends significantly on legacy/low-growth PC and traditional server CPU markets exposed to longer replacement cycles and challenged by emerging ARM-based rivals." The company is expected to report earnings for the first quarter of 2024 later this month on April 25, which could provide investors with additional insight into the company's financials and outlook. Intel shares were down 7.6% at $40.59 as of 2:20 p.m. ET Wednesday. They've lost about 15% of their value since the start of 2024. Do you have a news tip for Investopedia reporters? Please email us at [email protected]
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https://www.investopedia.com/do-cd-rates-go-up-when-the-prime-goes-up-5224227
Do CD Rates Go Up When the Prime Goes Up?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 prime rate does not directly influence rates offered on certificates of deposit (CDs), but it is related. The <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> is a lending rate used by banks for their very best commercial customers, and it's usually based on the Federal Reserve's federal funds rate.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> CD rates are also influenced by the fed funds rate, but also by other factors such as inflation, the economy, competition, and each bank or credit union's individual situation. When prime rates rise, shop around for the best CD rates available.<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>A bank's prime rate is related to interest paid on deposits, but there isn't necessarily a direct, 1:1 cause and effect.</li><li>Prime rate is often significantly higher than the rate paid on a CD.<br/></li><li>Lending rates tend to rise faster than those the banks pay for CDs, but these do increase eventually.</li><li>Some banks offer CD rates well above the national average, making it especially important to shop around before making an investment.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-the-prime-rate-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> How the Prime Rate Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The prime rate is the interest rate banks charge their most creditworthy institutional customers. This is a <em>lending</em> rate. Each bank sets its own prime rate. The U.S. Federal Reserve collects weekday average prime rates of the 25 largest banks.<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="8"></span> But the prime rate most often cited is the one the Wall Street Journal reports daily. Researchers there survey 10 of the largest U.S. banks and come up with an average based on their rates.<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_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Banks set their prime rates based partly on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> established by the Fed. The federal funds rate is what banks charge each other for short-term loans.<span class="ql-inline-citation" data-cite="22"></span> Often, banks set their prime rate three percentage points above the fed funds rate. </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"> Changes in the fed funds rate also influence the rates banks offer to attract deposits, including rates on <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>. So the prime rate and CD rates are linked because both are based on the fed funds rate benchmark. </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 prime rates often rise promptly after Fed rate hikes, banks may delay increases in deposit rates, including on new CDs, until competitive pressures require them to do so. During the COVID-19 pandemic, many banks were deposit-heavy because consumers were saving money they couldn't spend on things like going out to eat. There wasn't much competition to attract new deposits. As a result, CD and other rates didn't rise dramatically when the Fed began raising rates in 2022, according to research from S&amp;P Market Intelligence.<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_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> But by the end of 2022, some banks began paying higher interest on savings accounts, particularly CDs. Changes depended on the institution. Some didn't raise rates at all or only a bit. Others offered higher CD rates specifically to attract new deposits, stem outflows of cash due to competitor rates, or help boost their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loan-to-deposit-ratio.asp">loan-to-deposit ratios</a>—a key measure of a bank's liquidity.<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> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_18-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_19-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Rising rates will not affect your current CD investments unless you have your money in a CD offering an option to raise rates automatically or by request.<span class="ql-inline-citation" data-cite="18"></span></p></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_20-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="Do CD Rates Go up When the Prime Goes Up?" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/QgriS54KljOvNRyIxAP21T1alLY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/do-cd-rates-go-up-when-the-prime-goes-up-5224227-final--f10d99b7b53b4f6c86dc7a133e65fe40.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/QgriS54KljOvNRyIxAP21T1alLY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/do-cd-rates-go-up-when-the-prime-goes-up-5224227-final--f10d99b7b53b4f6c86dc7a133e65fe40.png" data-srcset="https://www.investopedia.com/thmb/8kwxH1HHo3TNga1f3q0b1eShJVo=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/do-cd-rates-go-up-when-the-prime-goes-up-5224227-final--f10d99b7b53b4f6c86dc7a133e65fe40.png 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Do CD Rates Go up When the Prime Goes Up?" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/QgriS54KljOvNRyIxAP21T1alLY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/do-cd-rates-go-up-when-the-prime-goes-up-5224227-final--f10d99b7b53b4f6c86dc7a133e65fe40.png" srcset="https://www.investopedia.com/thmb/8kwxH1HHo3TNga1f3q0b1eShJVo=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/do-cd-rates-go-up-when-the-prime-goes-up-5224227-final--f10d99b7b53b4f6c86dc7a133e65fe40.png 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Zoe Hansen</p></span> </figcaption></figure> <span class="heading-toc" id="toc-what-happens-to-cds-when-the-prime-goes-up"></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"> What Happens to CDs When the Prime Goes Up? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Rising rates can give banks more room to increase their profits (also known as their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/net-interest-rate-spread.asp">net interest rate spread</a>). The banks do so by not raising their deposit rates quite as much or as promptly as their loan interest 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"> For example, here's how the federal funds rate and the prime rate increased alongside CD rates on 12-month deposits in the 14 months during which the Fed raised rates 10 times.<span class="ql-inline-citation" data-cite="25"></span><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="5"></span><span class="ql-inline-citation" data-cite="12"></span><span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_26-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td>Date</td> <td>Target Federal Funds Rate</td> <td>Prime Rate</td> <td>Avg. 12-Month CD APY</td> </tr> <tr> <td>March 2022</td> <td>0.25-0.50</td> <td>3.37</td> <td>0.15</td> </tr> <tr> <td>September 2022</td> <td>3.00-3.25</td> <td>5.74</td> <td>0.60</td> </tr> <tr> <td>March 2023</td> <td>4.75-5.00</td> <td>7.83</td> <td>1.49</td> </tr> <tr> <td>May 2023</td> <td>5.00-5.25</td> <td>8.22</td> <td>1.59</td> </tr> <tr> <td>July 2023</td> <td>5.25-5.50</td> <td>8.50</td> <td>1.67</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> You may not see CD rates rise immediately in proportion to the increases in the prime loan rate. Eventually, though, these products' <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-apy-on-a-cd-5268101">annual percentage yield (APY)</a> should also increase amid competition for new deposits, at most banks. </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"> Note that the top rates on CDs offered by individual banks and credit unions are often much higher than the national average. So it makes sense to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">shop around</a>.<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-how-rates-in-the-economy-affect-cd-investments"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> How Rates in the Economy Affect CD Investments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/do-cds-make-sense-in-a-rising-inflation-environment-5223581">CD interest rates' relationship to overall borrowing costs</a> is obvious when interest rates rise sharply in response to elevated inflation. When the Fed raises its benchmark rate to try to cool spending and fight inflation, banks may increase the rates they pay depositors. The increased interest you earn helps offset the erosion of your deposits' purchasing power due to inflation. </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"> But not fully. For example, the Consumer Price Index average inflation rate increased by 4.9% for the 12 months ending April 2023.<span class="ql-inline-citation" data-cite="16"></span> If you put your money in an average-earning CD in April 2022, you would have only averaged a 0.17% return in the previous 12 months.<span class="ql-inline-citation" data-cite="17"></span> You lost significant purchasing power due to inflation. In addition, you'll pay taxes on any interest earned by the CD. </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-tip" 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>You may be able to beat inflation if you invest in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">top-paying CD</a> instead of one with just average rates. In the spring of 2023, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-is-5-percent-can-a-cd-help-you-beat-it-7480052">that happened for the first time</a>. But it all depends on inflation and interest rates when you are ready to buy a CD.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> When choosing a CD term length, investors face a tradeoff. Longer-term CDs may offer higher interest rates. But today's rate may be less attractive if rates keep rising. Money locked in a CD today could get a higher rate three months down the road. If you think rates will continue rising, you may want to look into buying a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bumpupcd.asp">bump-up CD</a> or setting up a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cd-ladder.asp">CD ladder</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-what-factors-affect-cd-rates"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Factors Affect CD Rates?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Banks and credit unions set their CD rates based on a number of factors. Those include the federal funds rate, inflation, competition from other banks for deposits, their need for deposits to help fund their lending programs, and their desired profit margin.</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-is-a-cd-a-good-investment"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a CD a Good Investment?</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/how-to-invest-with-cds-4795661">CDs are safe investments</a> because their value doesn't fluctuate. The money in CDs is generally insured by either the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corp. (FDIC)</a> or the <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="24"></span><span class="ql-inline-citation" data-cite="23"></span> Because of their fixed and relatively low rates of return, however, CDs are exposed to the risk of <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflationrisk.asp">inflation</a>. In essence, the $1,000 you put in a CD today will be worth less next year if inflation is higher than the return you're earning on the CD.</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-do-cds-have-fixed-or-variable-interest-rates"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do CDs Have Fixed or Variable Interest Rates?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixed-rate-certificate-of-deposit.asp">Fixed-rate CDs</a> are more common. Some banks and credit unions also offer <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/variable-rate-certificate-of-deposit.asp">variable-rate CDs</a> with interest rates can increase in a rising-rate environment. They may also provide <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bumpupcd.asp">bump-up CDs</a> (aka, step-up CDs or raise-your-rate CDs) that allow you to choose if and when you want to raise your APY.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> The prime rate and CD rates both correlate with the benchmark federal funds rate set by the Federal Reserve. When the fed funds rate rises, the prime rate quickly follows, and CD rates tend to increase as well, albeit more slowly and by a limited amount. </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"> Higher interest rates can be a bright spot for depositors previously uninterested in investing in CDs with low yields. Inflation, however, can erode depositors' gains in terms of <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>. Consider inflation's risks and whether you think rates will continue rising before locking up money in one longer-term CD. </p></div>
The prime rate does not directly influence rates offered on certificates of deposit (CDs), but it is related. The [prime rate](https://www.investopedia.com/terms/p/primerate.asp) is a lending rate used by banks for their very best commercial customers, and it's usually based on the Federal Reserve's federal funds rate. CD rates are also influenced by the fed funds rate, but also by other factors such as inflation, the economy, competition, and each bank or credit union's individual situation. When prime rates rise, shop around for the best CD rates available. ### Key Takeaways * A bank's prime rate is related to interest paid on deposits, but there isn't necessarily a direct, 1:1 cause and effect. * Prime rate is often significantly higher than the rate paid on a CD. * Lending rates tend to rise faster than those the banks pay for CDs, but these do increase eventually. * Some banks offer CD rates well above the national average, making it especially important to shop around before making an investment. ## How the Prime Rate Works The prime rate is the interest rate banks charge their most creditworthy institutional customers. This is a *lending* rate. Each bank sets its own prime rate. The U.S. Federal Reserve collects weekday average prime rates of the 25 largest banks. But the prime rate most often cited is the one the Wall Street Journal reports daily. Researchers there survey 10 of the largest U.S. banks and come up with an average based on their rates. Banks set their prime rates based partly on the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) established by the Fed. The federal funds rate is what banks charge each other for short-term loans. Often, banks set their prime rate three percentage points above the fed funds rate. Changes in the fed funds rate also influence the rates banks offer to attract deposits, including rates on [certificates of deposit (CDs)](https://www.investopedia.com/terms/c/certificateofdeposit.asp). So the prime rate and CD rates are linked because both are based on the fed funds rate benchmark. While prime rates often rise promptly after Fed rate hikes, banks may delay increases in deposit rates, including on new CDs, until competitive pressures require them to do so. During the COVID-19 pandemic, many banks were deposit-heavy because consumers were saving money they couldn't spend on things like going out to eat. There wasn't much competition to attract new deposits. As a result, CD and other rates didn't rise dramatically when the Fed began raising rates in 2022, according to research from S&P Market Intelligence. But by the end of 2022, some banks began paying higher interest on savings accounts, particularly CDs. Changes depended on the institution. Some didn't raise rates at all or only a bit. Others offered higher CD rates specifically to attract new deposits, stem outflows of cash due to competitor rates, or help boost their [loan-to-deposit ratios](https://www.investopedia.com/terms/l/loan-to-deposit-ratio.asp)—a key measure of a bank's liquidity. ### Rising rates will not affect your current CD investments unless you have your money in a CD offering an option to raise rates automatically or by request. ![Do CD Rates Go up When the Prime Goes Up?]() ![Do CD Rates Go up When the Prime Goes Up?](https://www.investopedia.com/thmb/QgriS54KljOvNRyIxAP21T1alLY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/do-cd-rates-go-up-when-the-prime-goes-up-5224227-final--f10d99b7b53b4f6c86dc7a133e65fe40.png) Investopedia / Zoe Hansen ## What Happens to CDs When the Prime Goes Up? Rising rates can give banks more room to increase their profits (also known as their [net interest rate spread](https://www.investopedia.com/terms/n/net-interest-rate-spread.asp)). The banks do so by not raising their deposit rates quite as much or as promptly as their loan interest rates. For example, here's how the federal funds rate and the prime rate increased alongside CD rates on 12-month deposits in the 14 months during which the Fed raised rates 10 times. | Date | Target Federal Funds Rate | Prime Rate | Avg. 12-Month CD APY | | --- | --- | --- | --- | | March 2022 | 0.25-0.50 | 3.37 | 0.15 | | September 2022 | 3.00-3.25 | 5.74 | 0.60 | | March 2023 | 4.75-5.00 | 7.83 | 1.49 | | May 2023 | 5.00-5.25 | 8.22 | 1.59 | | July 2023 | 5.25-5.50 | 8.50 | 1.67 | You may not see CD rates rise immediately in proportion to the increases in the prime loan rate. Eventually, though, these products' [annual percentage yield (APY)](https://www.investopedia.com/what-is-apy-on-a-cd-5268101) should also increase amid competition for new deposits, at most banks. Note that the top rates on CDs offered by individual banks and credit unions are often much higher than the national average. So it makes sense to [shop around](https://www.investopedia.com/best-cd-rates-4770214). ## How Rates in the Economy Affect CD Investments [CD interest rates' relationship to overall borrowing costs](https://www.investopedia.com/do-cds-make-sense-in-a-rising-inflation-environment-5223581) is obvious when interest rates rise sharply in response to elevated inflation. When the Fed raises its benchmark rate to try to cool spending and fight inflation, banks may increase the rates they pay depositors. The increased interest you earn helps offset the erosion of your deposits' purchasing power due to inflation. But not fully. For example, the Consumer Price Index average inflation rate increased by 4.9% for the 12 months ending April 2023. If you put your money in an average-earning CD in April 2022, you would have only averaged a 0.17% return in the previous 12 months. You lost significant purchasing power due to inflation. In addition, you'll pay taxes on any interest earned by the CD. ### You may be able to beat inflation if you invest in a [top-paying CD](https://www.investopedia.com/best-cd-rates-4770214) instead of one with just average rates. In the spring of 2023, [that happened for the first time](https://www.investopedia.com/inflation-is-5-percent-can-a-cd-help-you-beat-it-7480052). But it all depends on inflation and interest rates when you are ready to buy a CD. When choosing a CD term length, investors face a tradeoff. Longer-term CDs may offer higher interest rates. But today's rate may be less attractive if rates keep rising. Money locked in a CD today could get a higher rate three months down the road. If you think rates will continue rising, you may want to look into buying a [bump-up CD](https://www.investopedia.com/terms/b/bumpupcd.asp) or setting up a [CD ladder](https://www.investopedia.com/terms/c/cd-ladder.asp). ## What Factors Affect CD Rates? Banks and credit unions set their CD rates based on a number of factors. Those include the federal funds rate, inflation, competition from other banks for deposits, their need for deposits to help fund their lending programs, and their desired profit margin. ## Is a CD a Good Investment? [CDs are safe investments](https://www.investopedia.com/how-to-invest-with-cds-4795661) because their value doesn't fluctuate. The money in CDs is generally insured by either the [Federal Deposit Insurance Corp. (FDIC)](https://www.investopedia.com/terms/f/fdic.asp) or the [National Credit Union Administration (NCUA)](https://www.investopedia.com/terms/n/ncua.asp). Because of their fixed and relatively low rates of return, however, CDs are exposed to the risk of [inflation](https://www.investopedia.com/terms/i/inflationrisk.asp). In essence, the $1,000 you put in a CD today will be worth less next year if inflation is higher than the return you're earning on the CD. ## Do CDs Have Fixed or Variable Interest Rates? [Fixed-rate CDs](https://www.investopedia.com/terms/f/fixed-rate-certificate-of-deposit.asp) are more common. Some banks and credit unions also offer [variable-rate CDs](https://www.investopedia.com/terms/v/variable-rate-certificate-of-deposit.asp) with interest rates can increase in a rising-rate environment. They may also provide [bump-up CDs](https://www.investopedia.com/terms/b/bumpupcd.asp) (aka, step-up CDs or raise-your-rate CDs) that allow you to choose if and when you want to raise your APY. ## The Bottom Line The prime rate and CD rates both correlate with the benchmark federal funds rate set by the Federal Reserve. When the fed funds rate rises, the prime rate quickly follows, and CD rates tend to increase as well, albeit more slowly and by a limited amount. Higher interest rates can be a bright spot for depositors previously uninterested in investing in CDs with low yields. Inflation, however, can erode depositors' gains in terms of [purchasing power](https://www.investopedia.com/terms/p/purchasingpower.asp). Consider inflation's risks and whether you think rates will continue rising before locking up money in one longer-term CD.
The prime rate does not directly influence rates offered on certificates of deposit (CDs), but it is related. The prime rate is a lending rate used by banks for their very best commercial customers, and it's usually based on the Federal Reserve's federal funds rate. CD rates are also influenced by the fed funds rate, but also by other factors such as inflation, the economy, competition, and each bank or credit union's individual situation. When prime rates rise, shop around for the best CD rates available. Key Takeaways A bank's prime rate is related to interest paid on deposits, but there isn't necessarily a direct, 1:1 cause and effect.Prime rate is often significantly higher than the rate paid on a CD.Lending rates tend to rise faster than those the banks pay for CDs, but these do increase eventually.Some banks offer CD rates well above the national average, making it especially important to shop around before making an investment. How the Prime Rate Works The prime rate is the interest rate banks charge their most creditworthy institutional customers. This is a lending rate. Each bank sets its own prime rate. The U.S. Federal Reserve collects weekday average prime rates of the 25 largest banks. But the prime rate most often cited is the one the Wall Street Journal reports daily. Researchers there survey 10 of the largest U.S. banks and come up with an average based on their rates. Banks set their prime rates based partly on the federal funds rate established by the Fed. The federal funds rate is what banks charge each other for short-term loans. Often, banks set their prime rate three percentage points above the fed funds rate. Changes in the fed funds rate also influence the rates banks offer to attract deposits, including rates on certificates of deposit (CDs). So the prime rate and CD rates are linked because both are based on the fed funds rate benchmark. While prime rates often rise promptly after Fed rate hikes, banks may delay increases in deposit rates, including on new CDs, until competitive pressures require them to do so. During the COVID-19 pandemic, many banks were deposit-heavy because consumers were saving money they couldn't spend on things like going out to eat. There wasn't much competition to attract new deposits. As a result, CD and other rates didn't rise dramatically when the Fed began raising rates in 2022, according to research from S&P Market Intelligence. But by the end of 2022, some banks began paying higher interest on savings accounts, particularly CDs. Changes depended on the institution. Some didn't raise rates at all or only a bit. Others offered higher CD rates specifically to attract new deposits, stem outflows of cash due to competitor rates, or help boost their loan-to-deposit ratios—a key measure of a bank's liquidity. Rising rates will not affect your current CD investments unless you have your money in a CD offering an option to raise rates automatically or by request. Investopedia / Zoe Hansen What Happens to CDs When the Prime Goes Up? Rising rates can give banks more room to increase their profits (also known as their net interest rate spread). The banks do so by not raising their deposit rates quite as much or as promptly as their loan interest rates. For example, here's how the federal funds rate and the prime rate increased alongside CD rates on 12-month deposits in the 14 months during which the Fed raised rates 10 times. Date Target Federal Funds Rate Prime Rate Avg. 12-Month CD APY March 2022 0.25-0.50 3.37 0.15 September 2022 3.00-3.25 5.74 0.60 March 2023 4.75-5.00 7.83 1.49 May 2023 5.00-5.25 8.22 1.59 July 2023 5.25-5.50 8.50 1.67 You may not see CD rates rise immediately in proportion to the increases in the prime loan rate. Eventually, though, these products' annual percentage yield (APY) should also increase amid competition for new deposits, at most banks. Note that the top rates on CDs offered by individual banks and credit unions are often much higher than the national average. So it makes sense to shop around. How Rates in the Economy Affect CD Investments CD interest rates' relationship to overall borrowing costs is obvious when interest rates rise sharply in response to elevated inflation. When the Fed raises its benchmark rate to try to cool spending and fight inflation, banks may increase the rates they pay depositors. The increased interest you earn helps offset the erosion of your deposits' purchasing power due to inflation. But not fully. For example, the Consumer Price Index average inflation rate increased by 4.9% for the 12 months ending April 2023. If you put your money in an average-earning CD in April 2022, you would have only averaged a 0.17% return in the previous 12 months. You lost significant purchasing power due to inflation. In addition, you'll pay taxes on any interest earned by the CD. You may be able to beat inflation if you invest in a top-paying CD instead of one with just average rates. In the spring of 2023, that happened for the first time. But it all depends on inflation and interest rates when you are ready to buy a CD. When choosing a CD term length, investors face a tradeoff. Longer-term CDs may offer higher interest rates. But today's rate may be less attractive if rates keep rising. Money locked in a CD today could get a higher rate three months down the road. If you think rates will continue rising, you may want to look into buying a bump-up CD or setting up a CD ladder. What Factors Affect CD Rates? Banks and credit unions set their CD rates based on a number of factors. Those include the federal funds rate, inflation, competition from other banks for deposits, their need for deposits to help fund their lending programs, and their desired profit margin. Is a CD a Good Investment? CDs are safe investments because their value doesn't fluctuate. The money in CDs is generally insured by either the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration (NCUA). Because of their fixed and relatively low rates of return, however, CDs are exposed to the risk of inflation. In essence, the $1,000 you put in a CD today will be worth less next year if inflation is higher than the return you're earning on the CD. Do CDs Have Fixed or Variable Interest Rates? Fixed-rate CDs are more common. Some banks and credit unions also offer variable-rate CDs with interest rates can increase in a rising-rate environment. They may also provide bump-up CDs (aka, step-up CDs or raise-your-rate CDs) that allow you to choose if and when you want to raise your APY. The Bottom Line The prime rate and CD rates both correlate with the benchmark federal funds rate set by the Federal Reserve. When the fed funds rate rises, the prime rate quickly follows, and CD rates tend to increase as well, albeit more slowly and by a limited amount. Higher interest rates can be a bright spot for depositors previously uninterested in investing in CDs with low yields. Inflation, however, can erode depositors' gains in terms of purchasing power. Consider inflation's risks and whether you think rates will continue rising before locking up money in one longer-term CD.
[ [ "prime rate", "https://www.investopedia.com/terms/p/primerate.asp" ], [ "federal funds rate", "https://www.investopedia.com/terms/f/federalfundsrate.asp" ], [ "certificates of deposit (CDs)", "https://www.investopedia.com/terms/c/certificateofdeposit.asp" ], [ "loan-to-deposit ratios", "https://www.investopedia.com/terms/l/loan-to-deposit-ratio.asp" ], [ "Do CD Rates Go up When the Prime Goes Up?", "https://www.investopedia.com/thmb/QgriS54KljOvNRyIxAP21T1alLY=/1500x0/filters:no_upscale(" ], [ "net interest rate spread", "https://www.investopedia.com/terms/n/net-interest-rate-spread.asp" ], [ "annual percentage yield (APY)", "https://www.investopedia.com/what-is-apy-on-a-cd-5268101" ], [ "shop around", "https://www.investopedia.com/best-cd-rates-4770214" ], [ "CD interest rates' relationship to overall borrowing costs", "https://www.investopedia.com/do-cds-make-sense-in-a-rising-inflation-environment-5223581" ], [ "top-paying CD", "https://www.investopedia.com/best-cd-rates-4770214" ], [ "that happened for the first time", "https://www.investopedia.com/inflation-is-5-percent-can-a-cd-help-you-beat-it-7480052" ], [ "bump-up CD", "https://www.investopedia.com/terms/b/bumpupcd.asp" ], [ "CD ladder", "https://www.investopedia.com/terms/c/cd-ladder.asp" ], [ "CDs are safe investments", "https://www.investopedia.com/how-to-invest-with-cds-4795661" ], [ "Federal Deposit Insurance Corp. (FDIC)", "https://www.investopedia.com/terms/f/fdic.asp" ], [ "National Credit Union Administration (NCUA)", "https://www.investopedia.com/terms/n/ncua.asp" ], [ "inflation", "https://www.investopedia.com/terms/i/inflationrisk.asp" ], [ "Fixed-rate CDs", "https://www.investopedia.com/terms/f/fixed-rate-certificate-of-deposit.asp" ], [ "variable-rate CDs", "https://www.investopedia.com/terms/v/variable-rate-certificate-of-deposit.asp" ], [ "bump-up CDs", "https://www.investopedia.com/terms/b/bumpupcd.asp" ], [ "purchasing power", "https://www.investopedia.com/terms/p/purchasingpower.asp" ] ]
https://www.investopedia.com/terms/l/loanofficer.asp
Loan Officer: Definition, What They Do, Benefits and Compensation
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-loan-officer"></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 Loan Officer? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A loan officer is a representative of a bank, credit union, or other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/09/risk-free-rate-return.asp">financial institution</a> who assists borrowers in the application process.<span class="ql-inline-citation" data-cite="2"></span> Loan officers are often called mortgage loan officers since that is the most complex and costly type of loan most consumers encounter. However, most loan officers assist consumers and small business owners with a wide variety of secured and unsecured loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Loan officers must have a comprehensive knowledge of lending products, banking industry rules and regulations, and the required documentation for obtaining a loan. Loan officers that assist with mortgages must be licensed through the Nationwide Multistate Licensing System and Registry (NMLS).<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_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 loan officer assists consumers and business people in choosing a loan product and applying for it.</li><li>This person is the main contact with the financial institution through the loan closing.</li><li>Most loans, especially mortgages, require a pile of paperwork.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-loan-officer-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 Loan Officer Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The loan officer is the direct contact for most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/07/financing-options.asp">borrowers</a> applying for a loan from a financial institution. The entire process can be handled over the internet, but most consumers probably still prefer a well-informed human on the other side of a costly and complex transaction. In fact, one reason why banks continue to have so many branch offices is that they need to bring loan officers face to face with potential borrowers. </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"> Loan officers are knowledgeable about all of the various types of loans offered by the financial institutions they represent and can advise borrowers on the best options for their needs. </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"> They also can advise the potential borrower about what type of loan they might be eligible to get. The loan officer is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/120214/whats-average-salary-loan-officer.asp">responsible for the initial screening process</a> and is unlikely to proceed with an application from someone who does not meet the lender's qualifications. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-subheading__text"> The Application Process </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Once a borrower and a loan officer agree to proceed, the loan officer helps prepare the application. The loan officer then passes the application along to the institution’s underwriter, who assesses the creditworthiness of the potential borrower. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> If the loan is approved, the loan officer is responsible for preparing the appropriate documentation and the loan closing documents. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_21-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The loan officer is responsible for collecting the appropriate closing documents for a mortgage or other loan.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Some loans are more work than others. Secured loans generally require more documentation than unsecured loans. Mortgage loans require a hefty stack of documentation due to the many federal, state, and local regulations that pertain to them. Reverse mortgages and mortgage refinancings require that the borrower receive a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hud-1.asp">HUD-1 settlement statement</a> before the closing.<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_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Some loan officers are compensated through commissions. This commission is a prepaid charge and is often negotiable. Commission fees are usually highest for mortgage loans. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_26-0"><span class="heading-toc" id="toc-can-i-obtain-a-loan-without-a-loan-officer"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Obtain a Loan Without a Loan Officer?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Even in a world of online lenders, loan officers are necessary parts of the process. Loan officers evaluate whether borrowers are trustworthy enough to handle a loan. Even online bank utilize loan officers to complete transactions.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_28-0"><span class="heading-toc" id="toc-what-is-a-mortgage-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Mortgage Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A mortgage loan is a secured installment loan used for a singular purpose—to purchase real estate. The loan amount covers the principal used to purchase the property, and it can include funds for paying insurance and property taxes as well.<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_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_30-0"><span class="heading-toc" id="toc-is-a-loan-officer-a-good-job"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a Loan Officer a Good Job?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The median salary for a loan officer was $65,740 per year in 2022. Loan officers work indoors in typically comfortable surroundings, with full benefits if employed by a bank or credit union. If you're interested in a stable, white collar job, a loan officer position may be a great choice.<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_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"> Loan officers are the gatekeepers of loan funds for banks and credit unions. If you're looking for a personal loan or mortgage, you'll likely work with a loan officer to assemble your paperwork for your application. A good loan officer can make the entire process run more smoothly through their experience and knowledge of state regulations and procedures.<br/> </p></div>
## What Is a Loan Officer? A loan officer is a representative of a bank, credit union, or other [financial institution](https://www.investopedia.com/articles/financial-theory/09/risk-free-rate-return.asp) who assists borrowers in the application process. Loan officers are often called mortgage loan officers since that is the most complex and costly type of loan most consumers encounter. However, most loan officers assist consumers and small business owners with a wide variety of secured and unsecured loans. Loan officers must have a comprehensive knowledge of lending products, banking industry rules and regulations, and the required documentation for obtaining a loan. Loan officers that assist with mortgages must be licensed through the Nationwide Multistate Licensing System and Registry (NMLS). ### Key Takeaways * A loan officer assists consumers and business people in choosing a loan product and applying for it. * This person is the main contact with the financial institution through the loan closing. * Most loans, especially mortgages, require a pile of paperwork. ## How a Loan Officer Works The loan officer is the direct contact for most [borrowers](https://www.investopedia.com/articles/basics/07/financing-options.asp) applying for a loan from a financial institution. The entire process can be handled over the internet, but most consumers probably still prefer a well-informed human on the other side of a costly and complex transaction. In fact, one reason why banks continue to have so many branch offices is that they need to bring loan officers face to face with potential borrowers. Loan officers are knowledgeable about all of the various types of loans offered by the financial institutions they represent and can advise borrowers on the best options for their needs. They also can advise the potential borrower about what type of loan they might be eligible to get. The loan officer is [responsible for the initial screening process](https://www.investopedia.com/ask/answers/120214/whats-average-salary-loan-officer.asp) and is unlikely to proceed with an application from someone who does not meet the lender's qualifications. ### The Application Process Once a borrower and a loan officer agree to proceed, the loan officer helps prepare the application. The loan officer then passes the application along to the institution’s underwriter, who assesses the creditworthiness of the potential borrower. If the loan is approved, the loan officer is responsible for preparing the appropriate documentation and the loan closing documents. ### The loan officer is responsible for collecting the appropriate closing documents for a mortgage or other loan. Some loans are more work than others. Secured loans generally require more documentation than unsecured loans. Mortgage loans require a hefty stack of documentation due to the many federal, state, and local regulations that pertain to them. Reverse mortgages and mortgage refinancings require that the borrower receive a [HUD-1 settlement statement](https://www.investopedia.com/terms/h/hud-1.asp) before the closing. Some loan officers are compensated through commissions. This commission is a prepaid charge and is often negotiable. Commission fees are usually highest for mortgage loans. ## Can I Obtain a Loan Without a Loan Officer? Even in a world of online lenders, loan officers are necessary parts of the process. Loan officers evaluate whether borrowers are trustworthy enough to handle a loan. Even online bank utilize loan officers to complete transactions. ## What Is a Mortgage Loan? A mortgage loan is a secured installment loan used for a singular purpose—to purchase real estate. The loan amount covers the principal used to purchase the property, and it can include funds for paying insurance and property taxes as well. ## Is a Loan Officer a Good Job? The median salary for a loan officer was $65,740 per year in 2022. Loan officers work indoors in typically comfortable surroundings, with full benefits if employed by a bank or credit union. If you're interested in a stable, white collar job, a loan officer position may be a great choice. ## The Bottom Line Loan officers are the gatekeepers of loan funds for banks and credit unions. If you're looking for a personal loan or mortgage, you'll likely work with a loan officer to assemble your paperwork for your application. A good loan officer can make the entire process run more smoothly through their experience and knowledge of state regulations and procedures.
What Is a Loan Officer? A loan officer is a representative of a bank, credit union, or other financial institution who assists borrowers in the application process. Loan officers are often called mortgage loan officers since that is the most complex and costly type of loan most consumers encounter. However, most loan officers assist consumers and small business owners with a wide variety of secured and unsecured loans. Loan officers must have a comprehensive knowledge of lending products, banking industry rules and regulations, and the required documentation for obtaining a loan. Loan officers that assist with mortgages must be licensed through the Nationwide Multistate Licensing System and Registry (NMLS). Key Takeaways A loan officer assists consumers and business people in choosing a loan product and applying for it.This person is the main contact with the financial institution through the loan closing.Most loans, especially mortgages, require a pile of paperwork. How a Loan Officer Works The loan officer is the direct contact for most borrowers applying for a loan from a financial institution. The entire process can be handled over the internet, but most consumers probably still prefer a well-informed human on the other side of a costly and complex transaction. In fact, one reason why banks continue to have so many branch offices is that they need to bring loan officers face to face with potential borrowers. Loan officers are knowledgeable about all of the various types of loans offered by the financial institutions they represent and can advise borrowers on the best options for their needs. They also can advise the potential borrower about what type of loan they might be eligible to get. The loan officer is responsible for the initial screening process and is unlikely to proceed with an application from someone who does not meet the lender's qualifications. The Application Process Once a borrower and a loan officer agree to proceed, the loan officer helps prepare the application. The loan officer then passes the application along to the institution’s underwriter, who assesses the creditworthiness of the potential borrower. If the loan is approved, the loan officer is responsible for preparing the appropriate documentation and the loan closing documents. The loan officer is responsible for collecting the appropriate closing documents for a mortgage or other loan. Some loans are more work than others. Secured loans generally require more documentation than unsecured loans. Mortgage loans require a hefty stack of documentation due to the many federal, state, and local regulations that pertain to them. Reverse mortgages and mortgage refinancings require that the borrower receive a HUD-1 settlement statement before the closing. Some loan officers are compensated through commissions. This commission is a prepaid charge and is often negotiable. Commission fees are usually highest for mortgage loans. Can I Obtain a Loan Without a Loan Officer? Even in a world of online lenders, loan officers are necessary parts of the process. Loan officers evaluate whether borrowers are trustworthy enough to handle a loan. Even online bank utilize loan officers to complete transactions. What Is a Mortgage Loan? A mortgage loan is a secured installment loan used for a singular purpose—to purchase real estate. The loan amount covers the principal used to purchase the property, and it can include funds for paying insurance and property taxes as well. Is a Loan Officer a Good Job? The median salary for a loan officer was $65,740 per year in 2022. Loan officers work indoors in typically comfortable surroundings, with full benefits if employed by a bank or credit union. If you're interested in a stable, white collar job, a loan officer position may be a great choice. The Bottom Line Loan officers are the gatekeepers of loan funds for banks and credit unions. If you're looking for a personal loan or mortgage, you'll likely work with a loan officer to assemble your paperwork for your application. A good loan officer can make the entire process run more smoothly through their experience and knowledge of state regulations and procedures.
[ [ "financial institution", "https://www.investopedia.com/articles/financial-theory/09/risk-free-rate-return.asp" ], [ "borrowers", "https://www.investopedia.com/articles/basics/07/financing-options.asp" ], [ "responsible for the initial screening process", "https://www.investopedia.com/ask/answers/120214/whats-average-salary-loan-officer.asp" ], [ "HUD-1 settlement statement", "https://www.investopedia.com/terms/h/hud-1.asp" ] ]
https://www.investopedia.com/bitcoin-rebounds-above-usd70k-as-etf-selling-subsides-key-level-to-watch-8620260
Bitcoin Rebounds Above $70K as ETF Selling Subsides—Key Level to Watch
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Bitcoin has reclaimed the key $70,000 level after a retracement last week that was driven by net outflows in spot Bitcoin ETFs.</li><li>Analysts cited easing of ETF outflows, bullish technicals, and favorable macro fundamentals for Bitcoin's rebound.</li><li>Bitcoin's price found support near the key 38.2% Fibonacci retracement level around $60,000, with the cryptocurrency's record close now in focus.</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"> Bitcoin (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTCUSD">BTC</a>), the largest cryptocurrency by <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>, has surged above the key $70,000 level, following a cool-off in sentiment last week that was driven by a net outflow in <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/spot-bitcoin-etfs-8358373">spot bitcoin exchange-traded funds (ETFs)</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"> Although there's no clear catalyst behind bitcoin’s jump, Galaxy Digital’s Alex Thorn attributed the renewed buying interest to a pause in bitcoin ETF selling and improving <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalanalysis.asp">technicals</a>, adding that such <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/06/retracements.asp">retracements</a> were typical in bitcoin bull market <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/121815/bitcoins-price-history.asp">cycles</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_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> “The record GBTC outflows over the last two weeks, likely caused by Genesis and Gemini <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankruptcy.asp">bankruptcy</a> liquidations, contributed to weakness in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spotprice.asp">spot prices</a>, but several technical indicators pointed to seller exhaustion,” Thorn was quoted by <em>CNBC</em> as saying.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Grayscale’s Bitcoin Trust (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GBTC">GBTC</a>), which has significantly higher fees than its rivals, l<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cryptocurrency-market-news-sec-wants-to-define-ether-as-a-security-bitcoin-plummets-8619749">ed outflows last week</a>, with investors withdrawing $1.9 billion from the fund, leading to a net outflow of roughly $900 million across all bitcoin ETFs for the week ending March 22.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Swan Bitcoin analyst Sam Callahan put bitcoin’s rebound down to improving macro fundamentals after the Federal Reserve reaffirmed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723">three quarter-percentage point cuts</a> by the end of the year at its interest rate policy meeting last week.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> “Such actions will enhance <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp#:~:text=Liquidity%20refers%20to%20the%20ease,tangible%20items%20are%20less%20liquid.">liquidity</a> conditions, acting as a positive catalyst for asset prices. Bitcoin functions as a barometer of liquidity conditions and responded favorably to the Fed’s messaging that monetary policy will likely ease in the near future," Callahan noted, according to <em>CNBC</em>. </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"> Sentiment may have also been boosted by data from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/012215/how-invest-bitcoin-exchange-futures.asp">crypto derivatives</a> analytics site CoinGlass showing that bitcoin short position <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidation.asp#:~:text=Liquidation%20in%20finance%20and%20economics,obligations%20when%20they%20are%20due.">liquidations</a> over the past 24 hours were lower than average, indicating that investors weren’t using <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp">leverage</a> to bet on further price falls.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> After consolidating over the past few weeks, bitcoin’s price found buying support at the key 38.2% <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fibonacciretracement.asp">Fibonacci retracement level</a>, just above the closely watched $60,000 area. The region also sits in close proximity to the legacy cryptocurrency’s prior November 2021 <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 $69,000, indicating the price may be readying for another move higher. </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 convincing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/breakout.asp">breakout</a> above the current record high at $73.835.57 would likely see a continuation of the bullish momentum, while a reversal at this key level could open the door to a deeper retracement towards the 50-day moving average. </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"> Bitcoin was trading at about $70,800 at around 9:50 a.m. ET Tuesday. </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>UPDATE—March 26, 2024: This article has been updated with the latest bitcoin price.</em> </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"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer">warranty and liability disclaimer</a> for more info.</em> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <em>As of the date this article was written, the author does not own any of the above securities.</em><br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? 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 * Bitcoin has reclaimed the key $70,000 level after a retracement last week that was driven by net outflows in spot Bitcoin ETFs. * Analysts cited easing of ETF outflows, bullish technicals, and favorable macro fundamentals for Bitcoin's rebound. * Bitcoin's price found support near the key 38.2% Fibonacci retracement level around $60,000, with the cryptocurrency's record close now in focus. Bitcoin ([BTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTCUSD)), the largest cryptocurrency by [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp), has surged above the key $70,000 level, following a cool-off in sentiment last week that was driven by a net outflow in [spot bitcoin exchange-traded funds (ETFs)](https://www.investopedia.com/spot-bitcoin-etfs-8358373). Although there's no clear catalyst behind bitcoin’s jump, Galaxy Digital’s Alex Thorn attributed the renewed buying interest to a pause in bitcoin ETF selling and improving [technicals](https://www.investopedia.com/terms/t/technicalanalysis.asp), adding that such [retracements](https://www.investopedia.com/articles/trading/06/retracements.asp) were typical in bitcoin bull market [cycles](https://www.investopedia.com/articles/forex/121815/bitcoins-price-history.asp). “The record GBTC outflows over the last two weeks, likely caused by Genesis and Gemini [bankruptcy](https://www.investopedia.com/terms/b/bankruptcy.asp) liquidations, contributed to weakness in [spot prices](https://www.investopedia.com/terms/s/spotprice.asp), but several technical indicators pointed to seller exhaustion,” Thorn was quoted by *CNBC* as saying. Grayscale’s Bitcoin Trust ([GBTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GBTC)), which has significantly higher fees than its rivals, l[ed outflows last week](https://www.investopedia.com/cryptocurrency-market-news-sec-wants-to-define-ether-as-a-security-bitcoin-plummets-8619749), with investors withdrawing $1.9 billion from the fund, leading to a net outflow of roughly $900 million across all bitcoin ETFs for the week ending March 22. Swan Bitcoin analyst Sam Callahan put bitcoin’s rebound down to improving macro fundamentals after the Federal Reserve reaffirmed [three quarter-percentage point cuts](https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723) by the end of the year at its interest rate policy meeting last week. “Such actions will enhance [liquidity](https://www.investopedia.com/terms/l/liquidity.asp#:~:text=Liquidity%20refers%20to%20the%20ease,tangible%20items%20are%20less%20liquid.) conditions, acting as a positive catalyst for asset prices. Bitcoin functions as a barometer of liquidity conditions and responded favorably to the Fed’s messaging that monetary policy will likely ease in the near future," Callahan noted, according to *CNBC*. Sentiment may have also been boosted by data from [crypto derivatives](https://www.investopedia.com/articles/investing/012215/how-invest-bitcoin-exchange-futures.asp) analytics site CoinGlass showing that bitcoin short position [liquidations](https://www.investopedia.com/terms/l/liquidation.asp#:~:text=Liquidation%20in%20finance%20and%20economics,obligations%20when%20they%20are%20due.) over the past 24 hours were lower than average, indicating that investors weren’t using [leverage](https://www.investopedia.com/terms/l/leverage.asp) to bet on further price falls. After consolidating over the past few weeks, bitcoin’s price found buying support at the key 38.2% [Fibonacci retracement level](https://www.investopedia.com/terms/f/fibonacciretracement.asp), just above the closely watched $60,000 area. The region also sits in close proximity to the legacy cryptocurrency’s prior November 2021 [record high](https://www.investopedia.com/terms/r/record_high.asp) of $69,000, indicating the price may be readying for another move higher. A convincing [breakout](https://www.investopedia.com/terms/b/breakout.asp) above the current record high at $73.835.57 would likely see a continuation of the bullish momentum, while a reversal at this key level could open the door to a deeper retracement towards the 50-day moving average. Bitcoin was trading at about $70,800 at around 9:50 a.m. ET Tuesday. *UPDATE—March 26, 2024: This article has been updated with the latest bitcoin price.* *The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.* *As of the date this article was written, the author does not own any of the above securities.* Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
Key Takeaways Bitcoin has reclaimed the key $70,000 level after a retracement last week that was driven by net outflows in spot Bitcoin ETFs.Analysts cited easing of ETF outflows, bullish technicals, and favorable macro fundamentals for Bitcoin's rebound.Bitcoin's price found support near the key 38.2% Fibonacci retracement level around $60,000, with the cryptocurrency's record close now in focus. Bitcoin (BTC), the largest cryptocurrency by market capitalization, has surged above the key $70,000 level, following a cool-off in sentiment last week that was driven by a net outflow in spot bitcoin exchange-traded funds (ETFs). Although there's no clear catalyst behind bitcoin’s jump, Galaxy Digital’s Alex Thorn attributed the renewed buying interest to a pause in bitcoin ETF selling and improving technicals, adding that such retracements were typical in bitcoin bull market cycles. “The record GBTC outflows over the last two weeks, likely caused by Genesis and Gemini bankruptcy liquidations, contributed to weakness in spot prices, but several technical indicators pointed to seller exhaustion,” Thorn was quoted by CNBC as saying. Grayscale’s Bitcoin Trust (GBTC), which has significantly higher fees than its rivals, led outflows last week, with investors withdrawing $1.9 billion from the fund, leading to a net outflow of roughly $900 million across all bitcoin ETFs for the week ending March 22. Swan Bitcoin analyst Sam Callahan put bitcoin’s rebound down to improving macro fundamentals after the Federal Reserve reaffirmed three quarter-percentage point cuts by the end of the year at its interest rate policy meeting last week. “Such actions will enhance liquidity conditions, acting as a positive catalyst for asset prices. Bitcoin functions as a barometer of liquidity conditions and responded favorably to the Fed’s messaging that monetary policy will likely ease in the near future," Callahan noted, according to CNBC. Sentiment may have also been boosted by data from crypto derivatives analytics site CoinGlass showing that bitcoin short position liquidations over the past 24 hours were lower than average, indicating that investors weren’t using leverage to bet on further price falls. After consolidating over the past few weeks, bitcoin’s price found buying support at the key 38.2% Fibonacci retracement level, just above the closely watched $60,000 area. The region also sits in close proximity to the legacy cryptocurrency’s prior November 2021 record high of $69,000, indicating the price may be readying for another move higher. A convincing breakout above the current record high at $73.835.57 would likely see a continuation of the bullish momentum, while a reversal at this key level could open the door to a deeper retracement towards the 50-day moving average. Bitcoin was trading at about $70,800 at around 9:50 a.m. ET Tuesday. UPDATE—March 26, 2024: This article has been updated with the latest bitcoin price. The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own any of the above securities. Do you have a news tip for Investopedia reporters? Please email us at [email protected]
[ [ "BTC", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTCUSD" ], [ "market capitalization", "https://www.investopedia.com/terms/m/marketcapitalization.asp" ], [ "spot bitcoin exchange-traded funds (ETFs)", "https://www.investopedia.com/spot-bitcoin-etfs-8358373" ], [ "technicals", "https://www.investopedia.com/terms/t/technicalanalysis.asp" ], [ "retracements", "https://www.investopedia.com/articles/trading/06/retracements.asp" ], [ "cycles", "https://www.investopedia.com/articles/forex/121815/bitcoins-price-history.asp" ], [ "bankruptcy", "https://www.investopedia.com/terms/b/bankruptcy.asp" ], [ "spot prices", "https://www.investopedia.com/terms/s/spotprice.asp" ], [ "GBTC", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=GBTC" ], [ "ed outflows last week", "https://www.investopedia.com/cryptocurrency-market-news-sec-wants-to-define-ether-as-a-security-bitcoin-plummets-8619749" ], [ "three quarter-percentage point cuts", "https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723" ], [ "liquidity", "https://www.investopedia.com/terms/l/liquidity.asp#:~:text=Liquidity%20refers%20to%20the%20ease,tangible%20items%20are%20less%20liquid." ], [ "crypto derivatives", "https://www.investopedia.com/articles/investing/012215/how-invest-bitcoin-exchange-futures.asp" ], [ "liquidations", "https://www.investopedia.com/terms/l/liquidation.asp#:~:text=Liquidation%20in%20finance%20and%20economics,obligations%20when%20they%20are%20due." ], [ "leverage", "https://www.investopedia.com/terms/l/leverage.asp" ], [ "Fibonacci retracement level", "https://www.investopedia.com/terms/f/fibonacciretracement.asp" ], [ "record high", "https://www.investopedia.com/terms/r/record_high.asp" ], [ "breakout", "https://www.investopedia.com/terms/b/breakout.asp" ], [ "warranty and liability disclaimer", "https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/etsy-q1-2024-earnings-weak-consumer-spending-8642325
Etsy Stock Dives as Retailer Warns of 'Challenging Environment' for Consumer Spending
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Shares of e-commerce company Etsy fell sharply Thursday after the company released disappointing quarterly earnings after the bell Wednesday.</li><li>Etsy's financial performance was in line with analysts' estimates, but total sales on the platform decreased year-over-year.</li><li>CEO Josh Silverman said Etsy is operating in a "challenging environment" as consumers opt for the least expensive option for many products.</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 Etsy, Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ETSY">ETSY</a>) plummeted in Thursday morning trading after the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ecommerce.asp">e-commerce</a> retailer reported quarterly earnings that came in short of expectations after markets closed Wednesday. </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 stock was down 14.4% at $59.69 at around noon ET, after falling as much as 19% early in Thursday's session to its lowest intraday level in four years. </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 the number of active buyers on the site increased nearly 2% compared to the first quarter of 2023, gross merchandise sales (GMS) across the marketplace fell to $2.99 billion from the $3.10 billion Etsy reported last year.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Etsy reported first-quarter revenue of $645.95 million, up less than 1% from a year earlier and matching analysts' estimates compiled by Visible Alpha. Income was also in line with estimates at $63 million, with diluted earnings per share (EPS) of 48 cents per share coming in one cent above estimates, but the numbers fell from $74.54 million and 53 cents per share in the year-ago quarter. </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-sluggish-spending-is-headwind-for-growth"></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"> Sluggish Spending Is Headwind For Growth </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Chief Executive Officer Josh Silverman said in the report that the company has been "pressured by the challenging environment" of consumers pulling back spending on discretionary products such as those Etsy's marketplace specializes in, which "continues to be a headwind to Etsy marketplace growth," Silverman said. </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"> Etsy laid off <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/etsy-shares-fall-after-laying-off-11-percent-of-employees-8415628">about 11% of employees</a> in December, as the company has struggled to retain consumer interest in what Silverman called the "sea of sameness in e-commerce." Inflation has led many consumers to search for the best possible price for a product, whether it is through Etsy or another online retailer such as Amazon (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN">AMZN</a>) or PDD Holdings' (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PDD">PDD</a>) discount platform Temu. </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"> Online shopping, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/012716/etsy-how-its-fared-its-2015-ipo-etsy.asp">Etsy's share price</a>, boomed during the pandemic as people had to shop online amid lockdowns. In November 2021, Etsy approached $300 per share, but has been largely on the decline since that pandemic peak. </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"> Etsy projected that GMS for the current quarter would be similar to the first-quarter numbers, with the possibility of a low- to mid-single digit decline. For the full year, however, the company said it currently expects a "modest acceleration" in GMS over the second half of 2024 compared to the second half of 2023.<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 * Shares of e-commerce company Etsy fell sharply Thursday after the company released disappointing quarterly earnings after the bell Wednesday. * Etsy's financial performance was in line with analysts' estimates, but total sales on the platform decreased year-over-year. * CEO Josh Silverman said Etsy is operating in a "challenging environment" as consumers opt for the least expensive option for many products. Shares of Etsy, Inc. ([ETSY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ETSY)) plummeted in Thursday morning trading after the [e-commerce](https://www.investopedia.com/terms/e/ecommerce.asp) retailer reported quarterly earnings that came in short of expectations after markets closed Wednesday. The stock was down 14.4% at $59.69 at around noon ET, after falling as much as 19% early in Thursday's session to its lowest intraday level in four years. While the number of active buyers on the site increased nearly 2% compared to the first quarter of 2023, gross merchandise sales (GMS) across the marketplace fell to $2.99 billion from the $3.10 billion Etsy reported last year. Etsy reported first-quarter revenue of $645.95 million, up less than 1% from a year earlier and matching analysts' estimates compiled by Visible Alpha. Income was also in line with estimates at $63 million, with diluted earnings per share (EPS) of 48 cents per share coming in one cent above estimates, but the numbers fell from $74.54 million and 53 cents per share in the year-ago quarter. ## Sluggish Spending Is Headwind For Growth Chief Executive Officer Josh Silverman said in the report that the company has been "pressured by the challenging environment" of consumers pulling back spending on discretionary products such as those Etsy's marketplace specializes in, which "continues to be a headwind to Etsy marketplace growth," Silverman said. Etsy laid off [about 11% of employees](https://www.investopedia.com/etsy-shares-fall-after-laying-off-11-percent-of-employees-8415628) in December, as the company has struggled to retain consumer interest in what Silverman called the "sea of sameness in e-commerce." Inflation has led many consumers to search for the best possible price for a product, whether it is through Etsy or another online retailer such as Amazon ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN)) or PDD Holdings' ([PDD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PDD)) discount platform Temu. Online shopping, and [Etsy's share price](https://www.investopedia.com/articles/markets/012716/etsy-how-its-fared-its-2015-ipo-etsy.asp), boomed during the pandemic as people had to shop online amid lockdowns. In November 2021, Etsy approached $300 per share, but has been largely on the decline since that pandemic peak. Etsy projected that GMS for the current quarter would be similar to the first-quarter numbers, with the possibility of a low- to mid-single digit decline. For the full year, however, the company said it currently expects a "modest acceleration" in GMS over the second half of 2024 compared to the second half of 2023. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
Key Takeaways Shares of e-commerce company Etsy fell sharply Thursday after the company released disappointing quarterly earnings after the bell Wednesday.Etsy's financial performance was in line with analysts' estimates, but total sales on the platform decreased year-over-year.CEO Josh Silverman said Etsy is operating in a "challenging environment" as consumers opt for the least expensive option for many products. Shares of Etsy, Inc. (ETSY) plummeted in Thursday morning trading after the e-commerce retailer reported quarterly earnings that came in short of expectations after markets closed Wednesday. The stock was down 14.4% at $59.69 at around noon ET, after falling as much as 19% early in Thursday's session to its lowest intraday level in four years. While the number of active buyers on the site increased nearly 2% compared to the first quarter of 2023, gross merchandise sales (GMS) across the marketplace fell to $2.99 billion from the $3.10 billion Etsy reported last year. Etsy reported first-quarter revenue of $645.95 million, up less than 1% from a year earlier and matching analysts' estimates compiled by Visible Alpha. Income was also in line with estimates at $63 million, with diluted earnings per share (EPS) of 48 cents per share coming in one cent above estimates, but the numbers fell from $74.54 million and 53 cents per share in the year-ago quarter. Sluggish Spending Is Headwind For Growth Chief Executive Officer Josh Silverman said in the report that the company has been "pressured by the challenging environment" of consumers pulling back spending on discretionary products such as those Etsy's marketplace specializes in, which "continues to be a headwind to Etsy marketplace growth," Silverman said. Etsy laid off about 11% of employees in December, as the company has struggled to retain consumer interest in what Silverman called the "sea of sameness in e-commerce." Inflation has led many consumers to search for the best possible price for a product, whether it is through Etsy or another online retailer such as Amazon (AMZN) or PDD Holdings' (PDD) discount platform Temu. Online shopping, and Etsy's share price, boomed during the pandemic as people had to shop online amid lockdowns. In November 2021, Etsy approached $300 per share, but has been largely on the decline since that pandemic peak. Etsy projected that GMS for the current quarter would be similar to the first-quarter numbers, with the possibility of a low- to mid-single digit decline. For the full year, however, the company said it currently expects a "modest acceleration" in GMS over the second half of 2024 compared to the second half of 2023. Do you have a news tip for Investopedia reporters? Please email us at [email protected]
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https://www.investopedia.com/terms/t/throughbilloflading.asp
Through Bill of Lading: 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-through-bill-of-lading"></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 Through Bill of Lading? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A through bill of lading is a legal document that allows for the transportation of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumer-goods.asp">goods</a> both within domestic borders and through international shipment. The through bill of lading is often required for the exporting of goods, as it serves as a cargo receipt, a carriage contract, as well as the title (sometimes) for the products. </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-through-bill-of-lading"></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 Through Bill of Lading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> A through bill of lading is just one kind of bill of lading. A bill of lading is a between a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sectors-and-industries-analysis-4689756">shipper</a> of a good and a transporter or carrier used in international trade. It is required to ship goods and acts as a receipt and contract. It shows that the carrier has received the freight as described—that's the cargo receipt. It also documents the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/032315/i-need-telex-release-bill-lading-what-must-i-do-obtain-it.asp">terms of delivery and release</a> of the product. It stipulates that the shipper must deliver that cargo to the consignee in good condition—the carriage contract. The word lading is derived from the word loading, referring to the loading of goods onto a ship. </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 bill of lading is perhaps the most important document in shipping. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_9-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_10-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>A bill of lading legally details the type, quantity, and destination of the goods being transported, how it's billed, and how the goods must be handled; it must accompany the shipped goods and be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/032615/what-endorsement-blank-bill-lading.asp">signed by a representative of the shipper</a>.</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_11-0"> <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_12-0"> A through bill of lading has specific stipulations and conditions. A bill of lading will sometimes only cover one part or one aspect of the shipping process. A through bill of lading is more involved. </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"> As noted above, a through bill of lading allows the transportation of goods both within domestic borders and through international shipment. The bill is often required in order to export goods and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/030915/can-i-have-more-three-original-bills-lading.asp">serves as a legal certificate</a> authorizing a party to be in possession of and transporting a particular good. This is because a through bill of lading allows for the shipping carrier to pass the cargo through several different modes of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transportation_sector.asp">transportation</a>, and several different distribution centers. </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"> While there is evidence for receipts for goods loaded aboard merchant vessels stretching back as far as Roman times, the practice of recording cargo in a ship's log is almost as long-lived as shipping itself. The modern bill of lading only came into use with the growth of international trade in the medieval world. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_18-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_19-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><ul><li>A through bill of lading is a legal document that allows for the transportation of goods both within domestic borders and through international shipment.</li><li>The through bill of lading is often required for the exporting of goods, as it serves as a cargo receipt, a carriage contract, as well as the title (sometimes) for the products.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/123115/top-6-companies-crude-tanker-business.asp">transporter</a> can move products both within a country and export them, often by air, with a through bill of lading. The through bill must contain an "inland bill of lading," which is the documentation required for domestic transportation. If the shipper wants to move the goods across the ocean, the "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inland-bill-of-lading.asp">inland bill of lading</a>" will not suffice; the through bill of lading will require an "<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/ocean-bill-of-lading.asp">ocean bill of lading</a>" will be required for any goods moving across the ocean. </p></div>
## What Is Through Bill of Lading? A through bill of lading is a legal document that allows for the transportation of [goods](https://www.investopedia.com/terms/c/consumer-goods.asp) both within domestic borders and through international shipment. The through bill of lading is often required for the exporting of goods, as it serves as a cargo receipt, a carriage contract, as well as the title (sometimes) for the products. ## Understanding Through Bill of Lading A through bill of lading is just one kind of bill of lading. A bill of lading is a between a [shipper](https://www.investopedia.com/sectors-and-industries-analysis-4689756) of a good and a transporter or carrier used in international trade. It is required to ship goods and acts as a receipt and contract. It shows that the carrier has received the freight as described—that's the cargo receipt. It also documents the [terms of delivery and release](https://www.investopedia.com/ask/answers/032315/i-need-telex-release-bill-lading-what-must-i-do-obtain-it.asp) of the product. It stipulates that the shipper must deliver that cargo to the consignee in good condition—the carriage contract. The word lading is derived from the word loading, referring to the loading of goods onto a ship. A bill of lading is perhaps the most important document in shipping. ### A bill of lading legally details the type, quantity, and destination of the goods being transported, how it's billed, and how the goods must be handled; it must accompany the shipped goods and be [signed by a representative of the shipper](https://www.investopedia.com/ask/answers/032615/what-endorsement-blank-bill-lading.asp). ## Special Considerations A through bill of lading has specific stipulations and conditions. A bill of lading will sometimes only cover one part or one aspect of the shipping process. A through bill of lading is more involved. As noted above, a through bill of lading allows the transportation of goods both within domestic borders and through international shipment. The bill is often required in order to export goods and [serves as a legal certificate](https://www.investopedia.com/ask/answers/030915/can-i-have-more-three-original-bills-lading.asp) authorizing a party to be in possession of and transporting a particular good. This is because a through bill of lading allows for the shipping carrier to pass the cargo through several different modes of [transportation](https://www.investopedia.com/terms/t/transportation_sector.asp), and several different distribution centers. While there is evidence for receipts for goods loaded aboard merchant vessels stretching back as far as Roman times, the practice of recording cargo in a ship's log is almost as long-lived as shipping itself. The modern bill of lading only came into use with the growth of international trade in the medieval world. ### Key Takeaways * A through bill of lading is a legal document that allows for the transportation of goods both within domestic borders and through international shipment. * The through bill of lading is often required for the exporting of goods, as it serves as a cargo receipt, a carriage contract, as well as the title (sometimes) for the products. A [transporter](https://www.investopedia.com/articles/investing/123115/top-6-companies-crude-tanker-business.asp) can move products both within a country and export them, often by air, with a through bill of lading. The through bill must contain an "inland bill of lading," which is the documentation required for domestic transportation. If the shipper wants to move the goods across the ocean, the "[inland bill of lading](https://www.investopedia.com/terms/i/inland-bill-of-lading.asp)" will not suffice; the through bill of lading will require an "[ocean bill of lading](https://www.investopedia.com/terms/o/ocean-bill-of-lading.asp)" will be required for any goods moving across the ocean.
What Is Through Bill of Lading? A through bill of lading is a legal document that allows for the transportation of goods both within domestic borders and through international shipment. The through bill of lading is often required for the exporting of goods, as it serves as a cargo receipt, a carriage contract, as well as the title (sometimes) for the products. Understanding Through Bill of Lading A through bill of lading is just one kind of bill of lading. A bill of lading is a between a shipper of a good and a transporter or carrier used in international trade. It is required to ship goods and acts as a receipt and contract. It shows that the carrier has received the freight as described—that's the cargo receipt. It also documents the terms of delivery and release of the product. It stipulates that the shipper must deliver that cargo to the consignee in good condition—the carriage contract. The word lading is derived from the word loading, referring to the loading of goods onto a ship. A bill of lading is perhaps the most important document in shipping. A bill of lading legally details the type, quantity, and destination of the goods being transported, how it's billed, and how the goods must be handled; it must accompany the shipped goods and be signed by a representative of the shipper. Special Considerations A through bill of lading has specific stipulations and conditions. A bill of lading will sometimes only cover one part or one aspect of the shipping process. A through bill of lading is more involved. As noted above, a through bill of lading allows the transportation of goods both within domestic borders and through international shipment. The bill is often required in order to export goods and serves as a legal certificate authorizing a party to be in possession of and transporting a particular good. This is because a through bill of lading allows for the shipping carrier to pass the cargo through several different modes of transportation, and several different distribution centers. While there is evidence for receipts for goods loaded aboard merchant vessels stretching back as far as Roman times, the practice of recording cargo in a ship's log is almost as long-lived as shipping itself. The modern bill of lading only came into use with the growth of international trade in the medieval world. Key Takeaways A through bill of lading is a legal document that allows for the transportation of goods both within domestic borders and through international shipment.The through bill of lading is often required for the exporting of goods, as it serves as a cargo receipt, a carriage contract, as well as the title (sometimes) for the products. A transporter can move products both within a country and export them, often by air, with a through bill of lading. The through bill must contain an "inland bill of lading," which is the documentation required for domestic transportation. If the shipper wants to move the goods across the ocean, the "inland bill of lading" will not suffice; the through bill of lading will require an "ocean bill of lading" will be required for any goods moving across the ocean.
[ [ "goods", "https://www.investopedia.com/terms/c/consumer-goods.asp" ], [ "shipper", "https://www.investopedia.com/sectors-and-industries-analysis-4689756" ], [ "terms of delivery and release", "https://www.investopedia.com/ask/answers/032315/i-need-telex-release-bill-lading-what-must-i-do-obtain-it.asp" ], [ "signed by a representative of the shipper", "https://www.investopedia.com/ask/answers/032615/what-endorsement-blank-bill-lading.asp" ], [ "serves as a legal certificate", "https://www.investopedia.com/ask/answers/030915/can-i-have-more-three-original-bills-lading.asp" ], [ "transportation", "https://www.investopedia.com/terms/t/transportation_sector.asp" ], [ "transporter", "https://www.investopedia.com/articles/investing/123115/top-6-companies-crude-tanker-business.asp" ], [ "inland bill of lading", "https://www.investopedia.com/terms/i/inland-bill-of-lading.asp" ], [ "ocean bill of lading", "https://www.investopedia.com/terms/o/ocean-bill-of-lading.asp" ] ]
https://www.investopedia.com/what-happens-car-loan-charged-off-7504958
What Happens If a Car Loan Is Charged Off?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 your car loan is charged off, that means 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> no longer believes you will repay the loan, and they may sell your account to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collectionagency.asp">collection agencies</a> or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt-buyer.asp">debt buyers</a>. You still legally have to repay the loan, and it can significantly damage your credit. You will likely also have your car repossessed during the process. </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"> Learn more about how loan charge-offs work and about the consequences of having a loan charged off. </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 loan charge-off will usually result in a negative impact 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> for several years.</li> <li>Charge-offs usually occur 120 to 180 days after you become delinquent on making a loan payment according to the terms.</li> <li>Charge-offs can remain on your credit reports for seven years.</li> <li>You are still legally obligated to repay a loan that has been charged off.</li> </ul></div></div></div> <span class="heading-toc" id="toc-why-do-lenders-charge-off-car-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Why Do Lenders Charge Off Car Loans? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> When lenders charge off a loan, they do not forgive the loan. Instead, they charge off loans for accounting purposes, but you are still legally obligated to repay the loan. Current <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</a> in good standing show up on lenders’ ledgers as assets. When a lender marks a loan as charged off, it is reflected as a loss in the lenders’ books so that the business no longer depends on the repayment of the car loan. </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"> Lenders often charge off car loans that are past due by 120 to 180 days. But they can decide to charge off an account at any time if they believe the debt is uncollectible, or even if you declare bankruptcy.<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> <span class="heading-toc" id="toc-understanding-the-car-loan-charge-off-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"> Understanding the Car Loan Charge-Off Process </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> When you fail to make payments on a car loan, the charge-off process usually entails these main steps:<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> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li><strong>You miss payments</strong>: With a car loan, you become <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/delinquent.asp">delinquent</a> when you miss your payments. When you are delinquent—meaning 30 days or more late—the lender will report the delinquency to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditbureau.asp">credit bureaus</a>, which can significantly hurt your credit.<span class="ql-inline-citation" data-cite="7"></span></li> <li><strong>The lender attempts to repossess the vehicle</strong>: In some states, the lender can repossess the vehicle as soon as you miss a payment. Depending on where you live, the lender may have to give you a warning first, but they don’t need a court order to repossess your car. </li> <li><strong>You have a limited time to come up with the money</strong>: Once the car is repossessed, you usually have a few days to pay the lender what you owe along with added late fees. Otherwise, your car is sold at auction. </li> <li><strong>The lender sells the vehicle</strong>: The lender will sell the vehicle to recoup some of their money. If the car sells for less than you owe, you still owe the remaining balance.<span class="ql-inline-citation" data-cite="6"></span></li> <li><strong>The lender charges off the account</strong>: A charge-off can happen before your loan is repossessed and sold. Charge-offs also commonly occur after repossession because the lender will be less likely to expect you to repay the loan when you don’t have the vehicle.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-what-happens-after-a-car-loan-charge-off"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> What Happens After a Car Loan Charge-Off? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> When the lender charges off the account, you still owe the money. However, the lender may sell the account to a collection agency or debt buyer, and that company will try to collect the money that you owed. And the amount will likely be higher than you previously owed after collection fees and other costs are added.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_21-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>A car loan repossession or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-do-i-remove-charge-offs-from-my-credit-5075534">charge-off status</a> will be reported to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/top-three-credit-bureaus/">the three major credit bureaus</a> and will stay on your credit reports for seven years. It can significantly damage your credit. As a result, lenders will be less likely to approve you for other forms of credit, including car loans, and less likely to offer you their best terms.<span class="ql-inline-citation" data-cite="7"></span></p></div></div></div> <span class="heading-toc" id="toc-what-to-do-if-your-car-loan-is-charged-off"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> What to Do If Your Car Loan Is Charged Off </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Once the loan is charged off and sold to a collection agency, the agency will pursue <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">repayment</a>. You still are legally obligated to repay the loan. Here are the some potential outcomes:  </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><strong>The collection agency may agree to a payment plan</strong>: Avoiding the collection agency won’t make them go away. Instead, communicate what you can afford to pay. The company may be willing to accept a payment plan for the remaining balance. </li> <li><strong>The collection agency may <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-auto-loan-debt-relief-8548742">settle for less than you owe</a></strong>: The collection agency likely bought your account for far less than the balance, so you may have some room to negotiate. They may be willing to settle the account for less than you owe. If the agency agrees to settle for a smaller amount, get confirmation in writing that the account is paid in full and closed. </li> <li><strong>They may pursue a legal judgment</strong>: If the collection agency is unable to collect payments from you, they can take you to court. If they get a legal judgment against you, they can take additional steps to collect the money owed, including wage garnishment.<span class="ql-inline-citation" data-cite="9"></span><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_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> If your car loan is charged off, work with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/121514/how-debt-collection-agency-business-works.asp">collection agency</a> to come up with a plan for repayment and get any agreements in writing. Alternatively, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankruptcy.asp">bankruptcy</a> can be an option for discharging a vehicle loan charge-off.<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_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-can-you-drive-a-vehicle-in-charge-off"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Drive a Vehicle in Charge-Off?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In most cases, the car will be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/car-back-after-title-loan-repossession-7487035">repossessed</a> before it is charged off. However, there may be some situations where you have a few days before you receive notice of the charge-off and the vehicle’s repossession. So there may be a few days where you can drive the car. If you used an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecuredloan.asp">unsecured loan</a> to buy the vehicle, such as a personal loan, the car is not used as collateral, so the lender cannot seize the vehicle without a court order. In that scenario, you could drive the car even if the loan has been charged off.</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-how-long-does-a-car-charge-off-stay-on-your-credit"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Does a Car Charge-Off Stay on Your Credit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A car loan <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">default</a> and charge-off will remain on your credit report for seven years. Negative information cannot be removed early from a credit report if it is accurate. But you can dispute any inaccurate information.<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_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-can-i-get-insurance-for-a-car-that-has-been-charged-off"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Get Insurance for a Car That Has Been Charged Off?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If the car loan was charged off but you still have the vehicle, you can technically get <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-car-insurance-companies-4783675">car insurance</a>. But in most states, insurers can review your credit report to determine whether to issue you a policy and decide your premiums. A car loan default and charge-off will substantially damage your credit, so it may be difficult to find an insurance company willing to work with you.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_35-0"><span class="heading-toc" id="toc-which-is-worse-a-car-loan-charge-off-or-a-repossession"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Is Worse, a Car Loan Charge-Off or a Repossession?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Car loan charge-offs and repossessions are terms that refer to very different processes, and they both have significant negative effects on your credit. A car loan charge-off is when the lender has determined that you likely won’t repay the loan and classifies the account as a liability rather than an asset. With a repossession, the lender can seize the vehicle before or after a charge-off, and then sell it to recoup some of their money.<span class="ql-inline-citation" data-cite="8"></span><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_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-can-i-get-the-title-for-a-car-that-has-been-charged-off"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Get the Title for a Car That Has Been Charged Off?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Generally, you cannot get the title for the case that has been charged off until the loan is either paid in full or if you reach a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/debt-settlement-cheapest-way-get-out-debt/">settlement</a> with the collection agency that now owns the loan.<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_38-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> If your car loan is in default and is charged off, that doesn’t mean the loan is eliminated. You still owe the balance and other fees, and the collection agency that takes over the loan can take severe measures to recoup the money. To avoid further damage to your finances, work with the collection agency to come up with a payment plan or settlement amount so you can move forward.  </p></div>
When your car loan is charged off, that means the [lender](https://www.investopedia.com/terms/l/lender.asp) no longer believes you will repay the loan, and they may sell your account to [collection agencies](https://www.investopedia.com/terms/c/collectionagency.asp) or [debt buyers](https://www.investopedia.com/terms/d/debt-buyer.asp). You still legally have to repay the loan, and it can significantly damage your credit. You will likely also have your car repossessed during the process. Learn more about how loan charge-offs work and about the consequences of having a loan charged off. ### Key Takeaways * A loan charge-off will usually result in a negative impact on your [credit report](https://www.investopedia.com/terms/c/creditreport.asp) for several years. * Charge-offs usually occur 120 to 180 days after you become delinquent on making a loan payment according to the terms. * Charge-offs can remain on your credit reports for seven years. * You are still legally obligated to repay a loan that has been charged off. ## Why Do Lenders Charge Off Car Loans? When lenders charge off a loan, they do not forgive the loan. Instead, they charge off loans for accounting purposes, but you are still legally obligated to repay the loan. Current [car loans](https://www.investopedia.com/best-auto-loan-rates-4846394) in good standing show up on lenders’ ledgers as assets. When a lender marks a loan as charged off, it is reflected as a loss in the lenders’ books so that the business no longer depends on the repayment of the car loan. Lenders often charge off car loans that are past due by 120 to 180 days. But they can decide to charge off an account at any time if they believe the debt is uncollectible, or even if you declare bankruptcy.  ## Understanding the Car Loan Charge-Off Process When you fail to make payments on a car loan, the charge-off process usually entails these main steps:  * **You miss payments**: With a car loan, you become [delinquent](https://www.investopedia.com/terms/d/delinquent.asp) when you miss your payments. When you are delinquent—meaning 30 days or more late—the lender will report the delinquency to the [credit bureaus](https://www.investopedia.com/terms/c/creditbureau.asp), which can significantly hurt your credit. * **The lender attempts to repossess the vehicle**: In some states, the lender can repossess the vehicle as soon as you miss a payment. Depending on where you live, the lender may have to give you a warning first, but they don’t need a court order to repossess your car. * **You have a limited time to come up with the money**: Once the car is repossessed, you usually have a few days to pay the lender what you owe along with added late fees. Otherwise, your car is sold at auction. * **The lender sells the vehicle**: The lender will sell the vehicle to recoup some of their money. If the car sells for less than you owe, you still owe the remaining balance. * **The lender charges off the account**: A charge-off can happen before your loan is repossessed and sold. Charge-offs also commonly occur after repossession because the lender will be less likely to expect you to repay the loan when you don’t have the vehicle. ## What Happens After a Car Loan Charge-Off? When the lender charges off the account, you still owe the money. However, the lender may sell the account to a collection agency or debt buyer, and that company will try to collect the money that you owed. And the amount will likely be higher than you previously owed after collection fees and other costs are added. ### A car loan repossession or [charge-off status](https://www.investopedia.com/how-do-i-remove-charge-offs-from-my-credit-5075534) will be reported to [the three major credit bureaus](https://www.investopedia.com/personal-finance/top-three-credit-bureaus/) and will stay on your credit reports for seven years. It can significantly damage your credit. As a result, lenders will be less likely to approve you for other forms of credit, including car loans, and less likely to offer you their best terms. ## What to Do If Your Car Loan Is Charged Off Once the loan is charged off and sold to a collection agency, the agency will pursue [repayment](https://www.investopedia.com/terms/r/repayment.asp). You still are legally obligated to repay the loan. Here are the some potential outcomes:  * **The collection agency may agree to a payment plan**: Avoiding the collection agency won’t make them go away. Instead, communicate what you can afford to pay. The company may be willing to accept a payment plan for the remaining balance. * **The collection agency may [settle for less than you owe](https://www.investopedia.com/how-to-get-auto-loan-debt-relief-8548742)**: The collection agency likely bought your account for far less than the balance, so you may have some room to negotiate. They may be willing to settle the account for less than you owe. If the agency agrees to settle for a smaller amount, get confirmation in writing that the account is paid in full and closed. * **They may pursue a legal judgment**: If the collection agency is unable to collect payments from you, they can take you to court. If they get a legal judgment against you, they can take additional steps to collect the money owed, including wage garnishment. If your car loan is charged off, work with the [collection agency](https://www.investopedia.com/articles/personal-finance/121514/how-debt-collection-agency-business-works.asp) to come up with a plan for repayment and get any agreements in writing. Alternatively, [bankruptcy](https://www.investopedia.com/terms/b/bankruptcy.asp) can be an option for discharging a vehicle loan charge-off. ## Can You Drive a Vehicle in Charge-Off? In most cases, the car will be [repossessed](https://www.investopedia.com/car-back-after-title-loan-repossession-7487035) before it is charged off. However, there may be some situations where you have a few days before you receive notice of the charge-off and the vehicle’s repossession. So there may be a few days where you can drive the car. If you used an [unsecured loan](https://www.investopedia.com/terms/u/unsecuredloan.asp) to buy the vehicle, such as a personal loan, the car is not used as collateral, so the lender cannot seize the vehicle without a court order. In that scenario, you could drive the car even if the loan has been charged off. ## How Long Does a Car Charge-Off Stay on Your Credit? A car loan [default](https://www.investopedia.com/terms/d/default2.asp) and charge-off will remain on your credit report for seven years. Negative information cannot be removed early from a credit report if it is accurate. But you can dispute any inaccurate information. ## Can I Get Insurance for a Car That Has Been Charged Off? If the car loan was charged off but you still have the vehicle, you can technically get [car insurance](https://www.investopedia.com/best-car-insurance-companies-4783675). But in most states, insurers can review your credit report to determine whether to issue you a policy and decide your premiums. A car loan default and charge-off will substantially damage your credit, so it may be difficult to find an insurance company willing to work with you. ## Which Is Worse, a Car Loan Charge-Off or a Repossession? Car loan charge-offs and repossessions are terms that refer to very different processes, and they both have significant negative effects on your credit. A car loan charge-off is when the lender has determined that you likely won’t repay the loan and classifies the account as a liability rather than an asset. With a repossession, the lender can seize the vehicle before or after a charge-off, and then sell it to recoup some of their money. ## Can I Get the Title for a Car That Has Been Charged Off? Generally, you cannot get the title for the case that has been charged off until the loan is either paid in full or if you reach a [settlement](https://www.investopedia.com/personal-finance/debt-settlement-cheapest-way-get-out-debt/) with the collection agency that now owns the loan. ## The Bottom Line If your car loan is in default and is charged off, that doesn’t mean the loan is eliminated. You still owe the balance and other fees, and the collection agency that takes over the loan can take severe measures to recoup the money. To avoid further damage to your finances, work with the collection agency to come up with a payment plan or settlement amount so you can move forward. 
When your car loan is charged off, that means the lender no longer believes you will repay the loan, and they may sell your account to collection agencies or debt buyers. You still legally have to repay the loan, and it can significantly damage your credit. You will likely also have your car repossessed during the process. Learn more about how loan charge-offs work and about the consequences of having a loan charged off. Key Takeaways A loan charge-off will usually result in a negative impact on your credit report for several years. Charge-offs usually occur 120 to 180 days after you become delinquent on making a loan payment according to the terms. Charge-offs can remain on your credit reports for seven years. You are still legally obligated to repay a loan that has been charged off. Why Do Lenders Charge Off Car Loans? When lenders charge off a loan, they do not forgive the loan. Instead, they charge off loans for accounting purposes, but you are still legally obligated to repay the loan. Current car loans in good standing show up on lenders’ ledgers as assets. When a lender marks a loan as charged off, it is reflected as a loss in the lenders’ books so that the business no longer depends on the repayment of the car loan. Lenders often charge off car loans that are past due by 120 to 180 days. But they can decide to charge off an account at any time if they believe the debt is uncollectible, or even if you declare bankruptcy.  Understanding the Car Loan Charge-Off Process When you fail to make payments on a car loan, the charge-off process usually entails these main steps:  You miss payments: With a car loan, you become delinquent when you miss your payments. When you are delinquent—meaning 30 days or more late—the lender will report the delinquency to the credit bureaus, which can significantly hurt your credit. The lender attempts to repossess the vehicle: In some states, the lender can repossess the vehicle as soon as you miss a payment. Depending on where you live, the lender may have to give you a warning first, but they don’t need a court order to repossess your car.  You have a limited time to come up with the money: Once the car is repossessed, you usually have a few days to pay the lender what you owe along with added late fees. Otherwise, your car is sold at auction.  The lender sells the vehicle: The lender will sell the vehicle to recoup some of their money. If the car sells for less than you owe, you still owe the remaining balance. The lender charges off the account: A charge-off can happen before your loan is repossessed and sold. Charge-offs also commonly occur after repossession because the lender will be less likely to expect you to repay the loan when you don’t have the vehicle. What Happens After a Car Loan Charge-Off? When the lender charges off the account, you still owe the money. However, the lender may sell the account to a collection agency or debt buyer, and that company will try to collect the money that you owed. And the amount will likely be higher than you previously owed after collection fees and other costs are added. A car loan repossession or charge-off status will be reported to the three major credit bureaus and will stay on your credit reports for seven years. It can significantly damage your credit. As a result, lenders will be less likely to approve you for other forms of credit, including car loans, and less likely to offer you their best terms. What to Do If Your Car Loan Is Charged Off Once the loan is charged off and sold to a collection agency, the agency will pursue repayment. You still are legally obligated to repay the loan. Here are the some potential outcomes:  The collection agency may agree to a payment plan: Avoiding the collection agency won’t make them go away. Instead, communicate what you can afford to pay. The company may be willing to accept a payment plan for the remaining balance.  The collection agency may settle for less than you owe: The collection agency likely bought your account for far less than the balance, so you may have some room to negotiate. They may be willing to settle the account for less than you owe. If the agency agrees to settle for a smaller amount, get confirmation in writing that the account is paid in full and closed.  They may pursue a legal judgment: If the collection agency is unable to collect payments from you, they can take you to court. If they get a legal judgment against you, they can take additional steps to collect the money owed, including wage garnishment. If your car loan is charged off, work with the collection agency to come up with a plan for repayment and get any agreements in writing. Alternatively, bankruptcy can be an option for discharging a vehicle loan charge-off. Can You Drive a Vehicle in Charge-Off? In most cases, the car will be repossessed before it is charged off. However, there may be some situations where you have a few days before you receive notice of the charge-off and the vehicle’s repossession. So there may be a few days where you can drive the car. If you used an unsecured loan to buy the vehicle, such as a personal loan, the car is not used as collateral, so the lender cannot seize the vehicle without a court order. In that scenario, you could drive the car even if the loan has been charged off. How Long Does a Car Charge-Off Stay on Your Credit? A car loan default and charge-off will remain on your credit report for seven years. Negative information cannot be removed early from a credit report if it is accurate. But you can dispute any inaccurate information. Can I Get Insurance for a Car That Has Been Charged Off? If the car loan was charged off but you still have the vehicle, you can technically get car insurance. But in most states, insurers can review your credit report to determine whether to issue you a policy and decide your premiums. A car loan default and charge-off will substantially damage your credit, so it may be difficult to find an insurance company willing to work with you. Which Is Worse, a Car Loan Charge-Off or a Repossession? Car loan charge-offs and repossessions are terms that refer to very different processes, and they both have significant negative effects on your credit. A car loan charge-off is when the lender has determined that you likely won’t repay the loan and classifies the account as a liability rather than an asset. With a repossession, the lender can seize the vehicle before or after a charge-off, and then sell it to recoup some of their money. Can I Get the Title for a Car That Has Been Charged Off? Generally, you cannot get the title for the case that has been charged off until the loan is either paid in full or if you reach a settlement with the collection agency that now owns the loan. The Bottom Line If your car loan is in default and is charged off, that doesn’t mean the loan is eliminated. You still owe the balance and other fees, and the collection agency that takes over the loan can take severe measures to recoup the money. To avoid further damage to your finances, work with the collection agency to come up with a payment plan or settlement amount so you can move forward. 
[ [ "lender", "https://www.investopedia.com/terms/l/lender.asp" ], [ "collection agencies", "https://www.investopedia.com/terms/c/collectionagency.asp" ], [ "debt buyers", "https://www.investopedia.com/terms/d/debt-buyer.asp" ], [ "credit report", "https://www.investopedia.com/terms/c/creditreport.asp" ], [ "car loans", "https://www.investopedia.com/best-auto-loan-rates-4846394" ], [ "delinquent", "https://www.investopedia.com/terms/d/delinquent.asp" ], [ "credit bureaus", "https://www.investopedia.com/terms/c/creditbureau.asp" ], [ "charge-off status", "https://www.investopedia.com/how-do-i-remove-charge-offs-from-my-credit-5075534" ], [ "the three major credit bureaus", "https://www.investopedia.com/personal-finance/top-three-credit-bureaus/" ], [ "repayment", "https://www.investopedia.com/terms/r/repayment.asp" ], [ "settle for less than you owe", "https://www.investopedia.com/how-to-get-auto-loan-debt-relief-8548742" ], [ "collection agency", "https://www.investopedia.com/articles/personal-finance/121514/how-debt-collection-agency-business-works.asp" ], [ "bankruptcy", "https://www.investopedia.com/terms/b/bankruptcy.asp" ], [ "repossessed", "https://www.investopedia.com/car-back-after-title-loan-repossession-7487035" ], [ "unsecured loan", "https://www.investopedia.com/terms/u/unsecuredloan.asp" ], [ "default", "https://www.investopedia.com/terms/d/default2.asp" ], [ "car insurance", "https://www.investopedia.com/best-car-insurance-companies-4783675" ], [ "settlement", "https://www.investopedia.com/personal-finance/debt-settlement-cheapest-way-get-out-debt/" ] ]
https://www.investopedia.com/the-express-podcast-episode-135-7487402
Breaking Down Money Myths and Discovering Wealth Hacks with Mrs. Dow Jones
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block megaphone" id="mntl-sc-block_1-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://playlist.megaphone.fm/?e=MERE3991575803" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Breaking Down Money Myths and Discovering Wealth Hacks with Mrs. Dow Jones"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <strong>Subscribe Now</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197" rel="nofollow">Apple Podcasts</a> / <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9" rel="nofollow">Spotify</a> / <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver">Google Podcasts</a> / <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://player.fm/series/2836180">PlayerFM</a> </p> <div class="comp 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>
**Subscribe Now**: [Apple Podcasts](https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197) / [Spotify](https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9) / [Google Podcasts](https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver) / [PlayerFM](https://player.fm/series/2836180) Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
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[ [ "Apple Podcasts", "https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197" ], [ "Spotify", "https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9" ], [ "Google Podcasts", "https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver" ], [ "PlayerFM", "https://player.fm/series/2836180" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/if-you-thought-the-worst-of-inflation-was-over-check-out-your-insurance-bill-8386955
If You Thought The Worst of Inflation Was Over, Check Out Your Insurance Bill
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Premiums have soared for home and auto insurance policies, as companies pass higher costs on to their customers.</li><li>The rate increases are an echo of last year's hot inflation, which pushed up prices for homes, cars, and repairs.<br/></li><li>Insurance companies have been slow to raise rates because they typically need approval from state regulators to hike premiums.<br/></li><li>Double-digit increases to car and home insurance can add hundreds to monthly bills.<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"> Call it delayed-reaction inflation.<br/><br/>Just as price increases are cooling off for most products and services people buy, inflation is heating up for some of the bigger-ticket items in household budgets: auto and homeowners insurance policies.<br/><br/>The cost of auto insurance rose 18.1% over the year as of September, the Bureau of Labor Statistics said this month, down slightly from the 19.2% increase in August, which <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/car-insurance-premiums-are-going-full-throttle-7969333">had been the highest since 1976</a>.<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_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/MUp5A/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Car Insurance is Driving Up Inflation"></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"> Other measures of insurance costs also show large increases, with S&amp;P Global Intelligence reporting an 11% annual jump in car insurance premiums as of August.<span class="ql-inline-citation" data-cite="1"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Protecting your home will also cost you: Homeowners insurance premiums jumped an average of 21% nationally in May 2023 from May 2022 when policyholders renewed their contracts, according to insurance data website Policygenius.<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"> That’s a major hit to household budgets. The average homeowner’s policy costs $1,754 a year, while drivers aged 30-45 paid an average $1,638 in 2023 according to Policygenius data, so double-digit percentage increases can add hundreds to the tab.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="4"></span><br/><br/>Consumers are responding to auto insurance rate hikes by shopping around more for better deals, or by not insuring their vehicles, according to a September report by analytics firm J.D. Power—a risky option in most states, where insurance is required by law to drive. As of the second quarter, 5.7% of households had at least one vehicle said they didn’t have insurance, up from 5.3% in the second half of 2022, J.D. Power researchers said.<span class="ql-inline-citation" data-cite="6"></span><br/><br/>Dylan Barone, 34, an auto-body worker from Clifton, New Jersey said his Highpoint Insurance policy on two cars went to $470 a month from $350 a month when he renewed his policy this year, with no tickets or accidents.<br/><br/>“I don't want to sound like, ‘Woe is me, pity party,’ but I'm living paycheck to paycheck as it is,” he said. <span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span>“It’s going to be like robbing Peter to pay Paul until I can figure out where I'm going to get this extra $120 a month.”<br/><br/>Insurance is getting costlier even as overall price increases are slowing down. U.S. consumers <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cpi-inflation-data-september-8351194">faced costs 3.7% higher</a> over the 12 months ending in September for typical purchases according to the Consumer Price Index. That’s down from the peak of a 9.1% annual increase in June 2022.  </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"> One reason for the delayed surge in prices: Insurance is regulated at the state level, and insurers have to jump through regulatory hoops to get rate increases approved. And jumping they are.<br><br>“Over the course of the past couple of years, where we've seen costs rising for everything else, essentially, insurance rates have not until very recently,” said Breanne Armstrong, director of insurance intelligence at JD Power. “It just takes a while for regulators to approve potential rate hikes.”<br><br>Indeed, rate-payers may only just be beginning to feel the financial pain, with lots of insurance rate hikes still in the pipeline.  </br></br></br></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"> For example, Allstate has applied to raise its vehicle insurance rates by 35% in California, 29% in New Jersey, and 18.3% in New York, company executives said on an earnings call Thursday. The executives threatened to pull back on policies in those states if the hikes were not approved.<span class="ql-inline-citation" data-cite="7"></span><br><br>“We need action on those filings in the fourth quarter,” said Mario Rizzo, president of property-liability at Allstate. “And if we can’t, then we believe the right thing to do for the customers in the other 47 states as well as for our shareholders is to take additional action to get smaller across all three of those states. And that’s what we would do beginning next year if we can’t get resolution on the rate filings that are currently pending.”<br><br>Insurers say they’re passing their own rising costs to fix up and replace cars and houses on to consumers, and that without rate hikes, they’re losing money. State Farm, for instance, reported losing $13.4 billion on its insurance policies in 2022 in its annual report.<span class="ql-inline-citation" data-cite="8"></span> Allstate said it’s dealing with the costs not only by raising premiums but by cutting back on advertising, an industry-wide trend. </br></br></br></br></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-its-not-just-inflation-driving-up-costs"></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"> It’s Not Just Inflation Driving Up Costs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The increased costs stem both from the rapid and widespread inflation of the past two years from causes specific to the insurance business.<br/><br/>The price surge for both <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/great-housing-crash-of-2023-fizzled-before-beginning-7568290">homes</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/amid-surging-prices-loan-rates-paying-for-a-new-car-costs-more-than-ever-7574619">cars</a> has driven up costs for insurers, said Scott Holeman director of media relations at the Insurance Information Institute, a trade group representing insurers.  </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"> Not only that, but cars have gotten harder to fix for a variety of reasons. A labor shortage has driven up prices charged by repair shops, he said. Cars are increasingly loaded with safety devices such as collision avoidance sensors and more airbags, which make cars safer, but costlier to repair when they do crash.<br><br>Insurers have also noted an epidemic of reckless and intoxicated driving in the aftermath of the pandemic.<span class="ql-inline-citation" data-cite="9"></span> On the homeowners’ insurance side, climate change is also a factor, with the increasing frequency and severity of natural disasters pushing up insurance costs in Florida and Louisiana, and forcing major insurers to pull out of California, where wildfires are making home ownership more hazardous.<br><br>Indeed, the extent of insurance premium increases varies widely by state. Florida homeowners had their premiums rise by 35% in 2023, while those in Vermont only rose 10% according to Policygenius.<span class="ql-inline-citation" data-cite="3"></span>  </br></br></br></br></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-insurance-rates-are-highso-what-can-you-do-about-it"></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"> Insurance Rates Are High–So What Can You Do About It? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> There are a few things that customers can do to push down their insurance bills, Holeman said.<br><br>One basic strategy is to shop around for a better rate.<br><br/>“Insurance is still a very competitive industry. We encourage people to go out and shop for insurance...get at least three quotes a year,” Holeman said.<br/><br/>Policyholders can also switch to coverage with higher deductibles, reducing the premium while increasing their own costs in the event they have to make a claim.<br/> </br></br></br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Many insurers offer discounts for doing things to reduce risk, such as managing vegetation around your house in wildfire-prone areas, or for working from home, which reduces burglary risk. Some companies offer good grade discounts for student drivers.<br/><br/>“Ask what they can do to lower their rates. Ask for discounts that you might qualify for,” Holeman said. “Find out if you qualify for a good rate because different companies have different programs.”<br/> </p></div>
### Key Takeaways * Premiums have soared for home and auto insurance policies, as companies pass higher costs on to their customers. * The rate increases are an echo of last year's hot inflation, which pushed up prices for homes, cars, and repairs. * Insurance companies have been slow to raise rates because they typically need approval from state regulators to hike premiums. * Double-digit increases to car and home insurance can add hundreds to monthly bills. Call it delayed-reaction inflation. Just as price increases are cooling off for most products and services people buy, inflation is heating up for some of the bigger-ticket items in household budgets: auto and homeowners insurance policies. The cost of auto insurance rose 18.1% over the year as of September, the Bureau of Labor Statistics said this month, down slightly from the 19.2% increase in August, which [had been the highest since 1976](https://www.investopedia.com/car-insurance-premiums-are-going-full-throttle-7969333). Other measures of insurance costs also show large increases, with S&P Global Intelligence reporting an 11% annual jump in car insurance premiums as of August.  Protecting your home will also cost you: Homeowners insurance premiums jumped an average of 21% nationally in May 2023 from May 2022 when policyholders renewed their contracts, according to insurance data website Policygenius.  That’s a major hit to household budgets. The average homeowner’s policy costs $1,754 a year, while drivers aged 30-45 paid an average $1,638 in 2023 according to Policygenius data, so double-digit percentage increases can add hundreds to the tab. Consumers are responding to auto insurance rate hikes by shopping around more for better deals, or by not insuring their vehicles, according to a September report by analytics firm J.D. Power—a risky option in most states, where insurance is required by law to drive. As of the second quarter, 5.7% of households had at least one vehicle said they didn’t have insurance, up from 5.3% in the second half of 2022, J.D. Power researchers said. Dylan Barone, 34, an auto-body worker from Clifton, New Jersey said his Highpoint Insurance policy on two cars went to $470 a month from $350 a month when he renewed his policy this year, with no tickets or accidents. “I don't want to sound like, ‘Woe is me, pity party,’ but I'm living paycheck to paycheck as it is,” he said. “It’s going to be like robbing Peter to pay Paul until I can figure out where I'm going to get this extra $120 a month.” Insurance is getting costlier even as overall price increases are slowing down. U.S. consumers [faced costs 3.7% higher](https://www.investopedia.com/cpi-inflation-data-september-8351194) over the 12 months ending in September for typical purchases according to the Consumer Price Index. That’s down from the peak of a 9.1% annual increase in June 2022.  One reason for the delayed surge in prices: Insurance is regulated at the state level, and insurers have to jump through regulatory hoops to get rate increases approved. And jumping they are. “Over the course of the past couple of years, where we've seen costs rising for everything else, essentially, insurance rates have not until very recently,” said Breanne Armstrong, director of insurance intelligence at JD Power. “It just takes a while for regulators to approve potential rate hikes.” Indeed, rate-payers may only just be beginning to feel the financial pain, with lots of insurance rate hikes still in the pipeline.  For example, Allstate has applied to raise its vehicle insurance rates by 35% in California, 29% in New Jersey, and 18.3% in New York, company executives said on an earnings call Thursday. The executives threatened to pull back on policies in those states if the hikes were not approved. “We need action on those filings in the fourth quarter,” said Mario Rizzo, president of property-liability at Allstate. “And if we can’t, then we believe the right thing to do for the customers in the other 47 states as well as for our shareholders is to take additional action to get smaller across all three of those states. And that’s what we would do beginning next year if we can’t get resolution on the rate filings that are currently pending.” Insurers say they’re passing their own rising costs to fix up and replace cars and houses on to consumers, and that without rate hikes, they’re losing money. State Farm, for instance, reported losing $13.4 billion on its insurance policies in 2022 in its annual report. Allstate said it’s dealing with the costs not only by raising premiums but by cutting back on advertising, an industry-wide trend. ## It’s Not Just Inflation Driving Up Costs The increased costs stem both from the rapid and widespread inflation of the past two years from causes specific to the insurance business. The price surge for both [homes](https://www.investopedia.com/great-housing-crash-of-2023-fizzled-before-beginning-7568290) and [cars](https://www.investopedia.com/amid-surging-prices-loan-rates-paying-for-a-new-car-costs-more-than-ever-7574619) has driven up costs for insurers, said Scott Holeman director of media relations at the Insurance Information Institute, a trade group representing insurers.  Not only that, but cars have gotten harder to fix for a variety of reasons. A labor shortage has driven up prices charged by repair shops, he said. Cars are increasingly loaded with safety devices such as collision avoidance sensors and more airbags, which make cars safer, but costlier to repair when they do crash. Insurers have also noted an epidemic of reckless and intoxicated driving in the aftermath of the pandemic. On the homeowners’ insurance side, climate change is also a factor, with the increasing frequency and severity of natural disasters pushing up insurance costs in Florida and Louisiana, and forcing major insurers to pull out of California, where wildfires are making home ownership more hazardous. Indeed, the extent of insurance premium increases varies widely by state. Florida homeowners had their premiums rise by 35% in 2023, while those in Vermont only rose 10% according to Policygenius.  ## Insurance Rates Are High–So What Can You Do About It? There are a few things that customers can do to push down their insurance bills, Holeman said. One basic strategy is to shop around for a better rate. Many insurers offer discounts for doing things to reduce risk, such as managing vegetation around your house in wildfire-prone areas, or for working from home, which reduces burglary risk. Some companies offer good grade discounts for student drivers. “Ask what they can do to lower their rates. Ask for discounts that you might qualify for,” Holeman said. “Find out if you qualify for a good rate because different companies have different programs.”
Key Takeaways Premiums have soared for home and auto insurance policies, as companies pass higher costs on to their customers.The rate increases are an echo of last year's hot inflation, which pushed up prices for homes, cars, and repairs.Insurance companies have been slow to raise rates because they typically need approval from state regulators to hike premiums.Double-digit increases to car and home insurance can add hundreds to monthly bills. Call it delayed-reaction inflation.Just as price increases are cooling off for most products and services people buy, inflation is heating up for some of the bigger-ticket items in household budgets: auto and homeowners insurance policies.The cost of auto insurance rose 18.1% over the year as of September, the Bureau of Labor Statistics said this month, down slightly from the 19.2% increase in August, which had been the highest since 1976. Other measures of insurance costs also show large increases, with S&P Global Intelligence reporting an 11% annual jump in car insurance premiums as of August.  Protecting your home will also cost you: Homeowners insurance premiums jumped an average of 21% nationally in May 2023 from May 2022 when policyholders renewed their contracts, according to insurance data website Policygenius.  That’s a major hit to household budgets. The average homeowner’s policy costs $1,754 a year, while drivers aged 30-45 paid an average $1,638 in 2023 according to Policygenius data, so double-digit percentage increases can add hundreds to the tab.Consumers are responding to auto insurance rate hikes by shopping around more for better deals, or by not insuring their vehicles, according to a September report by analytics firm J.D. Power—a risky option in most states, where insurance is required by law to drive. As of the second quarter, 5.7% of households had at least one vehicle said they didn’t have insurance, up from 5.3% in the second half of 2022, J.D. Power researchers said.Dylan Barone, 34, an auto-body worker from Clifton, New Jersey said his Highpoint Insurance policy on two cars went to $470 a month from $350 a month when he renewed his policy this year, with no tickets or accidents.“I don't want to sound like, ‘Woe is me, pity party,’ but I'm living paycheck to paycheck as it is,” he said. “It’s going to be like robbing Peter to pay Paul until I can figure out where I'm going to get this extra $120 a month.”Insurance is getting costlier even as overall price increases are slowing down. U.S. consumers faced costs 3.7% higher over the 12 months ending in September for typical purchases according to the Consumer Price Index. That’s down from the peak of a 9.1% annual increase in June 2022.  One reason for the delayed surge in prices: Insurance is regulated at the state level, and insurers have to jump through regulatory hoops to get rate increases approved. And jumping they are.“Over the course of the past couple of years, where we've seen costs rising for everything else, essentially, insurance rates have not until very recently,” said Breanne Armstrong, director of insurance intelligence at JD Power. “It just takes a while for regulators to approve potential rate hikes.”Indeed, rate-payers may only just be beginning to feel the financial pain, with lots of insurance rate hikes still in the pipeline.  For example, Allstate has applied to raise its vehicle insurance rates by 35% in California, 29% in New Jersey, and 18.3% in New York, company executives said on an earnings call Thursday. The executives threatened to pull back on policies in those states if the hikes were not approved.“We need action on those filings in the fourth quarter,” said Mario Rizzo, president of property-liability at Allstate. “And if we can’t, then we believe the right thing to do for the customers in the other 47 states as well as for our shareholders is to take additional action to get smaller across all three of those states. And that’s what we would do beginning next year if we can’t get resolution on the rate filings that are currently pending.”Insurers say they’re passing their own rising costs to fix up and replace cars and houses on to consumers, and that without rate hikes, they’re losing money. State Farm, for instance, reported losing $13.4 billion on its insurance policies in 2022 in its annual report. Allstate said it’s dealing with the costs not only by raising premiums but by cutting back on advertising, an industry-wide trend. It’s Not Just Inflation Driving Up Costs The increased costs stem both from the rapid and widespread inflation of the past two years from causes specific to the insurance business.The price surge for both homes and cars has driven up costs for insurers, said Scott Holeman director of media relations at the Insurance Information Institute, a trade group representing insurers.  Not only that, but cars have gotten harder to fix for a variety of reasons. A labor shortage has driven up prices charged by repair shops, he said. Cars are increasingly loaded with safety devices such as collision avoidance sensors and more airbags, which make cars safer, but costlier to repair when they do crash.Insurers have also noted an epidemic of reckless and intoxicated driving in the aftermath of the pandemic. On the homeowners’ insurance side, climate change is also a factor, with the increasing frequency and severity of natural disasters pushing up insurance costs in Florida and Louisiana, and forcing major insurers to pull out of California, where wildfires are making home ownership more hazardous.Indeed, the extent of insurance premium increases varies widely by state. Florida homeowners had their premiums rise by 35% in 2023, while those in Vermont only rose 10% according to Policygenius.  Insurance Rates Are High–So What Can You Do About It? There are a few things that customers can do to push down their insurance bills, Holeman said.One basic strategy is to shop around for a better rate.“Insurance is still a very competitive industry. We encourage people to go out and shop for insurance...get at least three quotes a year,” Holeman said.Policyholders can also switch to coverage with higher deductibles, reducing the premium while increasing their own costs in the event they have to make a claim. Many insurers offer discounts for doing things to reduce risk, such as managing vegetation around your house in wildfire-prone areas, or for working from home, which reduces burglary risk. Some companies offer good grade discounts for student drivers.“Ask what they can do to lower their rates. Ask for discounts that you might qualify for,” Holeman said. “Find out if you qualify for a good rate because different companies have different programs.”
[ [ "had been the highest since 1976", "https://www.investopedia.com/car-insurance-premiums-are-going-full-throttle-7969333" ], [ "faced costs 3.7% higher", "https://www.investopedia.com/cpi-inflation-data-september-8351194" ], [ "homes", "https://www.investopedia.com/great-housing-crash-of-2023-fizzled-before-beginning-7568290" ], [ "cars", "https://www.investopedia.com/amid-surging-prices-loan-rates-paying-for-a-new-car-costs-more-than-ever-7574619" ] ]
https://www.investopedia.com/articles/01/082901.asp
Introduction to Exchange-Traded Funds (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"> Exchange-traded funds (ETFs) were introduced in the early 1990s and have proven a durable and popular investment for many. As a result, they have expanded greatly, both in number and what they focus on over time. </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"> An ETF is like a mutual fund, but there are major distinctions between them. Both save you the time-consuming work of analyzing companies and picking stocks, though mutual funds often tend to be less tax-efficient and have higher management fees. </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"> Below, we introduce you to ETFs, explain why they've proven so popular, discuss the benefits and drawbacks that come with them, and describe what to look for when choosing among them for your portfolio. </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>Exchange-traded funds (ETFs) are like mutual funds but trade like stocks.</li><li>They offer investors broad diversification in line with the indexes that they track.</li><li>Many ETFs are available that likely fit your specific needs and investment goals.</li><li>ETF investors can consider funds that target specific sectors or industries, such as energy ETFs, or investment styles, such as inverse investing.</li><li>Most ETFs have lower fees than actively managed mutual funds.<br/></li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_9-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="An ETF is a type of pulled investment security that holds multiple underlying assets rather than only one." class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/5jy_j8mbF9kE808dDLNjdIRoDDU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/EFT_final-45a9ca8cf7e948608a3b8dae38b66393-5382fc96c484482c96c77e4853a5a669.jpeg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/5jy_j8mbF9kE808dDLNjdIRoDDU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/EFT_final-45a9ca8cf7e948608a3b8dae38b66393-5382fc96c484482c96c77e4853a5a669.jpeg" data-srcset="https://www.investopedia.com/thmb/dAgJpDAlY2TEsM36ibEHctBo39I=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/EFT_final-45a9ca8cf7e948608a3b8dae38b66393-5382fc96c484482c96c77e4853a5a669.jpeg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="An ETF is a type of pulled investment security that holds multiple underlying assets rather than only one." class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/5jy_j8mbF9kE808dDLNjdIRoDDU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/EFT_final-45a9ca8cf7e948608a3b8dae38b66393-5382fc96c484482c96c77e4853a5a669.jpeg" srcset="https://www.investopedia.com/thmb/dAgJpDAlY2TEsM36ibEHctBo39I=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/EFT_final-45a9ca8cf7e948608a3b8dae38b66393-5382fc96c484482c96c77e4853a5a669.jpeg 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 / Zoe Hansen</p></span> </figcaption></figure> <span class="heading-toc" id="toc-what-is-an-exchange-traded-fund"></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 an Exchange-Traded Fund? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">ETFs</a> combine features of both mutual funds and stocks. Like mutual funds, they offer investors an interest in a professionally managed, diversified portfolio of investments. However, unlike mutual funds, ETF shares trade like stocks on exchanges, with prices fluctuating throughout the day based on market demand.<span class="ql-inline-citation" data-cite="31"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> For example, certain ETFs track the S&amp;P 500 or the Barclays Capital U.S. Aggregate Bond Index, which invests in securities in those indexes. But an ETF isn't a mutual fund. Instead, it trades like the shares of a company stock on a public exchange. And, unlike a mutual fund with its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nav.asp">net asset value (NAV)</a> calculated at the end of each trading day, an ETF's price changes throughout the day, fluctuating with supply and demand.<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_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> While ETFs attempt to replicate the returns on indexes that they track, there is no guarantee that they will do so exactly since each fund has a slight tracking error or difference between how the index would perform and how the ETF does.<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_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> ETFs have grown their assets tremendously, increasing from a negligible amount of total U.S. fund assets to about 30% in late 2023, with much of the rest taken up by mutual funds. Below is a chart of their growth in assets since 2010. </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:69.5%;"> <img alt="Comparative Growth of Mutual Fund and ETF assets since 2020" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/dfcG_dDOOSTNod4GP8ceBQRLGKA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ComparativeGrowthofMutualFundandETFAssets1994to2023-9f6ce80b26824dc6b411ba0e9f482b17.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/dfcG_dDOOSTNod4GP8ceBQRLGKA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ComparativeGrowthofMutualFundandETFAssets1994to2023-9f6ce80b26824dc6b411ba0e9f482b17.jpg" data-srcset="https://www.investopedia.com/thmb/0hBFPdNQ-y1GX6I7V0kl9veil0Y=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ComparativeGrowthofMutualFundandETFAssets1994to2023-9f6ce80b26824dc6b411ba0e9f482b17.jpg 750w" data-tracking-container="true" height="2884" id="mntl-sc-block-image_2-0" width="4149"/> <noscript> <img alt="Comparative Growth of Mutual Fund and ETF assets since 2020" class="img--noscript universal-image__image" height="2884" sizes="750px" src="https://www.investopedia.com/thmb/dfcG_dDOOSTNod4GP8ceBQRLGKA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ComparativeGrowthofMutualFundandETFAssets1994to2023-9f6ce80b26824dc6b411ba0e9f482b17.jpg" srcset="https://www.investopedia.com/thmb/0hBFPdNQ-y1GX6I7V0kl9veil0Y=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ComparativeGrowthofMutualFundandETFAssets1994to2023-9f6ce80b26824dc6b411ba0e9f482b17.jpg 750w" width="4149"/> </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>Investopedia</p></span> </figcaption></figure> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_21-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Advantages and Disadvantages of ETFs</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Advantages</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Diversification</p></li> <li><p>Accessibility and Flexibility</p></li> <li><p>Low Fees</p></li> <li><p>Liquidity</p></li> <li><p>Tax Efficiency</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Disadvantages</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Additional Costs</p></li> <li><p>Potentially Excess Trading</p></li> <li><p>Potentially Lower Returns</p></li> </ul> </div> </div></div> <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"> ETF Advantages </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <strong>Diversification:</strong> ETFs offer investors instant diversification, whether across the broad market, asset classes, market sectors, or specific industries. </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>Accessibility and flexibility:</strong> Because ETFs trade like stocks, you can buy and sell them anytime during a trading session. You can also <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortselling.asp">short sell</a> them and buy on margin.<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"> <strong>Low fees:</strong> The expense ratios of most ETFs are lower than those of the average mutual fund.<span class="ql-inline-citation" data-cite="34"></span> The average <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> for an index ETF was 0.16% in 2022. As of 2024, the SPDR S&amp;P 500 ETF (SPY) had an expense ratio of 0.09%.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <strong>Liquidity:</strong> Popular ETFs are highly liquid. This means they can be sold easily and at a narrower bid-ask spread. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <strong>Tax efficiency:</strong> Because of their passive management, ETFs usually have fewer capital gains, which means investors may pay less in taxes. In addition, in-kind (as opposed to cash) exchanges for an ETF's securities also result in less capital gains.<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_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"> ETF Disadvantages </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <strong>Additional costs:</strong> While ETFs may have low expense ratios, you may have other charges related to buying and selling ETFs, such as broker commissions/transaction costs. Moreover, you can expect higher expense ratios if you invest in an actively managed ETF. In addition, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bid-askspread.asp">bid-ask spread</a> for an ETF presents a hidden cost for investors.<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_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> <strong>Excess trading:</strong> Because ETFs can be bought and sold intraday, investors may forget their investment goals and trade them unnecessarily in reaction to attention-grabbing news reports or unsupported rumors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <strong>Potentially lower returns:</strong> The diversification that makes ETFs (and mutual funds) a smart way to reduce risk can also mean that returns might be less than those obtained by actively selecting and owning individual stocks. </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-important" 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>ETFs have come a long way. From $100 billion in assets under management (AUM) to $8.1 trillion AUM at the beginning of 2024.<span class="ql-inline-citation" data-cite="24"></span></p></div></div></div> <span class="heading-toc" id="toc-types-of-etfs"></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"> Types of ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> ETFs are the most common type of exchange-traded product and typically include baskets of stocks, bonds, or other assets grouped based on the fund's specific goals. Here are some of the major types you'll see as you explore this landscape, though there are hybrid ETFs that hold more than one kind of asset, and funds overlap categories. Let's first review the two broadest categories before looking at the different strategies ETFs can be based upon. Then, we introduce the categories you'll see most often as you look through your brokerage's platform. There's also a table putting the basics of each together.<span class="ql-inline-citation" data-cite="30"></span><br/> </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"> Actively Managed ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Unlike most ETFs, which passively track an index, these have portfolio managers who actively buy and sell securities to try to outperform a benchmark. In 2023, these made up about 15% of the ETFs trading.<span class="ql-inline-citation" data-cite="26"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Passive Index ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> The first ETF in the U.S. was the SPDR S&amp;P 500 ETF Trust (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY">SPY</a>), which began trading in 1993 and tracks the performance of the S&amp;P 500 by buying the same 500 stocks and weighting them proportional to the index.<span class="ql-inline-citation" data-cite="5"></span> Like SPY, index ETFs track the performance of a specific market index, such as the S&amp;P 500 or the Dow Jones Industrial Average. Index funds are by far the most popular, making up over 4/5s of the assets under management in the U.S.<span class="ql-inline-citation" data-cite="25"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Another example is the Invesco QQQ (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=QQQ">QQQ</a>) ETF, which tracks the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq100.asp">Nasdaq 100</a> and consists of the 100 largest and most actively traded nonfinancial domestic and international companies on the Nasdaq. It offers investors broad exposure to the tech sector.<span class="ql-inline-citation" data-cite="15"></span> Its diversification can be a big advantage when there's volatility in the markets. If one tech company falls short of projected earnings, it will likely be hit hard, but owning a piece of a hundred other companies can cushion that blow. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_54-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_55-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block 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 world's first ETF was called the Toronto 35 Index Participation Units. It was launched in 1990 by 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>.</p></div></div></div> <span class="heading-toc" id="toc-etf-type-by-asset"></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"> ETF Type By Asset </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Within these broad categories, you'll find funds that focus on different assets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_59-0"> <span class="mntl-sc-block-subheading__text"> Bond ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> These hold one type or a variety of bonds, providing investors with exposure to fixed-income securities. There are several subcategories of bond ETFs, each focusing on different types of bonds. Government bond ETFs invest in Treasurys and other government securities, offering exposure to debt issued by national governments. Corporate bond ETFs focus on corporate debt securities, and, lastly, high-yield bond ETFs invest in lower credit rating bonds that offer higher yields, but also come with increased risk compared with government or high-quality corporate bonds. </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"> Bond ETFs offer diversification and the potential for generating income, making them attractive to investors looking to put a portion of their portfolio into fixed-income securities.<span class="ql-inline-citation" data-cite="42"></span><span class="ql-inline-citation" data-cite="32"></span><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"> Commodity ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> These invest either directly in physical commodities, such as gold, silver, or oil, or in commodity futures contracts. They offer exposure to commodity markets without the need for direct investment in the underlying assets.<span class="ql-inline-citation" data-cite="33"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> For instance, if you think that natural gas companies are a good prospect, you might consider a fund like the United States Natural Gas Fund (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=UNG">UNG</a>). This ETF tracks natural gas prices by buying natural gas <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futurescontract.asp">futures contracts</a>.<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_68-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_69-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Top ETF Asset Categories by AUM</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>ETF Type</b></td> <td><b> 2024 AUM</b></td> </tr> <tr> <td>Equity</td> <td>$6.95 trillion</td> </tr> <tr> <td>Bond</td> <td>$1.53 trillion</td> </tr> <tr> <td>Commodity</td> <td>$139 billion</td> </tr> <tr> <td>Real Estate</td> <td>$70.5 billion</td> </tr> <tr> <td>Crypto</td> <td>$65.2 billion</td> </tr> <tr> <td>Hybrid</td> <td>$33.5 billion</td> </tr> <tr> <td>Preferred Stock</td> <td>$32.3 billion</td> </tr> <tr> <td>Alternatives</td> <td>$6.3 billion</td> </tr> <tr> <td>Volatility</td> <td>$2.9 billion</td> </tr> </tbody> </table> <figcaption>Data source: TradingView (April 2024)</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_71-0"> <span class="mntl-sc-block-subheading__text"> Crypto ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> These track the performance of one or more cryptocurrencies, such as Bitcoin. The U.S. Securities and Exchange Commission (SEC) has expressed concerns about market manipulation, liquidity, and the custody of assets on crypto exchanges. This kept futures-based crypto ETFs off U.S. exchanges until 2021, when ProShares Bitcoin Strategy ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BITO">BITO</a>) was approved. The approval of Bitcoin futures ETFs, like the ProShares Bitcoin Strategy ETF, marked a significant regulatory breakthrough and set a precedent for other futures-based crypto ETFs. They were approved under the idea that futures markets are more regulated and thus offer higher levels of investor protection than spot cryptocurrency markets.<span class="ql-inline-citation" data-cite="27"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> In January 2024, the SEC relented and allowed the first <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/where-to-buy-the-new-spot-bitcoin-etfs-8557203#:~:text=A%20spot%20bitcoin%20ETF%20invests,the%20company%20offering%20the%20ETFs.">spot bitcoin</a> (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=btcusd">BTCUSD</a>) ETFs to begin trading. This set off massive buying of bitcoin in the first few months of trading, sending it up about 60% in value in the first quarter alone. Major investment houses like Fidelity and Grayscale have proposals for ether ETFs, but we've <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/why-spot-ether-etfs-could-face-a-difficult-path-to-approval-8609104">reported</a> that the SEC isn't likely to approve one for its tokens soon. In addition to the SEC's concerns about spot bitcoin funds, Ethereum, the platform behind the currency, uses a staking mechanism where randomly selected holders of ether lock up their funds as collateral and are rewarded with more ether for supporting the blockchain network. The SEC is reported to believe this makes ether far more like a security than bitcoin, meaning its regulatory place would have to be sorted before an Ether ETF could be approved and offered to investors.<span class="ql-inline-citation" data-cite="29"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_76-0"> <span class="mntl-sc-block-subheading__text"> Currency ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> Currency ETFs are exchange-traded funds that have exposure to foreign exchange markets, allowing investors to trade currencies much like stocks. They track a single currency or basket of them, offering a way to speculate on currency moves or hedge against currency risk. </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"> Investors use currency ETFs to diversify their portfolios beyond traditional asset classes, speculate on economic conditions in different countries, or hedge against currency fluctuations in export and import-driven businesses.<span class="ql-inline-citation" data-cite="43"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_81-0"> <span class="mntl-sc-block-subheading__text"> Equities ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> These focus on stocks from major indexes like SPY, sectors like health care, or offer dividends. They can also choose to invest in companies with different market capitalization or specific themes, like artificial intelligence, which might involve companies across different sectors. These have, by far, the largest market share in ETFs.<span class="ql-inline-citation" data-cite="25"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Real Estate Investment Trust (REIT) ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> These invest in a portfolio of REITs, giving you exposure to the real estate market without having to buy properties directly. The REITs whose shares the fund holds generally generate income through leasing space and collecting rents, which they then distribute to shareholders as dividends.<span class="ql-inline-citation" data-cite="44"></span> REIT ETFs are popular for their potential to provide stable income and diversification benefits, as real estate often moves independently of stocks and bonds.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_87-0"> <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="width: 156px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="6">Exchange-Traded Fund Types</th> </tr> <tr> <th>ETF Type</th> <th>Description</th> <th>Underlying Assets</th> <th>Typical Investor Use</th> <th>Major Advantage</th> <th>Major Disadvantage</th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>Actively Managed ETFs</b></td> <td>Portfolio managers actively buy and sell securities, including stocks, bonds, futures, and more.</td> <td>Various securities chosen by the fund manager</td> <td>Seeking to outperform a benchmark</td> <td>Potential to outperform benchmarks through experienced management.</td> <td>Higher expense ratios due to active management</td> </tr> <tr> <td><b>Bond ETFs</b></td> <td>Invest in one or more types of bonds</td> <td>Government, corporate, or high-yield bonds</td> <td>Diversification, income generation</td> <td>Provides stable income through dividends from bonds.</td> <td>Susceptible to interest rate risk, affecting bond prices inversely</td> </tr> <tr> <td><b>Commodity ETFs</b></td> <td>Invest in physical commodities or commodity futures</td> <td>Gold, silver, oil, or other commodities</td> <td>Diversification, inflation hedge</td> <td>Offers a hedge against inflation and an alternative to stocks and bonds.</td> <td>Can be volatile, influenced by international climate, political, and economic factors</td> </tr> <tr> <td><b>Crypto ETFs</b></td> <td>Track the performance of cryptocurrencies by holding them or with futures</td> <td>Bitcoin for spot bitcoin ETFs; bitcoin and ether futures</td> <td>Exposure to cryptocurrency markets</td> <td>Provides exposure to cryptocurrency markets without needing to directly buy or store digital currencies.</td> <td>Highly volatile and can be impacted by regulatory changes and problems in largely unregulated underlying markets</td> </tr> <tr> <td><b>Currency ETFs</b></td> <td>Track the performance of a currency or currency basket</td> <td>Currencies</td> <td>Hedging, speculation</td> <td>Useful for insuring against currency risks or speculating on foreign exchange moves</td> <td>Forex markets can be extremely volatile and influenced by sudden global events</td> </tr> <tr> <td><b>Dividend ETFs</b></td> <td>Focus on stocks that pay consistent dividends</td> <td>Dividend-paying stocks</td> <td>Income generation</td> <td>Offers a regular income stream from dividends.</td> <td>Depend on the health of dividend-paying companies that could cut dividends in tougher economies</td> </tr> <tr> <td><b>ESG ETFs</b></td> <td>Invest in companies that meet environmental, social, and governance criteria</td> <td>Stocks or bonds of ESG-friendly companies</td> <td>Aligning investments with values</td> <td>Investing aligned with personal values on environmental, social, and governance issues.</td> <td>Potentially limited exposure to certain industries; need to ensure ESG claims are legitimate</td> </tr> <tr> <td><b>Futures-Based ETFs</b></td> <td>Invest in futures contracts (contracts to buy an asset in the future at a preset price)</td> <td>Futures contracts on various assets</td> <td>Diversification, hedging, speculation</td> <td>Provides exposure to various asset classes without needing to directly own the assets.</td> <td>Futures contracts can be complex and have costs rolling over contracts and tracking errors</td> </tr> <tr> <td><b>Leveraged and Inverse ETFs</b></td> <td>Multiplied returns on indexes (whether wagering for or against the index going up)</td> <td>Short selling or long positions in index funds</td> <td>Short-term trading, hedging, speculation</td> <td>Offers potential for significant gains in a short period if the market moves as predicted</td> <td>High risk of significant losses, especially if held for more than one day because of compounding effects</td> </tr> <tr> <td><b>Options ETFs</b></td> <td>Use options strategies to generate income or manage risk</td> <td>Options contracts</td> <td>Hedging, speculation</td> <td>Benefits of options strategies to generate income or hedge against portfolio risks</td> <td>Strategies are complex and may lead to significant losses if not managed well, or if you don't know options well when buying ETF shares</td> </tr> <tr> <td><b>Preferred Stock ETFs</b></td> <td>Invest in securities that combine aspects of stocks and bonds seeking dividend yields</td> <td>Preferred stocks</td> <td>Income-seeking and institutional investors wanting diversification</td> <td>Can offer attractive dividend yields and higher claims on assets than common stocks</td> <td>Less potential for capital appreciation compared to common stocks; sensitive to interest rate changes</td> </tr> <tr> <td><b>REIT ETFs</b></td> <td>Invest in real estate investment trusts</td> <td>REITs, which own income-generating real estate</td> <td>Diversification, income generation</td> <td>Provides exposure to real estate without needing to directly manage properties</td> <td>Sensitive to changes in interest rates, which can affect real estate prices and occupancy rates, lowering them precipitously</td> </tr> <tr> <td><b>Sector or Industry ETFs</b></td> <td>Focus on a specific sector or industry</td> <td>Stocks from companies within the sector or industry</td> <td>Targeted exposure to a specific market segment</td> <td>Can focus on trends and industries you think are likely to rise</td> <td>Higher risk of volatility due to exposure to a single sector or industry</td> </tr> <tr> <td><b>Volatility ETFs</b></td> <td>Provide exposure to market volatility</td> <td>VIX futures or other volatility-linked derivatives</td> <td>Hedging, speculation</td> <td>Useful for hedging against market downturns when volatility is expected to rise</td> <td>Can have severe losses, especially in stable or rallying markets</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <span class="heading-toc" id="toc-etf-type-by-strategy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_89-0"> <span class="mntl-sc-block-heading__text"> ETF Type By Strategy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> Having looked at the kinds of assets that might be involved, we can now turn to the strategies different ETFs use. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_92-0"> <span class="mntl-sc-block-subheading__text"> Dividend ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_93-0"> These funds focus on dividend-paying stocks across various sectors and provide regular income and the potential for capital appreciation. These ETFs are especially attractive to income-seeking investors, including retirees, because they distribute the dividends they collect from their underlying stock holdings to their shareholders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_94-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_95-0"> Dividend ETFs can vary by targeting high dividend yields, dividend growth, or stability, which allows you to choose a fund that fits your income needs and risk tolerance.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_96-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_97-0"> <span class="mntl-sc-block-subheading__text"> Environmental, Social, and Governance (ESG) ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_98-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/rise-socially-responsible-etf/#:~:text=Environmental%2C%20social%2C%20and%20governance%20%28ESG%29%20criteria%20are%20a,as%20a%20steward%20of%20nature.">These funds</a> have been gaining market share among investors looking to make socially responsible investments. They apply ESG criteria to select stocks, aiming to invest in companies with responsible practices. However, they can vary widely in focus. Some target low-carbon emission firms, while others focus on specific themes in sustainable or other ways to have a beneficial social impact.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_99-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_100-0"> <span class="mntl-sc-block-subheading__text"> Global ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_101-0"> These hold a broad range of securities from countries outside the U.S., providing exposure to international markets.<span class="ql-inline-citation" data-cite="45"></span> Some focus on mature and growth-oriented markets, enabling you to diversify beyond your country's borders. This type of ETF particularly appeals to those looking to mitigate country-specific risks and capitalize on prospects in foreign markets. For example, if you were interested in gaining exposure to some European stocks through the Austrian market, you might consider the iShares <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/msci.asp">MSCI</a> Austrian Index fund (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=EWO">EWO</a>). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_102-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_103-0"> For emerging markets, an example includes the iShares MSCI Emerging Markets Index (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=EEM">EEM</a>), an ETF created as an equity <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a> for international securities.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_104-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_105-0"> <span class="mntl-sc-block-subheading__text"> Leveraged and Inverse ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_106-0"> Not every ETF is designed to move in the same direction or even in the same amount as the index it tracks. The prices of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inverse-etf.asp">inverse ETFs</a> go up when the markets go down and vice versa. They can be very useful to those investors interested in hedging portfolio risk. By buying shares in them, you're hoping to profit when the underlying index or benchmark falls. Leveraged ETFs amplify both gains and losses. Inverse ETFs, meanwhile, aim to profit from a decline in the underlying index, providing negative exposure that is typically equal to -1, -2, or -3 times the daily performance.<span class="ql-inline-citation" data-cite="36"></span><span class="ql-inline-citation" data-cite="35"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_107-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_108-0"> These ETFs use financial derivatives like futures, options, and swaps to achieve their goals. For example, the Direxion Daily Financial Bear 3x Shares (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=FAZ">FAZ</a>) is a triple <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bear-fund.asp">bear fund</a>. It attempts to move 300% in value in the opposite direction of the Financial Select Sector Index. It uses derivatives and other types of leverage to boost its performance returns.<span class="ql-inline-citation" data-cite="4"></span> However, because of their complex nature and the risks of compounding effects over longer periods, leveraged and inverse ETFs are best suited for experienced investors who understand the potential for rapid and significant value changes.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_109-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_110-0"> <span class="mntl-sc-block-subheading__text"> Options-Based ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_111-0"> These use options strategies for potential income generation, downside protection, or magnified returns compared with traditional index-tracking investments.<span class="ql-inline-citation" data-cite="37"></span> An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option.asp">option</a> is a financial derivative that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price, known as the strike price, on or before a specific date. Call options give the holder the right to buy an asset at the strike price within a particular time frame. Put options give the holder the right to sell the underlying asset at the strike price within a specific time frame. </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"> A common options-based strategy is the covered call, where the ETF holds an underlying asset and sells call options on it, generating income from the option premiums. Other methods include using put options for hedging or combining options for specific risk and return profiles.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_114-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_115-0"> <span class="mntl-sc-block-subheading__text"> Preferred Stock ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_116-0"> These are funds that hold a type of stock that shares characteristics of both equity and debt instruments. Preferred stocks come before common stocks for dividend payments and asset distribution in case of liquidation, but they usually don't carry voting rights like common stocks. They typically have higher dividends than common stocks and even some bonds, making preferred stock ETFs attractive for income-seeking investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_117-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_118-0"> While generally less volatile than common stock, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/etfs-mutual-funds/051016/true-risks-behind-preferred-stock-etfs-pff-fpe.asp">preferred stock ETFs</a> can be sensitive to changes in interest rates. Like bonds, their prices typically fall as interest rates rise. Among the better-known funds is the iShares U.S. Preferred Stock ETF (PFF), which holds a portfolio of diverse U.S. preferred stocks. It has assets of about $15 billion, an expense ratio of 0.46%, and five-year returns of 3.01%.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_119-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_120-0"> Preferred stock ETFs are suited for institutional investors wanting higher yields than those typically available from corporate bonds, with a moderately higher risk profile. They serve as a good tool for diversifying an income-generating portfolio, especially in a low-interest-rate environment when traditional fixed-income instruments may have lower yields.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_121-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_122-0"> <span class="mntl-sc-block-subheading__text"> Sector or Industry-Specific ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_123-0"> These focus on technology, health care, energy, and other parts of the economy. This allows you to gain targeted exposure to specific market areas that interest you. For example, if you're bullish on people having excess money for consumer goods, you might invest in a sector ETF to gain exposure to firms in the sector. </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"> These ETFs are also useful for diversifying without having to select individual stocks. In addition, sector funds can serve as a hedge against sector-specific risks and are valuable for thematic investing, where the investor can take positions based on expected economic shifts or trends affecting particular industries.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_126-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_127-0"> <span class="mntl-sc-block-subheading__text"> Volatility ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_128-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/use-vix-etf-in-your-portfolio/">These funds</a> track volatility indexes, most commonly the CBOE Volatility Index (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VIX">VIX</a>).<span class="ql-inline-citation" data-cite="38"></span> The VIX measures the stock market's expectations of volatility using S&amp;P 500 index options.<span class="ql-inline-citation" data-cite="39"></span> Volatility ETFs are typically used as trading instruments for hedging risk or speculating on changes in market volatility rather than long-term investing.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_129-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_130-0"><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_131-0"><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>Although ETFs are tax efficient, you are taxed on any income, such as dividends and capital gains that you earn while you hold the fund and after you sell it.<span class="ql-inline-citation" data-cite="13"></span></p></div></div></div> <span class="heading-toc" id="toc-factors-to-consider-when-investing-in-an-etf"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_132-0"> <span class="mntl-sc-block-heading__text"> Factors To Consider When Investing in an ETF </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_133-0"> When reviewing specific funds, there are several of the main factors to review first: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_134-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_135-0"> <strong>Objectives and strategies</strong>: Understand the ETF's investment objectives and strategies. Consider whether it aligns with your own goals, risk tolerance, and time horizon.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_136-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_137-0"> <strong>Underlying assets</strong>: Look at the ETF's holdings and asset composition. Ensure that you understand what the ETF is invested in and you're comfortable with the risks it involves. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_138-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_139-0"> <strong>Expense ratio</strong>: This is the annual fees charged by the fund. Lower expense ratios can help keep costs down and improve your overall returns.<span class="ql-inline-citation" data-cite="47"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_140-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_141-0"> <strong>Tracking error</strong>: For index-tracking ETFs, consider the tracking error, which measures how closely the ETF's performance matches that of its underlying index. A lower tracking error indicates better accuracy in replicating the index's returns.<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_142-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_143-0"> <strong>Liquidity</strong>: Look at the ETF's trading volume and bid-ask spread. Higher trading volume and narrower spreads generally indicate better liquidity, making it easier to buy and sell shares at a fair price, both when entering and exiting from your position in it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_144-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_145-0"> <strong>Issuer and fund size</strong>: Consider the reputation and financial stability of the ETF issuer. In addition, review the fund's total AUM, as larger funds may have better liquidity and lower operating costs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_146-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_147-0"> <strong>Performance history</strong>: While past performance doesn't guarantee future results, reviewing an ETF's historical returns can help you consider how it's done in various market conditions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_148-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_149-0"> <strong>Portfolio fit</strong>: Assess how the ETF fits within your overall investment portfolio. Ensure that it contributes to the asset allocation you want and helps you maintain proper diversification. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_150-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_151-0"> <strong>Tax implications</strong>: Be aware of the tax implications of investing in the ETF, such as capital gains distributions or tax treatment of dividends. This can help you manage your tax liability more effectively.<span class="ql-inline-citation" data-cite="49"></span><span class="ql-inline-citation" data-cite="48"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_152-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_153-0"> Before investing in any ETF, always review its prospectus and related documents to gain a broad understanding of its goals, risks, fees, and other characteristics. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_154-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_155-0"><span class="heading-toc" id="toc-what-are-the-most-popular-etfs"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Most Popular ETFs?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One way to see which funds are the most popular is to look at those with the most assets under management. SPY, the first ETF, is still the biggest, with about $515 billion in AUM, an expense ratio of 0.09%, and five-year returns of 14.96%. iShares Core S&amp;P 5000 (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=IVV">IVV</a>) is next with securities related to the large-cap stocks of the S&amp;P 500. It has assets of about $455 billion, an expense ratio of 0.03%, and five-year returns of 15.02%. At third is another S&amp;P 500 index fund, the Vanguard S&amp;P 500 ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO">VOO</a>), with an AUM of about $435 billion, an expense ratio of 0.03%, and five-year returns of 15.01%. The largest bond ETF is the Vanguard Total Bond Market ETF (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BND">BND</a>), with about $104 billion in AUM, an expense ratio of 0.03%, and five-year returns of 0.37%.<span class="ql-inline-citation" data-cite="50"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_156-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_157-0"><span class="heading-toc" id="toc-whats-the-difference-between-an-etf-and-a-mutual-fund"></span> <h2 class="mntl-sc-block-questionandanswer__question">What's the Difference Between an ETF and a Mutual Fund?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An ETF and mutual fund both pool money from investors and invest that capital in a basket of related securities. They can be actively or passively managed. Unlike mutual funds, ETFs trade like stocks and you can buy and sell them on stock exchanges.</p><p>Another key difference between ETFs and mutual funds is the associated cost. Mutual funds generally charge higher management fees than ETFs.<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_158-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_159-0"><span class="heading-toc" id="toc-can-i-use-etfs-for-my-retirement-funds"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Use ETFs For My Retirement Funds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Absolutely. ETFs are commonly included in retirement portfolios because of their diversification benefits and low cost. They can be used to construct a balanced portfolio aligned with your risk tolerance and retirement timeline while offering exposure to a wide range of asset classes, such as stocks, bonds, and commodities.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_160-0"></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_161-0"> <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_162-0"> ETFs combine features of both mutual funds and stocks. They are listed on stock exchanges and can be bought and sold throughout the trading day like individual stocks. ETFs typically track a specific market index, sector, commodity, or other asset class, providing investors with exposure to a diverse range of securities in a single investment. Their benefits include liquidity, lower expenses than mutual funds, diversification, and tax advantages. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_163-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_164-0"> When considering an ETF, review its goals and strategy, underlying assets, expense ratio, tracking error, liquidity, issuer and fund size, performance history, risks, and how it fits within your overall portfolio. </p></div>
Exchange-traded funds (ETFs) were introduced in the early 1990s and have proven a durable and popular investment for many. As a result, they have expanded greatly, both in number and what they focus on over time. An ETF is like a mutual fund, but there are major distinctions between them. Both save you the time-consuming work of analyzing companies and picking stocks, though mutual funds often tend to be less tax-efficient and have higher management fees. Below, we introduce you to ETFs, explain why they've proven so popular, discuss the benefits and drawbacks that come with them, and describe what to look for when choosing among them for your portfolio. ### Key Takeaways * Exchange-traded funds (ETFs) are like mutual funds but trade like stocks. * They offer investors broad diversification in line with the indexes that they track. * Many ETFs are available that likely fit your specific needs and investment goals. * ETF investors can consider funds that target specific sectors or industries, such as energy ETFs, or investment styles, such as inverse investing. * Most ETFs have lower fees than actively managed mutual funds. ![An ETF is a type of pulled investment security that holds multiple underlying assets rather than only one.]() ![An ETF is a type of pulled investment security that holds multiple underlying assets rather than only one.](https://www.investopedia.com/thmb/5jy_j8mbF9kE808dDLNjdIRoDDU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/EFT_final-45a9ca8cf7e948608a3b8dae38b66393-5382fc96c484482c96c77e4853a5a669.jpeg) Investopedia / Zoe Hansen ## What Is an Exchange-Traded Fund? [ETFs](https://www.investopedia.com/terms/e/etf.asp) combine features of both mutual funds and stocks. Like mutual funds, they offer investors an interest in a professionally managed, diversified portfolio of investments. However, unlike mutual funds, ETF shares trade like stocks on exchanges, with prices fluctuating throughout the day based on market demand. For example, certain ETFs track the S&P 500 or the Barclays Capital U.S. Aggregate Bond Index, which invests in securities in those indexes. But an ETF isn't a mutual fund. Instead, it trades like the shares of a company stock on a public exchange. And, unlike a mutual fund with its [net asset value (NAV)](https://www.investopedia.com/terms/n/nav.asp) calculated at the end of each trading day, an ETF's price changes throughout the day, fluctuating with supply and demand. While ETFs attempt to replicate the returns on indexes that they track, there is no guarantee that they will do so exactly since each fund has a slight tracking error or difference between how the index would perform and how the ETF does. ETFs have grown their assets tremendously, increasing from a negligible amount of total U.S. fund assets to about 30% in late 2023, with much of the rest taken up by mutual funds. Below is a chart of their growth in assets since 2010. ![Comparative Growth of Mutual Fund and ETF assets since 2020]() ![Comparative Growth of Mutual Fund and ETF assets since 2020](https://www.investopedia.com/thmb/dfcG_dDOOSTNod4GP8ceBQRLGKA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ComparativeGrowthofMutualFundandETFAssets1994to2023-9f6ce80b26824dc6b411ba0e9f482b17.jpg) Investopedia ### Advantages and Disadvantages of ETFs Advantages * Diversification * Accessibility and Flexibility * Low Fees * Liquidity * Tax Efficiency Disadvantages * Additional Costs * Potentially Excess Trading * Potentially Lower Returns ### ETF Advantages **Diversification:** ETFs offer investors instant diversification, whether across the broad market, asset classes, market sectors, or specific industries. **Accessibility and flexibility:** Because ETFs trade like stocks, you can buy and sell them anytime during a trading session. You can also [short sell](https://www.investopedia.com/terms/s/shortselling.asp) them and buy on margin. **Low fees:** The expense ratios of most ETFs are lower than those of the average mutual fund. The average [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp) for an index ETF was 0.16% in 2022. As of 2024, the SPDR S&P 500 ETF (SPY) had an expense ratio of 0.09%. **Liquidity:** Popular ETFs are highly liquid. This means they can be sold easily and at a narrower bid-ask spread. **Tax efficiency:** Because of their passive management, ETFs usually have fewer capital gains, which means investors may pay less in taxes. In addition, in-kind (as opposed to cash) exchanges for an ETF's securities also result in less capital gains. ### ETF Disadvantages **Additional costs:** While ETFs may have low expense ratios, you may have other charges related to buying and selling ETFs, such as broker commissions/transaction costs. Moreover, you can expect higher expense ratios if you invest in an actively managed ETF. In addition, the [bid-ask spread](https://www.investopedia.com/terms/b/bid-askspread.asp) for an ETF presents a hidden cost for investors. **Excess trading:** Because ETFs can be bought and sold intraday, investors may forget their investment goals and trade them unnecessarily in reaction to attention-grabbing news reports or unsupported rumors. **Potentially lower returns:** The diversification that makes ETFs (and mutual funds) a smart way to reduce risk can also mean that returns might be less than those obtained by actively selecting and owning individual stocks. ### ETFs have come a long way. From $100 billion in assets under management (AUM) to $8.1 trillion AUM at the beginning of 2024. ## Types of ETFs ETFs are the most common type of exchange-traded product and typically include baskets of stocks, bonds, or other assets grouped based on the fund's specific goals. Here are some of the major types you'll see as you explore this landscape, though there are hybrid ETFs that hold more than one kind of asset, and funds overlap categories. Let's first review the two broadest categories before looking at the different strategies ETFs can be based upon. Then, we introduce the categories you'll see most often as you look through your brokerage's platform. There's also a table putting the basics of each together. ### Actively Managed ETFs Unlike most ETFs, which passively track an index, these have portfolio managers who actively buy and sell securities to try to outperform a benchmark. In 2023, these made up about 15% of the ETFs trading. ### Passive Index ETFs The first ETF in the U.S. was the SPDR S&P 500 ETF Trust ([SPY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY)), which began trading in 1993 and tracks the performance of the S&P 500 by buying the same 500 stocks and weighting them proportional to the index. Like SPY, index ETFs track the performance of a specific market index, such as the S&P 500 or the Dow Jones Industrial Average. Index funds are by far the most popular, making up over 4/5s of the assets under management in the U.S. Another example is the Invesco QQQ ([QQQ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=QQQ)) ETF, which tracks the [Nasdaq 100](https://www.investopedia.com/terms/n/nasdaq100.asp) and consists of the 100 largest and most actively traded nonfinancial domestic and international companies on the Nasdaq. It offers investors broad exposure to the tech sector. Its diversification can be a big advantage when there's volatility in the markets. If one tech company falls short of projected earnings, it will likely be hit hard, but owning a piece of a hundred other companies can cushion that blow. ### The world's first ETF was called the Toronto 35 Index Participation Units. It was launched in 1990 by the [Toronto Stock Exchange (TSX)](https://www.investopedia.com/terms/t/toronto-stock-exchange-tsx.asp). ## ETF Type By Asset Within these broad categories, you'll find funds that focus on different assets. ### Bond ETFs These hold one type or a variety of bonds, providing investors with exposure to fixed-income securities. There are several subcategories of bond ETFs, each focusing on different types of bonds. Government bond ETFs invest in Treasurys and other government securities, offering exposure to debt issued by national governments. Corporate bond ETFs focus on corporate debt securities, and, lastly, high-yield bond ETFs invest in lower credit rating bonds that offer higher yields, but also come with increased risk compared with government or high-quality corporate bonds. Bond ETFs offer diversification and the potential for generating income, making them attractive to investors looking to put a portion of their portfolio into fixed-income securities. ### Commodity ETFs These invest either directly in physical commodities, such as gold, silver, or oil, or in commodity futures contracts. They offer exposure to commodity markets without the need for direct investment in the underlying assets. For instance, if you think that natural gas companies are a good prospect, you might consider a fund like the United States Natural Gas Fund ([UNG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=UNG)). This ETF tracks natural gas prices by buying natural gas [futures contracts](https://www.investopedia.com/terms/f/futurescontract.asp). | Top ETF Asset Categories by AUM | | | --- | --- | | **ETF Type** | **2024 AUM** | | Equity | $6.95 trillion | | Bond | $1.53 trillion | | Commodity | $139 billion | | Real Estate | $70.5 billion | | Crypto | $65.2 billion | | Hybrid | $33.5 billion | | Preferred Stock | $32.3 billion | | Alternatives | $6.3 billion | | Volatility | $2.9 billion | Data source: TradingView (April 2024) ### Crypto ETFs These track the performance of one or more cryptocurrencies, such as Bitcoin. The U.S. Securities and Exchange Commission (SEC) has expressed concerns about market manipulation, liquidity, and the custody of assets on crypto exchanges. This kept futures-based crypto ETFs off U.S. exchanges until 2021, when ProShares Bitcoin Strategy ETF ([BITO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BITO)) was approved. The approval of Bitcoin futures ETFs, like the ProShares Bitcoin Strategy ETF, marked a significant regulatory breakthrough and set a precedent for other futures-based crypto ETFs. They were approved under the idea that futures markets are more regulated and thus offer higher levels of investor protection than spot cryptocurrency markets. In January 2024, the SEC relented and allowed the first [spot bitcoin](https://www.investopedia.com/where-to-buy-the-new-spot-bitcoin-etfs-8557203#:~:text=A%20spot%20bitcoin%20ETF%20invests,the%20company%20offering%20the%20ETFs.) ([BTCUSD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=btcusd)) ETFs to begin trading. This set off massive buying of bitcoin in the first few months of trading, sending it up about 60% in value in the first quarter alone. Major investment houses like Fidelity and Grayscale have proposals for ether ETFs, but we've [reported](https://www.investopedia.com/why-spot-ether-etfs-could-face-a-difficult-path-to-approval-8609104) that the SEC isn't likely to approve one for its tokens soon. In addition to the SEC's concerns about spot bitcoin funds, Ethereum, the platform behind the currency, uses a staking mechanism where randomly selected holders of ether lock up their funds as collateral and are rewarded with more ether for supporting the blockchain network. The SEC is reported to believe this makes ether far more like a security than bitcoin, meaning its regulatory place would have to be sorted before an Ether ETF could be approved and offered to investors. ### Currency ETFs Currency ETFs are exchange-traded funds that have exposure to foreign exchange markets, allowing investors to trade currencies much like stocks. They track a single currency or basket of them, offering a way to speculate on currency moves or hedge against currency risk. Investors use currency ETFs to diversify their portfolios beyond traditional asset classes, speculate on economic conditions in different countries, or hedge against currency fluctuations in export and import-driven businesses. ### Equities ETFs These focus on stocks from major indexes like SPY, sectors like health care, or offer dividends. They can also choose to invest in companies with different market capitalization or specific themes, like artificial intelligence, which might involve companies across different sectors. These have, by far, the largest market share in ETFs. ### Real Estate Investment Trust (REIT) ETFs These invest in a portfolio of REITs, giving you exposure to the real estate market without having to buy properties directly. The REITs whose shares the fund holds generally generate income through leasing space and collecting rents, which they then distribute to shareholders as dividends. REIT ETFs are popular for their potential to provide stable income and diversification benefits, as real estate often moves independently of stocks and bonds. | Exchange-Traded Fund Types | | | | | | | --- | --- | --- | --- | --- | --- | | ETF Type | Description | Underlying Assets | Typical Investor Use | Major Advantage | Major Disadvantage | | **Actively Managed ETFs** | Portfolio managers actively buy and sell securities, including stocks, bonds, futures, and more. | Various securities chosen by the fund manager | Seeking to outperform a benchmark | Potential to outperform benchmarks through experienced management. | Higher expense ratios due to active management | | **Bond ETFs** | Invest in one or more types of bonds | Government, corporate, or high-yield bonds | Diversification, income generation | Provides stable income through dividends from bonds. | Susceptible to interest rate risk, affecting bond prices inversely | | **Commodity ETFs** | Invest in physical commodities or commodity futures | Gold, silver, oil, or other commodities | Diversification, inflation hedge | Offers a hedge against inflation and an alternative to stocks and bonds. | Can be volatile, influenced by international climate, political, and economic factors | | **Crypto ETFs** | Track the performance of cryptocurrencies by holding them or with futures | Bitcoin for spot bitcoin ETFs; bitcoin and ether futures | Exposure to cryptocurrency markets | Provides exposure to cryptocurrency markets without needing to directly buy or store digital currencies. | Highly volatile and can be impacted by regulatory changes and problems in largely unregulated underlying markets | | **Currency ETFs** | Track the performance of a currency or currency basket | Currencies | Hedging, speculation | Useful for insuring against currency risks or speculating on foreign exchange moves | Forex markets can be extremely volatile and influenced by sudden global events | | **Dividend ETFs** | Focus on stocks that pay consistent dividends | Dividend-paying stocks | Income generation | Offers a regular income stream from dividends. | Depend on the health of dividend-paying companies that could cut dividends in tougher economies | | **ESG ETFs** | Invest in companies that meet environmental, social, and governance criteria | Stocks or bonds of ESG-friendly companies | Aligning investments with values | Investing aligned with personal values on environmental, social, and governance issues. | Potentially limited exposure to certain industries; need to ensure ESG claims are legitimate | | **Futures-Based ETFs** | Invest in futures contracts (contracts to buy an asset in the future at a preset price) | Futures contracts on various assets | Diversification, hedging, speculation | Provides exposure to various asset classes without needing to directly own the assets. | Futures contracts can be complex and have costs rolling over contracts and tracking errors | | **Leveraged and Inverse ETFs** | Multiplied returns on indexes (whether wagering for or against the index going up) | Short selling or long positions in index funds | Short-term trading, hedging, speculation | Offers potential for significant gains in a short period if the market moves as predicted | High risk of significant losses, especially if held for more than one day because of compounding effects | | **Options ETFs** | Use options strategies to generate income or manage risk | Options contracts | Hedging, speculation | Benefits of options strategies to generate income or hedge against portfolio risks | Strategies are complex and may lead to significant losses if not managed well, or if you don't know options well when buying ETF shares | | **Preferred Stock ETFs** | Invest in securities that combine aspects of stocks and bonds seeking dividend yields | Preferred stocks | Income-seeking and institutional investors wanting diversification | Can offer attractive dividend yields and higher claims on assets than common stocks | Less potential for capital appreciation compared to common stocks; sensitive to interest rate changes | | **REIT ETFs** | Invest in real estate investment trusts | REITs, which own income-generating real estate | Diversification, income generation | Provides exposure to real estate without needing to directly manage properties | Sensitive to changes in interest rates, which can affect real estate prices and occupancy rates, lowering them precipitously | | **Sector or Industry ETFs** | Focus on a specific sector or industry | Stocks from companies within the sector or industry | Targeted exposure to a specific market segment | Can focus on trends and industries you think are likely to rise | Higher risk of volatility due to exposure to a single sector or industry | | **Volatility ETFs** | Provide exposure to market volatility | VIX futures or other volatility-linked derivatives | Hedging, speculation | Useful for hedging against market downturns when volatility is expected to rise | Can have severe losses, especially in stable or rallying markets | ## ETF Type By Strategy Having looked at the kinds of assets that might be involved, we can now turn to the strategies different ETFs use. ### Dividend ETFs These funds focus on dividend-paying stocks across various sectors and provide regular income and the potential for capital appreciation. These ETFs are especially attractive to income-seeking investors, including retirees, because they distribute the dividends they collect from their underlying stock holdings to their shareholders. Dividend ETFs can vary by targeting high dividend yields, dividend growth, or stability, which allows you to choose a fund that fits your income needs and risk tolerance. ### Environmental, Social, and Governance (ESG) ETFs [These funds](https://www.investopedia.com/investing/rise-socially-responsible-etf/#:~:text=Environmental%2C%20social%2C%20and%20governance%20%28ESG%29%20criteria%20are%20a,as%20a%20steward%20of%20nature.) have been gaining market share among investors looking to make socially responsible investments. They apply ESG criteria to select stocks, aiming to invest in companies with responsible practices. However, they can vary widely in focus. Some target low-carbon emission firms, while others focus on specific themes in sustainable or other ways to have a beneficial social impact. ### Global ETFs These hold a broad range of securities from countries outside the U.S., providing exposure to international markets. Some focus on mature and growth-oriented markets, enabling you to diversify beyond your country's borders. This type of ETF particularly appeals to those looking to mitigate country-specific risks and capitalize on prospects in foreign markets. For example, if you were interested in gaining exposure to some European stocks through the Austrian market, you might consider the iShares [MSCI](https://www.investopedia.com/terms/m/msci.asp) Austrian Index fund ([EWO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EWO)). For emerging markets, an example includes the iShares MSCI Emerging Markets Index ([EEM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EEM)), an ETF created as an equity [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) for international securities. ### Leveraged and Inverse ETFs Not every ETF is designed to move in the same direction or even in the same amount as the index it tracks. The prices of [inverse ETFs](https://www.investopedia.com/terms/i/inverse-etf.asp) go up when the markets go down and vice versa. They can be very useful to those investors interested in hedging portfolio risk. By buying shares in them, you're hoping to profit when the underlying index or benchmark falls. Leveraged ETFs amplify both gains and losses. Inverse ETFs, meanwhile, aim to profit from a decline in the underlying index, providing negative exposure that is typically equal to -1, -2, or -3 times the daily performance. These ETFs use financial derivatives like futures, options, and swaps to achieve their goals. For example, the Direxion Daily Financial Bear 3x Shares ([FAZ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FAZ)) is a triple [bear fund](https://www.investopedia.com/terms/b/bear-fund.asp). It attempts to move 300% in value in the opposite direction of the Financial Select Sector Index. It uses derivatives and other types of leverage to boost its performance returns. However, because of their complex nature and the risks of compounding effects over longer periods, leveraged and inverse ETFs are best suited for experienced investors who understand the potential for rapid and significant value changes. ### Options-Based ETFs These use options strategies for potential income generation, downside protection, or magnified returns compared with traditional index-tracking investments. An [option](https://www.investopedia.com/terms/o/option.asp) is a financial derivative that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price, known as the strike price, on or before a specific date. Call options give the holder the right to buy an asset at the strike price within a particular time frame. Put options give the holder the right to sell the underlying asset at the strike price within a specific time frame. A common options-based strategy is the covered call, where the ETF holds an underlying asset and sells call options on it, generating income from the option premiums. Other methods include using put options for hedging or combining options for specific risk and return profiles. ### Preferred Stock ETFs These are funds that hold a type of stock that shares characteristics of both equity and debt instruments. Preferred stocks come before common stocks for dividend payments and asset distribution in case of liquidation, but they usually don't carry voting rights like common stocks. They typically have higher dividends than common stocks and even some bonds, making preferred stock ETFs attractive for income-seeking investors. While generally less volatile than common stock, [preferred stock ETFs](https://www.investopedia.com/articles/etfs-mutual-funds/051016/true-risks-behind-preferred-stock-etfs-pff-fpe.asp) can be sensitive to changes in interest rates. Like bonds, their prices typically fall as interest rates rise. Among the better-known funds is the iShares U.S. Preferred Stock ETF (PFF), which holds a portfolio of diverse U.S. preferred stocks. It has assets of about $15 billion, an expense ratio of 0.46%, and five-year returns of 3.01%. Preferred stock ETFs are suited for institutional investors wanting higher yields than those typically available from corporate bonds, with a moderately higher risk profile. They serve as a good tool for diversifying an income-generating portfolio, especially in a low-interest-rate environment when traditional fixed-income instruments may have lower yields. ### Sector or Industry-Specific ETFs These focus on technology, health care, energy, and other parts of the economy. This allows you to gain targeted exposure to specific market areas that interest you. For example, if you're bullish on people having excess money for consumer goods, you might invest in a sector ETF to gain exposure to firms in the sector. These ETFs are also useful for diversifying without having to select individual stocks. In addition, sector funds can serve as a hedge against sector-specific risks and are valuable for thematic investing, where the investor can take positions based on expected economic shifts or trends affecting particular industries. ### Volatility ETFs [These funds](https://www.investopedia.com/investing/use-vix-etf-in-your-portfolio/) track volatility indexes, most commonly the CBOE Volatility Index ([VIX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VIX)). The VIX measures the stock market's expectations of volatility using S&P 500 index options. Volatility ETFs are typically used as trading instruments for hedging risk or speculating on changes in market volatility rather than long-term investing. ### Although ETFs are tax efficient, you are taxed on any income, such as dividends and capital gains that you earn while you hold the fund and after you sell it. ## Factors To Consider When Investing in an ETF When reviewing specific funds, there are several of the main factors to review first: **Objectives and strategies**: Understand the ETF's investment objectives and strategies. Consider whether it aligns with your own goals, risk tolerance, and time horizon. **Underlying assets**: Look at the ETF's holdings and asset composition. Ensure that you understand what the ETF is invested in and you're comfortable with the risks it involves. **Expense ratio**: This is the annual fees charged by the fund. Lower expense ratios can help keep costs down and improve your overall returns. **Tracking error**: For index-tracking ETFs, consider the tracking error, which measures how closely the ETF's performance matches that of its underlying index. A lower tracking error indicates better accuracy in replicating the index's returns. **Liquidity**: Look at the ETF's trading volume and bid-ask spread. Higher trading volume and narrower spreads generally indicate better liquidity, making it easier to buy and sell shares at a fair price, both when entering and exiting from your position in it. **Issuer and fund size**: Consider the reputation and financial stability of the ETF issuer. In addition, review the fund's total AUM, as larger funds may have better liquidity and lower operating costs. **Performance history**: While past performance doesn't guarantee future results, reviewing an ETF's historical returns can help you consider how it's done in various market conditions. **Portfolio fit**: Assess how the ETF fits within your overall investment portfolio. Ensure that it contributes to the asset allocation you want and helps you maintain proper diversification. **Tax implications**: Be aware of the tax implications of investing in the ETF, such as capital gains distributions or tax treatment of dividends. This can help you manage your tax liability more effectively. Before investing in any ETF, always review its prospectus and related documents to gain a broad understanding of its goals, risks, fees, and other characteristics. ## What Are the Most Popular ETFs? One way to see which funds are the most popular is to look at those with the most assets under management. SPY, the first ETF, is still the biggest, with about $515 billion in AUM, an expense ratio of 0.09%, and five-year returns of 14.96%. iShares Core S&P 5000 ([IVV](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IVV)) is next with securities related to the large-cap stocks of the S&P 500. It has assets of about $455 billion, an expense ratio of 0.03%, and five-year returns of 15.02%. At third is another S&P 500 index fund, the Vanguard S&P 500 ETF ([VOO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO)), with an AUM of about $435 billion, an expense ratio of 0.03%, and five-year returns of 15.01%. The largest bond ETF is the Vanguard Total Bond Market ETF ([BND](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BND)), with about $104 billion in AUM, an expense ratio of 0.03%, and five-year returns of 0.37%. ## What's the Difference Between an ETF and a Mutual Fund? An ETF and mutual fund both pool money from investors and invest that capital in a basket of related securities. They can be actively or passively managed. Unlike mutual funds, ETFs trade like stocks and you can buy and sell them on stock exchanges. Another key difference between ETFs and mutual funds is the associated cost. Mutual funds generally charge higher management fees than ETFs. ## Can I Use ETFs For My Retirement Funds? Absolutely. ETFs are commonly included in retirement portfolios because of their diversification benefits and low cost. They can be used to construct a balanced portfolio aligned with your risk tolerance and retirement timeline while offering exposure to a wide range of asset classes, such as stocks, bonds, and commodities. ## The Bottom Line ETFs combine features of both mutual funds and stocks. They are listed on stock exchanges and can be bought and sold throughout the trading day like individual stocks. ETFs typically track a specific market index, sector, commodity, or other asset class, providing investors with exposure to a diverse range of securities in a single investment. Their benefits include liquidity, lower expenses than mutual funds, diversification, and tax advantages. When considering an ETF, review its goals and strategy, underlying assets, expense ratio, tracking error, liquidity, issuer and fund size, performance history, risks, and how it fits within your overall portfolio.
Exchange-traded funds (ETFs) were introduced in the early 1990s and have proven a durable and popular investment for many. As a result, they have expanded greatly, both in number and what they focus on over time. An ETF is like a mutual fund, but there are major distinctions between them. Both save you the time-consuming work of analyzing companies and picking stocks, though mutual funds often tend to be less tax-efficient and have higher management fees. Below, we introduce you to ETFs, explain why they've proven so popular, discuss the benefits and drawbacks that come with them, and describe what to look for when choosing among them for your portfolio. Key Takeaways Exchange-traded funds (ETFs) are like mutual funds but trade like stocks.They offer investors broad diversification in line with the indexes that they track.Many ETFs are available that likely fit your specific needs and investment goals.ETF investors can consider funds that target specific sectors or industries, such as energy ETFs, or investment styles, such as inverse investing.Most ETFs have lower fees than actively managed mutual funds. Investopedia / Zoe Hansen What Is an Exchange-Traded Fund? ETFs combine features of both mutual funds and stocks. Like mutual funds, they offer investors an interest in a professionally managed, diversified portfolio of investments. However, unlike mutual funds, ETF shares trade like stocks on exchanges, with prices fluctuating throughout the day based on market demand. For example, certain ETFs track the S&P 500 or the Barclays Capital U.S. Aggregate Bond Index, which invests in securities in those indexes. But an ETF isn't a mutual fund. Instead, it trades like the shares of a company stock on a public exchange. And, unlike a mutual fund with its net asset value (NAV) calculated at the end of each trading day, an ETF's price changes throughout the day, fluctuating with supply and demand. While ETFs attempt to replicate the returns on indexes that they track, there is no guarantee that they will do so exactly since each fund has a slight tracking error or difference between how the index would perform and how the ETF does. ETFs have grown their assets tremendously, increasing from a negligible amount of total U.S. fund assets to about 30% in late 2023, with much of the rest taken up by mutual funds. Below is a chart of their growth in assets since 2010. Investopedia Advantages and Disadvantages of ETFs Advantages Diversification Accessibility and Flexibility Low Fees Liquidity Tax Efficiency Disadvantages Additional Costs Potentially Excess Trading Potentially Lower Returns ETF Advantages Diversification: ETFs offer investors instant diversification, whether across the broad market, asset classes, market sectors, or specific industries. Accessibility and flexibility: Because ETFs trade like stocks, you can buy and sell them anytime during a trading session. You can also short sell them and buy on margin. Low fees: The expense ratios of most ETFs are lower than those of the average mutual fund. The average expense ratio for an index ETF was 0.16% in 2022. As of 2024, the SPDR S&P 500 ETF (SPY) had an expense ratio of 0.09%. Liquidity: Popular ETFs are highly liquid. This means they can be sold easily and at a narrower bid-ask spread. Tax efficiency: Because of their passive management, ETFs usually have fewer capital gains, which means investors may pay less in taxes. In addition, in-kind (as opposed to cash) exchanges for an ETF's securities also result in less capital gains. ETF Disadvantages Additional costs: While ETFs may have low expense ratios, you may have other charges related to buying and selling ETFs, such as broker commissions/transaction costs. Moreover, you can expect higher expense ratios if you invest in an actively managed ETF. In addition, the bid-ask spread for an ETF presents a hidden cost for investors. Excess trading: Because ETFs can be bought and sold intraday, investors may forget their investment goals and trade them unnecessarily in reaction to attention-grabbing news reports or unsupported rumors. Potentially lower returns: The diversification that makes ETFs (and mutual funds) a smart way to reduce risk can also mean that returns might be less than those obtained by actively selecting and owning individual stocks. ETFs have come a long way. From $100 billion in assets under management (AUM) to $8.1 trillion AUM at the beginning of 2024. Types of ETFs ETFs are the most common type of exchange-traded product and typically include baskets of stocks, bonds, or other assets grouped based on the fund's specific goals. Here are some of the major types you'll see as you explore this landscape, though there are hybrid ETFs that hold more than one kind of asset, and funds overlap categories. Let's first review the two broadest categories before looking at the different strategies ETFs can be based upon. Then, we introduce the categories you'll see most often as you look through your brokerage's platform. There's also a table putting the basics of each together. Actively Managed ETFs Unlike most ETFs, which passively track an index, these have portfolio managers who actively buy and sell securities to try to outperform a benchmark. In 2023, these made up about 15% of the ETFs trading. Passive Index ETFs The first ETF in the U.S. was the SPDR S&P 500 ETF Trust (SPY), which began trading in 1993 and tracks the performance of the S&P 500 by buying the same 500 stocks and weighting them proportional to the index. Like SPY, index ETFs track the performance of a specific market index, such as the S&P 500 or the Dow Jones Industrial Average. Index funds are by far the most popular, making up over 4/5s of the assets under management in the U.S. Another example is the Invesco QQQ (QQQ) ETF, which tracks the Nasdaq 100 and consists of the 100 largest and most actively traded nonfinancial domestic and international companies on the Nasdaq. It offers investors broad exposure to the tech sector. Its diversification can be a big advantage when there's volatility in the markets. If one tech company falls short of projected earnings, it will likely be hit hard, but owning a piece of a hundred other companies can cushion that blow. The world's first ETF was called the Toronto 35 Index Participation Units. It was launched in 1990 by the Toronto Stock Exchange (TSX). ETF Type By Asset Within these broad categories, you'll find funds that focus on different assets. Bond ETFs These hold one type or a variety of bonds, providing investors with exposure to fixed-income securities. There are several subcategories of bond ETFs, each focusing on different types of bonds. Government bond ETFs invest in Treasurys and other government securities, offering exposure to debt issued by national governments. Corporate bond ETFs focus on corporate debt securities, and, lastly, high-yield bond ETFs invest in lower credit rating bonds that offer higher yields, but also come with increased risk compared with government or high-quality corporate bonds. Bond ETFs offer diversification and the potential for generating income, making them attractive to investors looking to put a portion of their portfolio into fixed-income securities. Commodity ETFs These invest either directly in physical commodities, such as gold, silver, or oil, or in commodity futures contracts. They offer exposure to commodity markets without the need for direct investment in the underlying assets. For instance, if you think that natural gas companies are a good prospect, you might consider a fund like the United States Natural Gas Fund (UNG). This ETF tracks natural gas prices by buying natural gas futures contracts. Top ETF Asset Categories by AUM ETF Type  2024 AUM Equity $6.95 trillion Bond $1.53 trillion Commodity $139 billion Real Estate $70.5 billion Crypto $65.2 billion Hybrid $33.5 billion Preferred Stock $32.3 billion Alternatives $6.3 billion Volatility $2.9 billion Data source: TradingView (April 2024) Crypto ETFs These track the performance of one or more cryptocurrencies, such as Bitcoin. The U.S. Securities and Exchange Commission (SEC) has expressed concerns about market manipulation, liquidity, and the custody of assets on crypto exchanges. This kept futures-based crypto ETFs off U.S. exchanges until 2021, when ProShares Bitcoin Strategy ETF (BITO) was approved. The approval of Bitcoin futures ETFs, like the ProShares Bitcoin Strategy ETF, marked a significant regulatory breakthrough and set a precedent for other futures-based crypto ETFs. They were approved under the idea that futures markets are more regulated and thus offer higher levels of investor protection than spot cryptocurrency markets. In January 2024, the SEC relented and allowed the first spot bitcoin (BTCUSD) ETFs to begin trading. This set off massive buying of bitcoin in the first few months of trading, sending it up about 60% in value in the first quarter alone. Major investment houses like Fidelity and Grayscale have proposals for ether ETFs, but we've reported that the SEC isn't likely to approve one for its tokens soon. In addition to the SEC's concerns about spot bitcoin funds, Ethereum, the platform behind the currency, uses a staking mechanism where randomly selected holders of ether lock up their funds as collateral and are rewarded with more ether for supporting the blockchain network. The SEC is reported to believe this makes ether far more like a security than bitcoin, meaning its regulatory place would have to be sorted before an Ether ETF could be approved and offered to investors. Currency ETFs Currency ETFs are exchange-traded funds that have exposure to foreign exchange markets, allowing investors to trade currencies much like stocks. They track a single currency or basket of them, offering a way to speculate on currency moves or hedge against currency risk. Investors use currency ETFs to diversify their portfolios beyond traditional asset classes, speculate on economic conditions in different countries, or hedge against currency fluctuations in export and import-driven businesses. Equities ETFs These focus on stocks from major indexes like SPY, sectors like health care, or offer dividends. They can also choose to invest in companies with different market capitalization or specific themes, like artificial intelligence, which might involve companies across different sectors. These have, by far, the largest market share in ETFs. Real Estate Investment Trust (REIT) ETFs These invest in a portfolio of REITs, giving you exposure to the real estate market without having to buy properties directly. The REITs whose shares the fund holds generally generate income through leasing space and collecting rents, which they then distribute to shareholders as dividends. REIT ETFs are popular for their potential to provide stable income and diversification benefits, as real estate often moves independently of stocks and bonds. Exchange-Traded Fund Types ETF Type Description Underlying Assets Typical Investor Use Major Advantage Major Disadvantage Actively Managed ETFs Portfolio managers actively buy and sell securities, including stocks, bonds, futures, and more. Various securities chosen by the fund manager Seeking to outperform a benchmark Potential to outperform benchmarks through experienced management. Higher expense ratios due to active management Bond ETFs Invest in one or more types of bonds Government, corporate, or high-yield bonds Diversification, income generation Provides stable income through dividends from bonds. Susceptible to interest rate risk, affecting bond prices inversely Commodity ETFs Invest in physical commodities or commodity futures Gold, silver, oil, or other commodities Diversification, inflation hedge Offers a hedge against inflation and an alternative to stocks and bonds. Can be volatile, influenced by international climate, political, and economic factors Crypto ETFs Track the performance of cryptocurrencies by holding them or with futures Bitcoin for spot bitcoin ETFs; bitcoin and ether futures Exposure to cryptocurrency markets Provides exposure to cryptocurrency markets without needing to directly buy or store digital currencies. Highly volatile and can be impacted by regulatory changes and problems in largely unregulated underlying markets Currency ETFs Track the performance of a currency or currency basket Currencies Hedging, speculation Useful for insuring against currency risks or speculating on foreign exchange moves Forex markets can be extremely volatile and influenced by sudden global events Dividend ETFs Focus on stocks that pay consistent dividends Dividend-paying stocks Income generation Offers a regular income stream from dividends. Depend on the health of dividend-paying companies that could cut dividends in tougher economies ESG ETFs Invest in companies that meet environmental, social, and governance criteria Stocks or bonds of ESG-friendly companies Aligning investments with values Investing aligned with personal values on environmental, social, and governance issues. Potentially limited exposure to certain industries; need to ensure ESG claims are legitimate Futures-Based ETFs Invest in futures contracts (contracts to buy an asset in the future at a preset price) Futures contracts on various assets Diversification, hedging, speculation Provides exposure to various asset classes without needing to directly own the assets. Futures contracts can be complex and have costs rolling over contracts and tracking errors Leveraged and Inverse ETFs Multiplied returns on indexes (whether wagering for or against the index going up) Short selling or long positions in index funds Short-term trading, hedging, speculation Offers potential for significant gains in a short period if the market moves as predicted High risk of significant losses, especially if held for more than one day because of compounding effects Options ETFs Use options strategies to generate income or manage risk Options contracts Hedging, speculation Benefits of options strategies to generate income or hedge against portfolio risks Strategies are complex and may lead to significant losses if not managed well, or if you don't know options well when buying ETF shares Preferred Stock ETFs Invest in securities that combine aspects of stocks and bonds seeking dividend yields Preferred stocks Income-seeking and institutional investors wanting diversification Can offer attractive dividend yields and higher claims on assets than common stocks Less potential for capital appreciation compared to common stocks; sensitive to interest rate changes REIT ETFs Invest in real estate investment trusts REITs, which own income-generating real estate Diversification, income generation Provides exposure to real estate without needing to directly manage properties Sensitive to changes in interest rates, which can affect real estate prices and occupancy rates, lowering them precipitously Sector or Industry ETFs Focus on a specific sector or industry Stocks from companies within the sector or industry Targeted exposure to a specific market segment Can focus on trends and industries you think are likely to rise Higher risk of volatility due to exposure to a single sector or industry Volatility ETFs Provide exposure to market volatility VIX futures or other volatility-linked derivatives Hedging, speculation Useful for hedging against market downturns when volatility is expected to rise Can have severe losses, especially in stable or rallying markets ETF Type By Strategy Having looked at the kinds of assets that might be involved, we can now turn to the strategies different ETFs use. Dividend ETFs These funds focus on dividend-paying stocks across various sectors and provide regular income and the potential for capital appreciation. These ETFs are especially attractive to income-seeking investors, including retirees, because they distribute the dividends they collect from their underlying stock holdings to their shareholders. Dividend ETFs can vary by targeting high dividend yields, dividend growth, or stability, which allows you to choose a fund that fits your income needs and risk tolerance. Environmental, Social, and Governance (ESG) ETFs These funds have been gaining market share among investors looking to make socially responsible investments. They apply ESG criteria to select stocks, aiming to invest in companies with responsible practices. However, they can vary widely in focus. Some target low-carbon emission firms, while others focus on specific themes in sustainable or other ways to have a beneficial social impact. Global ETFs These hold a broad range of securities from countries outside the U.S., providing exposure to international markets. Some focus on mature and growth-oriented markets, enabling you to diversify beyond your country's borders. This type of ETF particularly appeals to those looking to mitigate country-specific risks and capitalize on prospects in foreign markets. For example, if you were interested in gaining exposure to some European stocks through the Austrian market, you might consider the iShares MSCI Austrian Index fund (EWO). For emerging markets, an example includes the iShares MSCI Emerging Markets Index (EEM), an ETF created as an equity benchmark for international securities. Leveraged and Inverse ETFs Not every ETF is designed to move in the same direction or even in the same amount as the index it tracks. The prices of inverse ETFs go up when the markets go down and vice versa. They can be very useful to those investors interested in hedging portfolio risk. By buying shares in them, you're hoping to profit when the underlying index or benchmark falls. Leveraged ETFs amplify both gains and losses. Inverse ETFs, meanwhile, aim to profit from a decline in the underlying index, providing negative exposure that is typically equal to -1, -2, or -3 times the daily performance. These ETFs use financial derivatives like futures, options, and swaps to achieve their goals. For example, the Direxion Daily Financial Bear 3x Shares (FAZ) is a triple bear fund. It attempts to move 300% in value in the opposite direction of the Financial Select Sector Index. It uses derivatives and other types of leverage to boost its performance returns. However, because of their complex nature and the risks of compounding effects over longer periods, leveraged and inverse ETFs are best suited for experienced investors who understand the potential for rapid and significant value changes. Options-Based ETFs These use options strategies for potential income generation, downside protection, or magnified returns compared with traditional index-tracking investments. An option is a financial derivative that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price, known as the strike price, on or before a specific date. Call options give the holder the right to buy an asset at the strike price within a particular time frame. Put options give the holder the right to sell the underlying asset at the strike price within a specific time frame. A common options-based strategy is the covered call, where the ETF holds an underlying asset and sells call options on it, generating income from the option premiums. Other methods include using put options for hedging or combining options for specific risk and return profiles. Preferred Stock ETFs These are funds that hold a type of stock that shares characteristics of both equity and debt instruments. Preferred stocks come before common stocks for dividend payments and asset distribution in case of liquidation, but they usually don't carry voting rights like common stocks. They typically have higher dividends than common stocks and even some bonds, making preferred stock ETFs attractive for income-seeking investors. While generally less volatile than common stock, preferred stock ETFs can be sensitive to changes in interest rates. Like bonds, their prices typically fall as interest rates rise. Among the better-known funds is the iShares U.S. Preferred Stock ETF (PFF), which holds a portfolio of diverse U.S. preferred stocks. It has assets of about $15 billion, an expense ratio of 0.46%, and five-year returns of 3.01%. Preferred stock ETFs are suited for institutional investors wanting higher yields than those typically available from corporate bonds, with a moderately higher risk profile. They serve as a good tool for diversifying an income-generating portfolio, especially in a low-interest-rate environment when traditional fixed-income instruments may have lower yields. Sector or Industry-Specific ETFs These focus on technology, health care, energy, and other parts of the economy. This allows you to gain targeted exposure to specific market areas that interest you. For example, if you're bullish on people having excess money for consumer goods, you might invest in a sector ETF to gain exposure to firms in the sector. These ETFs are also useful for diversifying without having to select individual stocks. In addition, sector funds can serve as a hedge against sector-specific risks and are valuable for thematic investing, where the investor can take positions based on expected economic shifts or trends affecting particular industries. Volatility ETFs These funds track volatility indexes, most commonly the CBOE Volatility Index (VIX). The VIX measures the stock market's expectations of volatility using S&P 500 index options. Volatility ETFs are typically used as trading instruments for hedging risk or speculating on changes in market volatility rather than long-term investing. Although ETFs are tax efficient, you are taxed on any income, such as dividends and capital gains that you earn while you hold the fund and after you sell it. Factors To Consider When Investing in an ETF When reviewing specific funds, there are several of the main factors to review first: Objectives and strategies: Understand the ETF's investment objectives and strategies. Consider whether it aligns with your own goals, risk tolerance, and time horizon. Underlying assets: Look at the ETF's holdings and asset composition. Ensure that you understand what the ETF is invested in and you're comfortable with the risks it involves. Expense ratio: This is the annual fees charged by the fund. Lower expense ratios can help keep costs down and improve your overall returns. Tracking error: For index-tracking ETFs, consider the tracking error, which measures how closely the ETF's performance matches that of its underlying index. A lower tracking error indicates better accuracy in replicating the index's returns. Liquidity: Look at the ETF's trading volume and bid-ask spread. Higher trading volume and narrower spreads generally indicate better liquidity, making it easier to buy and sell shares at a fair price, both when entering and exiting from your position in it. Issuer and fund size: Consider the reputation and financial stability of the ETF issuer. In addition, review the fund's total AUM, as larger funds may have better liquidity and lower operating costs. Performance history: While past performance doesn't guarantee future results, reviewing an ETF's historical returns can help you consider how it's done in various market conditions. Portfolio fit: Assess how the ETF fits within your overall investment portfolio. Ensure that it contributes to the asset allocation you want and helps you maintain proper diversification. Tax implications: Be aware of the tax implications of investing in the ETF, such as capital gains distributions or tax treatment of dividends. This can help you manage your tax liability more effectively. Before investing in any ETF, always review its prospectus and related documents to gain a broad understanding of its goals, risks, fees, and other characteristics. What Are the Most Popular ETFs? One way to see which funds are the most popular is to look at those with the most assets under management. SPY, the first ETF, is still the biggest, with about $515 billion in AUM, an expense ratio of 0.09%, and five-year returns of 14.96%. iShares Core S&P 5000 (IVV) is next with securities related to the large-cap stocks of the S&P 500. It has assets of about $455 billion, an expense ratio of 0.03%, and five-year returns of 15.02%. At third is another S&P 500 index fund, the Vanguard S&P 500 ETF (VOO), with an AUM of about $435 billion, an expense ratio of 0.03%, and five-year returns of 15.01%. The largest bond ETF is the Vanguard Total Bond Market ETF (BND), with about $104 billion in AUM, an expense ratio of 0.03%, and five-year returns of 0.37%. What's the Difference Between an ETF and a Mutual Fund? An ETF and mutual fund both pool money from investors and invest that capital in a basket of related securities. They can be actively or passively managed. Unlike mutual funds, ETFs trade like stocks and you can buy and sell them on stock exchanges.Another key difference between ETFs and mutual funds is the associated cost. Mutual funds generally charge higher management fees than ETFs. Can I Use ETFs For My Retirement Funds? Absolutely. ETFs are commonly included in retirement portfolios because of their diversification benefits and low cost. They can be used to construct a balanced portfolio aligned with your risk tolerance and retirement timeline while offering exposure to a wide range of asset classes, such as stocks, bonds, and commodities. The Bottom Line ETFs combine features of both mutual funds and stocks. They are listed on stock exchanges and can be bought and sold throughout the trading day like individual stocks. ETFs typically track a specific market index, sector, commodity, or other asset class, providing investors with exposure to a diverse range of securities in a single investment. Their benefits include liquidity, lower expenses than mutual funds, diversification, and tax advantages. When considering an ETF, review its goals and strategy, underlying assets, expense ratio, tracking error, liquidity, issuer and fund size, performance history, risks, and how it fits within your overall portfolio.
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https://www.investopedia.com/hong-kong-etf-8432004
Hong Kong ETFs: What They Are and How They Work
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-are-hong-kong-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Are Hong Kong ETFs? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Hong Kong <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a> track the performance of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hong-kong-sar-china.asp">Hong Kong</a> equities and other assets, usually through indexes tied to the market. These indexes can range from the broader market to specific sectors within the Hong Kong economy. </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"> Like other ETFs, Hong Kong ETFs are traded on stock exchanges, offering exposure to the Hong Kong market without the need to buy individual securities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Hong Kong ETFs grant investors access to the Hong Kong market, offering broad and international diversification advantages.</li><li>When selecting a Hong Kong ETF, consider expense ratios, performance, holdings, liquidity, and assets under management.</li><li>Investing in Hong Kong ETFs carries unique risks, including currency risk and market volatility, as well as political and economic factors that can impact their performance.</li><li>Knowing the tax implications and regulations that come with investing in Hong Kong ETFs is also critical.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-hong-kong-etfs-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> How Hong Kong ETFs Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Hong Kong ETFs work by tracking a particular <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/index.asp">index</a> representing a segment of the Hong Kong stock market. This is done by buying all or a representative group of the securities in the underlying index. The ETF’s price fluctuates throughout the trading day, like individual stocks, and most ETFs are highly liquid. </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"> Key characteristics of Hong Kong ETFs include their performance, which reflects the underlying index’s return, and their <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>, which is the annual fee charged to investors. In addition, each ETF has specific holdings (the individual securities it owns) and sector allocations (how its assets are distributed across different sectors). Other important factors include trading <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volume.asp">volume</a> (how frequently shares are bought and sold) and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trackingerror.asp">tracking errors</a> (how closely the ETF follows its index). These collectively determine the suitability of a particular Hong Kong ETF for you.<br/> </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-benefits-of-investing-in-hong-kong-etfs"></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"> Benefits of Investing in Hong Kong ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Investing in Hong Kong ETFs offers several benefits. </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 primary advantage is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</a>. By investing in a Hong Kong ETF, you get direct exposure to a broad range of companies within the Hong Kong market, spreading your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk.asp">risk</a> across many stocks rather than relying on the performance of a single company or a smaller number of shares. This can be worthwhile for those seeking broad international diversification in their <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolios</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> It’s also a chance to benefit from the attractive potential of the Hong Kong market. Hong Kong is a leading financial center with a dynamic and robust economy. Investing in a Hong Kong ETF allows investors to participate in this growth. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> In addition, ETFs offer advantages such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a> (generally, easy trading throughout the trading day), <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transparency.asp">transparency</a> (holdings are disclosed daily), and lower costs than <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">mutual funds</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-top-hong-kong-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> Top Hong Kong ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The two top Hong Kong ETFs available in U.S. markets are the iShares MSCI Hong Kong ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=EWH">EWH</a>) and the Franklin FTSE Hong Kong ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=FLHK">FLHK</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"> EWH has about $600 million in net assets as of late January 2024 and is the oldest and largest Hong Kong ETF.<span class="ql-inline-citation" data-cite="3"></span> It aims to replicate the performance of the MSCI Hong Kong Index, providing exposure to large and midsized Hong Kong companies. EWH comes with an expense ratio of 0.50%.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> FLHK tracks the FTSE Hong Kong Capped Index, and its inception was in 2017. Its assets under management are significantly smaller than EWH: about $10.86 million as of late January 2024.<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-what-to-consider-when-choosing-a-hong-kong-etf"></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"> What to Consider When Choosing a Hong Kong ETF </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> When choosing a Hong Kong ETF, several factors should be considered. </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"> First, the fund’s objective is crucial since it should align with your investment goals. Holdings are another critical aspect, as they represent the ETF’s assets. Liquidity is also essential, as it determines how easily an investor can trade shares of the ETF. The provider’s size, scale, expertise, and commitment can also impact your investment, so these should also be considered. </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"> Evaluating an ETF’s performance and track record is an essential step. This includes understanding the performance of the ETF, the underlying index it tracks, and how it does so. Also, review the ETF’s costs. Remember that past performance is not a guarantee of future results, and your choice should fit your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risktolerance.asp">risk tolerance</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/figure-out-your-investment-goals/">investment goals</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-how-to-invest-in-hong-kong-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> How to Invest in Hong Kong ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Investing in Hong Kong ETFs can be done simply through a brokerage account. You need to open an account with a broker that provides access to international markets, including Hong Kong. Ensure that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-brokers-for-etfs-4587875">the broker you choose</a> is regulated and has a good reputation. Research the available Hong Kong ETFs, assessing fund objectives, holdings, liquidity, performance track record, and fees. </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 buy shares in a Hong Kong ETF, follow these steps: Log into your brokerage account, search for the ticker symbol of the ETF you’re interested in, specify the number of ETF units you want to buy, and submit your order. Remember to conduct <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/duediligence.asp">due diligence</a> beforehand, review your transactions, and check your investments regularly. </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-risks-and-challenges-of-investing-in-hong-kong-etfs"></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"> Risks and Challenges of Investing in Hong Kong ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Investing in Hong Kong ETFs offers the chance to tap into a dynamic financial market. Before doing so, however, understanding the specific risks and market dynamics of Hong Kong is essential. </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"> Hong Kong is a global financial powerhouse, renowned for its high degree of internationalization and its role as a critical gateway for investments in and out of China. 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> in 2002, according to The World Bank, was $166.35 billion, climbing to $359.84 billion by 2022, in 2022 U.S. dollars.<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_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Hong Kong operates under a distinct system from mainland China, yet Chinese economic policies and developments profoundly impact its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economy.asp">economy</a>. This complex interdependence underscores the importance for investors to watch political and economic changes in China, given their significant influence on Hong Kong’s market. Additionally, Hong Kong’s role as a critical gateway to Chinese and other Asian markets extends its economic influence far beyond what is reflected in its GDP alone. </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 real estate sector, a significant part of Hong Kong’s economy, is characterized by high property prices and a market that can significantly drive economic growth, offering attractive prospects in related ETFs. As a pivotal trading hub, Hong Kong’s reliance on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trade.asp">trade</a>, especially with mainland China and other Asian countries, underscores the importance of global trade for its market performance. </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"> Investors must also navigate <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currencyrisk.asp">currency risks</a> with the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/h/hkd-hong-kong-dollars.asp">Hong Kong dollar</a>’s peg to the U.S. dollar. This peg affects monetary policy and can influence inflation and interest rates, impacting investment returns. </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"> Hong Kong’s traditional appeal has been its free-market policies, low taxation, and minimal government intervention. However, the evolving political landscape and recent changes in security laws pose potential risks that could alter this environment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> The focus on technology in Hong Kong, fueled by government initiatives aimed at economic diversification, presents new avenues for ETF investment. This shift toward a more innovation-driven economy could redefine traditional investment strategies. </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"> Fueled by local and global events, market <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> remains a crucial consideration. Political shifts, policy changes, and global economic trends can all significantly influence the value of Hong Kong ETFs. China’s global financial influence, particularly the role of Hong Kong as an international financial center, is crucial. The dynamics of the yuan exchange rate and China’s economic growth rate are also important to assess. </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"> In light of these risks and prospects, a well-diversified portfolio is key. Regular monitoring, staying informed about global and local developments, and strategic use of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stop-lossorder.asp">stop-loss orders</a> can help mitigate potential losses. </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-comparisonlist mntl-block" id="mntl-sc-block_60-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_61-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Pros &amp; Cons of Hong Kong ETFs</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Generally, transparency in ETF holdings and performance<br/></p></li> <li><p>Offers broad diversification of different stocks</p></li> <li><p>Convenient trading during market hours</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>Political risks because of changes in government policies may increase the volatility and potential loss of the ETF value<br/></p></li> <li><p>Potential liquidity risk affecting buy/sell prices<br/></p></li> <li><p>Currency risk because of different currency denomination</p></li> </ul> </div> </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-how-big-is-the-hong-kong-etf-market"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Big Is the Hong Kong ETF Market?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As of the beginning of 2023, the asset size of Hong Kong’s ETF market was about $48.9 billion in U.S. dollars, making it the fourth largest in Asia ex-Japan.<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_64-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_65-0"><span class="heading-toc" id="toc-is-the-hong-kong-stock-exchange-part-of-china"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is the Hong Kong Stock Exchange Part of China?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hongkongstockexchange.asp">Hong Kong Stock Exchange</a> is part of China, but it operates under a separate regulatory regime because of the “one country, two systems” principle.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_67-0"><span class="heading-toc" id="toc-what-are-other-ways-to-invest-in-the-hong-kong-market"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Other Ways to Invest in the Hong Kong Market?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Apart from ETFs, investors can also directly buy individual securities of enterprises listed on the Hong Kong Stock Exchange or mutual funds focused on Hong Kong exposure. </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_69-0"><span class="heading-toc" id="toc-what-is-the-largest-sector-represented-in-the-ishares-msci-hong-kong-etf-ewh"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Largest Sector Represented in the iShares MSCI Hong Kong ETF (EWH)?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The insurance sector is the largest sector represented in the EWH fund, followed by real estate management and development, financial services, and capital goods.<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_70-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_71-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> Hong Kong ETFs offer advantages like diversification, transparency, and the opportunity for international market exposure. They provide investors access to Hong Kong’s economy and can be traded on stock exchanges. </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"> Before investing, interested investors should conduct due diligence and consider expense ratio, performance, size, liquidity, and Hong Kong-specific risks. </p></div>
## What Are Hong Kong ETFs? Hong Kong [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) track the performance of [Hong Kong](https://www.investopedia.com/terms/h/hong-kong-sar-china.asp) equities and other assets, usually through indexes tied to the market. These indexes can range from the broader market to specific sectors within the Hong Kong economy. Like other ETFs, Hong Kong ETFs are traded on stock exchanges, offering exposure to the Hong Kong market without the need to buy individual securities. ### Key Takeaways * Hong Kong ETFs grant investors access to the Hong Kong market, offering broad and international diversification advantages. * When selecting a Hong Kong ETF, consider expense ratios, performance, holdings, liquidity, and assets under management. * Investing in Hong Kong ETFs carries unique risks, including currency risk and market volatility, as well as political and economic factors that can impact their performance. * Knowing the tax implications and regulations that come with investing in Hong Kong ETFs is also critical. ## How Hong Kong ETFs Work Hong Kong ETFs work by tracking a particular [index](https://www.investopedia.com/terms/i/index.asp) representing a segment of the Hong Kong stock market. This is done by buying all or a representative group of the securities in the underlying index. The ETF’s price fluctuates throughout the trading day, like individual stocks, and most ETFs are highly liquid. Key characteristics of Hong Kong ETFs include their performance, which reflects the underlying index’s return, and their [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp), which is the annual fee charged to investors. In addition, each ETF has specific holdings (the individual securities it owns) and sector allocations (how its assets are distributed across different sectors). Other important factors include trading [volume](https://www.investopedia.com/terms/v/volume.asp) (how frequently shares are bought and sold) and [tracking errors](https://www.investopedia.com/terms/t/trackingerror.asp) (how closely the ETF follows its index). These collectively determine the suitability of a particular Hong Kong ETF for you. ## Benefits of Investing in Hong Kong ETFs Investing in Hong Kong ETFs offers several benefits. A primary advantage is [diversification](https://www.investopedia.com/terms/d/diversification.asp). By investing in a Hong Kong ETF, you get direct exposure to a broad range of companies within the Hong Kong market, spreading your [risk](https://www.investopedia.com/terms/r/risk.asp) across many stocks rather than relying on the performance of a single company or a smaller number of shares. This can be worthwhile for those seeking broad international diversification in their [portfolios](https://www.investopedia.com/terms/p/portfolio.asp). It’s also a chance to benefit from the attractive potential of the Hong Kong market. Hong Kong is a leading financial center with a dynamic and robust economy. Investing in a Hong Kong ETF allows investors to participate in this growth. In addition, ETFs offer advantages such as [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) (generally, easy trading throughout the trading day), [transparency](https://www.investopedia.com/terms/t/transparency.asp) (holdings are disclosed daily), and lower costs than [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp). ## Top Hong Kong ETFs The two top Hong Kong ETFs available in U.S. markets are the iShares MSCI Hong Kong ETF ([EWH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EWH)) and the Franklin FTSE Hong Kong ETF ([FLHK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FLHK)). EWH has about $600 million in net assets as of late January 2024 and is the oldest and largest Hong Kong ETF. It aims to replicate the performance of the MSCI Hong Kong Index, providing exposure to large and midsized Hong Kong companies. EWH comes with an expense ratio of 0.50%. FLHK tracks the FTSE Hong Kong Capped Index, and its inception was in 2017. Its assets under management are significantly smaller than EWH: about $10.86 million as of late January 2024. ## What to Consider When Choosing a Hong Kong ETF When choosing a Hong Kong ETF, several factors should be considered. First, the fund’s objective is crucial since it should align with your investment goals. Holdings are another critical aspect, as they represent the ETF’s assets. Liquidity is also essential, as it determines how easily an investor can trade shares of the ETF. The provider’s size, scale, expertise, and commitment can also impact your investment, so these should also be considered. Evaluating an ETF’s performance and track record is an essential step. This includes understanding the performance of the ETF, the underlying index it tracks, and how it does so. Also, review the ETF’s costs. Remember that past performance is not a guarantee of future results, and your choice should fit your [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp) and [investment goals](https://www.investopedia.com/investing/figure-out-your-investment-goals/). ## How to Invest in Hong Kong ETFs Investing in Hong Kong ETFs can be done simply through a brokerage account. You need to open an account with a broker that provides access to international markets, including Hong Kong. Ensure that [the broker you choose](https://www.investopedia.com/best-brokers-for-etfs-4587875) is regulated and has a good reputation. Research the available Hong Kong ETFs, assessing fund objectives, holdings, liquidity, performance track record, and fees. To buy shares in a Hong Kong ETF, follow these steps: Log into your brokerage account, search for the ticker symbol of the ETF you’re interested in, specify the number of ETF units you want to buy, and submit your order. Remember to conduct [due diligence](https://www.investopedia.com/terms/d/duediligence.asp) beforehand, review your transactions, and check your investments regularly. ## Risks and Challenges of Investing in Hong Kong ETFs Investing in Hong Kong ETFs offers the chance to tap into a dynamic financial market. Before doing so, however, understanding the specific risks and market dynamics of Hong Kong is essential. Hong Kong is a global financial powerhouse, renowned for its high degree of internationalization and its role as a critical gateway for investments in and out of China. Its [gross domestic product (GDP)](https://www.investopedia.com/terms/g/gdp.asp) in 2002, according to The World Bank, was $166.35 billion, climbing to $359.84 billion by 2022, in 2022 U.S. dollars. Hong Kong operates under a distinct system from mainland China, yet Chinese economic policies and developments profoundly impact its [economy](https://www.investopedia.com/terms/e/economy.asp). This complex interdependence underscores the importance for investors to watch political and economic changes in China, given their significant influence on Hong Kong’s market. Additionally, Hong Kong’s role as a critical gateway to Chinese and other Asian markets extends its economic influence far beyond what is reflected in its GDP alone. The real estate sector, a significant part of Hong Kong’s economy, is characterized by high property prices and a market that can significantly drive economic growth, offering attractive prospects in related ETFs. As a pivotal trading hub, Hong Kong’s reliance on [trade](https://www.investopedia.com/terms/t/trade.asp), especially with mainland China and other Asian countries, underscores the importance of global trade for its market performance. Investors must also navigate [currency risks](https://www.investopedia.com/terms/c/currencyrisk.asp) with the [Hong Kong dollar](https://www.investopedia.com/terms/forex/h/hkd-hong-kong-dollars.asp)’s peg to the U.S. dollar. This peg affects monetary policy and can influence inflation and interest rates, impacting investment returns. Hong Kong’s traditional appeal has been its free-market policies, low taxation, and minimal government intervention. However, the evolving political landscape and recent changes in security laws pose potential risks that could alter this environment. The focus on technology in Hong Kong, fueled by government initiatives aimed at economic diversification, presents new avenues for ETF investment. This shift toward a more innovation-driven economy could redefine traditional investment strategies. Fueled by local and global events, market [volatility](https://www.investopedia.com/terms/v/volatility.asp) remains a crucial consideration. Political shifts, policy changes, and global economic trends can all significantly influence the value of Hong Kong ETFs. China’s global financial influence, particularly the role of Hong Kong as an international financial center, is crucial. The dynamics of the yuan exchange rate and China’s economic growth rate are also important to assess. In light of these risks and prospects, a well-diversified portfolio is key. Regular monitoring, staying informed about global and local developments, and strategic use of [stop-loss orders](https://www.investopedia.com/terms/s/stop-lossorder.asp) can help mitigate potential losses. ### Pros & Cons of Hong Kong ETFs Pros * Generally, transparency in ETF holdings and performance * Offers broad diversification of different stocks * Convenient trading during market hours Cons * Political risks because of changes in government policies may increase the volatility and potential loss of the ETF value * Potential liquidity risk affecting buy/sell prices * Currency risk because of different currency denomination ## How Big Is the Hong Kong ETF Market? As of the beginning of 2023, the asset size of Hong Kong’s ETF market was about $48.9 billion in U.S. dollars, making it the fourth largest in Asia ex-Japan. ## Is the Hong Kong Stock Exchange Part of China? Yes, the [Hong Kong Stock Exchange](https://www.investopedia.com/terms/h/hongkongstockexchange.asp) is part of China, but it operates under a separate regulatory regime because of the “one country, two systems” principle. ## What Are Other Ways to Invest in the Hong Kong Market? Apart from ETFs, investors can also directly buy individual securities of enterprises listed on the Hong Kong Stock Exchange or mutual funds focused on Hong Kong exposure.  ## What Is the Largest Sector Represented in the iShares MSCI Hong Kong ETF (EWH)? The insurance sector is the largest sector represented in the EWH fund, followed by real estate management and development, financial services, and capital goods. ## The Bottom Line Hong Kong ETFs offer advantages like diversification, transparency, and the opportunity for international market exposure. They provide investors access to Hong Kong’s economy and can be traded on stock exchanges. Before investing, interested investors should conduct due diligence and consider expense ratio, performance, size, liquidity, and Hong Kong-specific risks.
What Are Hong Kong ETFs? Hong Kong exchange-traded funds (ETFs) track the performance of Hong Kong equities and other assets, usually through indexes tied to the market. These indexes can range from the broader market to specific sectors within the Hong Kong economy. Like other ETFs, Hong Kong ETFs are traded on stock exchanges, offering exposure to the Hong Kong market without the need to buy individual securities. Key Takeaways Hong Kong ETFs grant investors access to the Hong Kong market, offering broad and international diversification advantages.When selecting a Hong Kong ETF, consider expense ratios, performance, holdings, liquidity, and assets under management.Investing in Hong Kong ETFs carries unique risks, including currency risk and market volatility, as well as political and economic factors that can impact their performance.Knowing the tax implications and regulations that come with investing in Hong Kong ETFs is also critical. How Hong Kong ETFs Work Hong Kong ETFs work by tracking a particular index representing a segment of the Hong Kong stock market. This is done by buying all or a representative group of the securities in the underlying index. The ETF’s price fluctuates throughout the trading day, like individual stocks, and most ETFs are highly liquid. Key characteristics of Hong Kong ETFs include their performance, which reflects the underlying index’s return, and their expense ratio, which is the annual fee charged to investors. In addition, each ETF has specific holdings (the individual securities it owns) and sector allocations (how its assets are distributed across different sectors). Other important factors include trading volume (how frequently shares are bought and sold) and tracking errors (how closely the ETF follows its index). These collectively determine the suitability of a particular Hong Kong ETF for you. Benefits of Investing in Hong Kong ETFs Investing in Hong Kong ETFs offers several benefits. A primary advantage is diversification. By investing in a Hong Kong ETF, you get direct exposure to a broad range of companies within the Hong Kong market, spreading your risk across many stocks rather than relying on the performance of a single company or a smaller number of shares. This can be worthwhile for those seeking broad international diversification in their portfolios. It’s also a chance to benefit from the attractive potential of the Hong Kong market. Hong Kong is a leading financial center with a dynamic and robust economy. Investing in a Hong Kong ETF allows investors to participate in this growth. In addition, ETFs offer advantages such as liquidity (generally, easy trading throughout the trading day), transparency (holdings are disclosed daily), and lower costs than mutual funds. Top Hong Kong ETFs The two top Hong Kong ETFs available in U.S. markets are the iShares MSCI Hong Kong ETF (EWH) and the Franklin FTSE Hong Kong ETF (FLHK). EWH has about $600 million in net assets as of late January 2024 and is the oldest and largest Hong Kong ETF. It aims to replicate the performance of the MSCI Hong Kong Index, providing exposure to large and midsized Hong Kong companies. EWH comes with an expense ratio of 0.50%. FLHK tracks the FTSE Hong Kong Capped Index, and its inception was in 2017. Its assets under management are significantly smaller than EWH: about $10.86 million as of late January 2024. What to Consider When Choosing a Hong Kong ETF When choosing a Hong Kong ETF, several factors should be considered. First, the fund’s objective is crucial since it should align with your investment goals. Holdings are another critical aspect, as they represent the ETF’s assets. Liquidity is also essential, as it determines how easily an investor can trade shares of the ETF. The provider’s size, scale, expertise, and commitment can also impact your investment, so these should also be considered. Evaluating an ETF’s performance and track record is an essential step. This includes understanding the performance of the ETF, the underlying index it tracks, and how it does so. Also, review the ETF’s costs. Remember that past performance is not a guarantee of future results, and your choice should fit your risk tolerance and investment goals. How to Invest in Hong Kong ETFs Investing in Hong Kong ETFs can be done simply through a brokerage account. You need to open an account with a broker that provides access to international markets, including Hong Kong. Ensure that the broker you choose is regulated and has a good reputation. Research the available Hong Kong ETFs, assessing fund objectives, holdings, liquidity, performance track record, and fees. To buy shares in a Hong Kong ETF, follow these steps: Log into your brokerage account, search for the ticker symbol of the ETF you’re interested in, specify the number of ETF units you want to buy, and submit your order. Remember to conduct due diligence beforehand, review your transactions, and check your investments regularly. Risks and Challenges of Investing in Hong Kong ETFs Investing in Hong Kong ETFs offers the chance to tap into a dynamic financial market. Before doing so, however, understanding the specific risks and market dynamics of Hong Kong is essential. Hong Kong is a global financial powerhouse, renowned for its high degree of internationalization and its role as a critical gateway for investments in and out of China. Its gross domestic product (GDP) in 2002, according to The World Bank, was $166.35 billion, climbing to $359.84 billion by 2022, in 2022 U.S. dollars. Hong Kong operates under a distinct system from mainland China, yet Chinese economic policies and developments profoundly impact its economy. This complex interdependence underscores the importance for investors to watch political and economic changes in China, given their significant influence on Hong Kong’s market. Additionally, Hong Kong’s role as a critical gateway to Chinese and other Asian markets extends its economic influence far beyond what is reflected in its GDP alone. The real estate sector, a significant part of Hong Kong’s economy, is characterized by high property prices and a market that can significantly drive economic growth, offering attractive prospects in related ETFs. As a pivotal trading hub, Hong Kong’s reliance on trade, especially with mainland China and other Asian countries, underscores the importance of global trade for its market performance. Investors must also navigate currency risks with the Hong Kong dollar’s peg to the U.S. dollar. This peg affects monetary policy and can influence inflation and interest rates, impacting investment returns. Hong Kong’s traditional appeal has been its free-market policies, low taxation, and minimal government intervention. However, the evolving political landscape and recent changes in security laws pose potential risks that could alter this environment. The focus on technology in Hong Kong, fueled by government initiatives aimed at economic diversification, presents new avenues for ETF investment. This shift toward a more innovation-driven economy could redefine traditional investment strategies. Fueled by local and global events, market volatility remains a crucial consideration. Political shifts, policy changes, and global economic trends can all significantly influence the value of Hong Kong ETFs. China’s global financial influence, particularly the role of Hong Kong as an international financial center, is crucial. The dynamics of the yuan exchange rate and China’s economic growth rate are also important to assess. In light of these risks and prospects, a well-diversified portfolio is key. Regular monitoring, staying informed about global and local developments, and strategic use of stop-loss orders can help mitigate potential losses. Pros & Cons of Hong Kong ETFs Pros Generally, transparency in ETF holdings and performance Offers broad diversification of different stocks Convenient trading during market hours Cons Political risks because of changes in government policies may increase the volatility and potential loss of the ETF value Potential liquidity risk affecting buy/sell prices Currency risk because of different currency denomination How Big Is the Hong Kong ETF Market? As of the beginning of 2023, the asset size of Hong Kong’s ETF market was about $48.9 billion in U.S. dollars, making it the fourth largest in Asia ex-Japan. Is the Hong Kong Stock Exchange Part of China? Yes, the Hong Kong Stock Exchange is part of China, but it operates under a separate regulatory regime because of the “one country, two systems” principle. What Are Other Ways to Invest in the Hong Kong Market? Apart from ETFs, investors can also directly buy individual securities of enterprises listed on the Hong Kong Stock Exchange or mutual funds focused on Hong Kong exposure.  What Is the Largest Sector Represented in the iShares MSCI Hong Kong ETF (EWH)? The insurance sector is the largest sector represented in the EWH fund, followed by real estate management and development, financial services, and capital goods. The Bottom Line Hong Kong ETFs offer advantages like diversification, transparency, and the opportunity for international market exposure. They provide investors access to Hong Kong’s economy and can be traded on stock exchanges. Before investing, interested investors should conduct due diligence and consider expense ratio, performance, size, liquidity, and Hong Kong-specific risks.
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https://www.investopedia.com/the-january-no-effect-4780154
The January No-Effect
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-historical-market-moves-in-january"></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"> Historical Market Moves in January </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> As far back as 1942, there is a record of people discussing the so-called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/januaryeffect.asp">January effect</a>. The earliest expressions of this idea were related specifically to small-cap stocks outperforming large-cap stocks in the month of January. Later versions of the phenomenon were expanded to discuss the propensity for stocks in general to rise during that month. </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 data seems to indicate that there is attractive evidence to adopt this notion. For example, the pie charts below detail the percentage of the times that stocks in the S&amp;P 500 index (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=spx">SPX</a>) close higher for a given month out of all months since its inception in 1928. It does indeed appear that stocks tend to rise more frequently than they fall during January, and even more so than other months by comparison.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_6-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:62.1%;"> <img alt="Percentage of positive months on the S&amp;P 500 from 1928 to 2019" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/ycF9EfgKqZ9enxGv_8HObwWA2aY=/791x0/filters:no_upscale():max_bytes(150000):strip_icc()/positive-02129c555fe44882bb1085da24cfa512.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/4IMN_N08h_eztrj9SaH-RxXUuMU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/positive-02129c555fe44882bb1085da24cfa512.png" data-srcset="https://www.investopedia.com/thmb/RLHNtdc_ffqB3Kron-xT0e4c0v8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/positive-02129c555fe44882bb1085da24cfa512.png 750w" data-tracking-container="true" height="492" id="mntl-sc-block-image_1-0" width="791"/> <noscript> <img alt="Percentage of positive months on the S&amp;P 500 from 1928 to 2019" class="img--noscript universal-image__image" height="492" sizes="750px" src="https://www.investopedia.com/thmb/4IMN_N08h_eztrj9SaH-RxXUuMU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/positive-02129c555fe44882bb1085da24cfa512.png" srcset="https://www.investopedia.com/thmb/RLHNtdc_ffqB3Kron-xT0e4c0v8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/positive-02129c555fe44882bb1085da24cfa512.png 750w" width="791"/> </noscript> </div> </div> </figure> <span class="heading-toc" id="toc-the-confounding-of-the-january-effect"></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 Confounding of the January Effect </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> In 1973, Princeton economist Burton Malkiel published a popular book titled "A Random Walk Down Wall Street." This book is still in print after 15 editions with more than 1.5 million copies sold. Within its pages, Malkiel lays out the case that the so-called January effect is a non-starter. What is surprising about this claim is that, at the time Malkiel first penned this observation, it was a good bit less obvious to detect than it is now. </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"> Even today, the returns from buying in January and holding until the end of the month look pretty good compared to other months if you include all the data going back to 1928. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_12-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:61.6%;"> <img alt="S&amp;P monthly returns from 1928 to 2019" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/e42KTBnOEzUHJREFtE9OwarhM9E=/816x0/filters:no_upscale():max_bytes(150000):strip_icc()/1928-0dce0ae7686a44ada8a702a0629822e7.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/jwWhFQYSWzbI6dhEAT2L8EANzZA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/1928-0dce0ae7686a44ada8a702a0629822e7.png" data-srcset="https://www.investopedia.com/thmb/iInulyQzreEr-krXxUsM1ogNz7k=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/1928-0dce0ae7686a44ada8a702a0629822e7.png 750w" data-tracking-container="true" height="503" id="mntl-sc-block-image_2-0" width="816"/> <noscript> <img alt="S&amp;P monthly returns from 1928 to 2019" class="img--noscript universal-image__image" height="503" sizes="750px" src="https://www.investopedia.com/thmb/jwWhFQYSWzbI6dhEAT2L8EANzZA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/1928-0dce0ae7686a44ada8a702a0629822e7.png" srcset="https://www.investopedia.com/thmb/iInulyQzreEr-krXxUsM1ogNz7k=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/1928-0dce0ae7686a44ada8a702a0629822e7.png 750w" width="816"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> However, if you zero in on the past 30 years, this advantage seems to dissipate (see tables below), thus proving the author's original point. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_15-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:57.3%;"> <img alt="S&amp;P 500 monthly returns from 1989 to 2019" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/BwfOsM76KWmMq1kSlpnzmLFnPbU=/896x0/filters:no_upscale():max_bytes(150000):strip_icc()/1989-3126600015c94b958c02300d0e7dee4f.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/26dxSjVVBKdIHaItEneBvovk1CI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/1989-3126600015c94b958c02300d0e7dee4f.png" data-srcset="https://www.investopedia.com/thmb/m4CDQtlG7eTc6mDxFkNKr6IS74w=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/1989-3126600015c94b958c02300d0e7dee4f.png 750w" data-tracking-container="true" height="514" id="mntl-sc-block-image_3-0" width="896"/> <noscript> <img alt="S&amp;P 500 monthly returns from 1989 to 2019" class="img--noscript universal-image__image" height="514" sizes="750px" src="https://www.investopedia.com/thmb/26dxSjVVBKdIHaItEneBvovk1CI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/1989-3126600015c94b958c02300d0e7dee4f.png" srcset="https://www.investopedia.com/thmb/m4CDQtlG7eTc6mDxFkNKr6IS74w=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/1989-3126600015c94b958c02300d0e7dee4f.png 750w" width="896"/> </noscript> </div> </div> </figure> <span class="heading-toc" id="toc-trading-the-january-effect"></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"> Trading the January Effect </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The fact remains that, for whatever reason, broad-market stock indexes tend to close higher than they open more often than not during the month of January. As it turns out, there is one additional indication that can help traders sort through whether January is more or less likely to be a positive month: namely the returns of the previous month.  </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"> Looking back at the past 91 years of data for the S&amp;P 500 index, we can see that, if the index closed higher than it opened in the month of December, the month of January was twice as likely to be a positive month. By comparison, if December closes lower, January is a coin flip. This trend appears to persist even in the past 30 years. The average gain for January when December is positive is 3% for the 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"> However, it should be noted that the average loss for the month is 4.5%. Combining these two measures and adjusting for probability amounts to an expected return of zero. (Fans of 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> will undoubtedly cheer at this news.) </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"> So that means traders who look to make use of this observation will have to be a good bit more strategic than merely buying and holding through January if December is positive. Hunting for market lows mid-month in January, heading into <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earningsseason.asp">earnings season</a>, is likely to pay off well for careful traders who manage their risk appropriately. </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-the-bottom-line"></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"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The January effect appears to have some evidence to support the notion that stocks rise early in the year. However, exploiting this perceived anomaly is indeed illusory. Observing whether the previous month has had a positive return may be of help to careful traders who look to make timely entries midway through the month of January. </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"> <em>Enjoy this article? Get more by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://link.investopedia.com/join/53o/00-fwd-chartadvisor">signing up</a> for the Chart Advisor newsletter.</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>
## Historical Market Moves in January As far back as 1942, there is a record of people discussing the so-called [January effect](https://www.investopedia.com/terms/j/januaryeffect.asp). The earliest expressions of this idea were related specifically to small-cap stocks outperforming large-cap stocks in the month of January. Later versions of the phenomenon were expanded to discuss the propensity for stocks in general to rise during that month. The data seems to indicate that there is attractive evidence to adopt this notion. For example, the pie charts below detail the percentage of the times that stocks in the S&P 500 index ([SPX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=spx)) close higher for a given month out of all months since its inception in 1928. It does indeed appear that stocks tend to rise more frequently than they fall during January, and even more so than other months by comparison.   ![Percentage of positive months on the S&P 500 from 1928 to 2019]() ![Percentage of positive months on the S&P 500 from 1928 to 2019](https://www.investopedia.com/thmb/4IMN_N08h_eztrj9SaH-RxXUuMU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/positive-02129c555fe44882bb1085da24cfa512.png) ## The Confounding of the January Effect In 1973, Princeton economist Burton Malkiel published a popular book titled "A Random Walk Down Wall Street." This book is still in print after 15 editions with more than 1.5 million copies sold. Within its pages, Malkiel lays out the case that the so-called January effect is a non-starter. What is surprising about this claim is that, at the time Malkiel first penned this observation, it was a good bit less obvious to detect than it is now. Even today, the returns from buying in January and holding until the end of the month look pretty good compared to other months if you include all the data going back to 1928. ![S&P monthly returns from 1928 to 2019]() ![S&P monthly returns from 1928 to 2019](https://www.investopedia.com/thmb/jwWhFQYSWzbI6dhEAT2L8EANzZA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/1928-0dce0ae7686a44ada8a702a0629822e7.png) However, if you zero in on the past 30 years, this advantage seems to dissipate (see tables below), thus proving the author's original point. ![S&P 500 monthly returns from 1989 to 2019]() ![S&P 500 monthly returns from 1989 to 2019](https://www.investopedia.com/thmb/26dxSjVVBKdIHaItEneBvovk1CI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/1989-3126600015c94b958c02300d0e7dee4f.png) ## Trading the January Effect The fact remains that, for whatever reason, broad-market stock indexes tend to close higher than they open more often than not during the month of January. As it turns out, there is one additional indication that can help traders sort through whether January is more or less likely to be a positive month: namely the returns of the previous month.  Looking back at the past 91 years of data for the S&P 500 index, we can see that, if the index closed higher than it opened in the month of December, the month of January was twice as likely to be a positive month. By comparison, if December closes lower, January is a coin flip. This trend appears to persist even in the past 30 years. The average gain for January when December is positive is 3% for the month. However, it should be noted that the average loss for the month is 4.5%. Combining these two measures and adjusting for probability amounts to an expected return of zero. (Fans of the [Efficient Market Hypothesis](https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp) will undoubtedly cheer at this news.) So that means traders who look to make use of this observation will have to be a good bit more strategic than merely buying and holding through January if December is positive. Hunting for market lows mid-month in January, heading into [earnings season](https://www.investopedia.com/terms/e/earningsseason.asp), is likely to pay off well for careful traders who manage their risk appropriately. ## The Bottom Line The January effect appears to have some evidence to support the notion that stocks rise early in the year. However, exploiting this perceived anomaly is indeed illusory. Observing whether the previous month has had a positive return may be of help to careful traders who look to make timely entries midway through the month of January. *Enjoy this article? Get more by [signing up](https://link.investopedia.com/join/53o/00-fwd-chartadvisor) for the Chart Advisor newsletter.* Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
Historical Market Moves in January As far back as 1942, there is a record of people discussing the so-called January effect. The earliest expressions of this idea were related specifically to small-cap stocks outperforming large-cap stocks in the month of January. Later versions of the phenomenon were expanded to discuss the propensity for stocks in general to rise during that month. The data seems to indicate that there is attractive evidence to adopt this notion. For example, the pie charts below detail the percentage of the times that stocks in the S&P 500 index (SPX) close higher for a given month out of all months since its inception in 1928. It does indeed appear that stocks tend to rise more frequently than they fall during January, and even more so than other months by comparison.   The Confounding of the January Effect In 1973, Princeton economist Burton Malkiel published a popular book titled "A Random Walk Down Wall Street." This book is still in print after 15 editions with more than 1.5 million copies sold. Within its pages, Malkiel lays out the case that the so-called January effect is a non-starter. What is surprising about this claim is that, at the time Malkiel first penned this observation, it was a good bit less obvious to detect than it is now. Even today, the returns from buying in January and holding until the end of the month look pretty good compared to other months if you include all the data going back to 1928. However, if you zero in on the past 30 years, this advantage seems to dissipate (see tables below), thus proving the author's original point. Trading the January Effect The fact remains that, for whatever reason, broad-market stock indexes tend to close higher than they open more often than not during the month of January. As it turns out, there is one additional indication that can help traders sort through whether January is more or less likely to be a positive month: namely the returns of the previous month.  Looking back at the past 91 years of data for the S&P 500 index, we can see that, if the index closed higher than it opened in the month of December, the month of January was twice as likely to be a positive month. By comparison, if December closes lower, January is a coin flip. This trend appears to persist even in the past 30 years. The average gain for January when December is positive is 3% for the month. However, it should be noted that the average loss for the month is 4.5%. Combining these two measures and adjusting for probability amounts to an expected return of zero. (Fans of the Efficient Market Hypothesis will undoubtedly cheer at this news.) So that means traders who look to make use of this observation will have to be a good bit more strategic than merely buying and holding through January if December is positive. Hunting for market lows mid-month in January, heading into earnings season, is likely to pay off well for careful traders who manage their risk appropriately. The Bottom Line The January effect appears to have some evidence to support the notion that stocks rise early in the year. However, exploiting this perceived anomaly is indeed illusory. Observing whether the previous month has had a positive return may be of help to careful traders who look to make timely entries midway through the month of January. Enjoy this article? Get more by signing up for the Chart Advisor newsletter. Do you have a news tip for Investopedia reporters? Please email us at [email protected]
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https://www.investopedia.com/terms/w/williamsact.asp
Williams Act: What it Means, How it Works
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-definition-of-the-williams-act"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> DEFINITION of the Williams Act </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The <em>Williams Act</em> is a federal law enacted in 1968 that defines the rules of acquisitions and tender offers. It came in response to a wave of hostile takeover attempts from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporate-raider.asp" rel="noopener noreferrer">corporate raiders</a>, making cash tender offers for stocks they owned. Cash tender offers threatened to destroy value by forcing shareholders to tender shares on a shortened timetable. </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"> To protect investors, Senator Harrison A. Williams of New Jersey proposed new legislation that required mandatory disclosure of information regarding takeover bids. It demands bidders include all details of a tender offer in filings to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp" rel="noopener noreferrer">Securities and Exchange Commissions</a> (SEC) and the target company. The filing must include the offer terms, cash source and the bidder's plans for the company after the takeover. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_6-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Williams Act" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/G5tR8CB4Z90RBEn3fEy0PuXoHJU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Williams-Act-Final-97b63ab6a319457e8b0a8977a42c279e.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/G5tR8CB4Z90RBEn3fEy0PuXoHJU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Williams-Act-Final-97b63ab6a319457e8b0a8977a42c279e.jpg" data-srcset="https://www.investopedia.com/thmb/W_nd57FmExdW9UYDup3wVzNHdu8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Williams-Act-Final-97b63ab6a319457e8b0a8977a42c279e.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Williams Act" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/G5tR8CB4Z90RBEn3fEy0PuXoHJU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Williams-Act-Final-97b63ab6a319457e8b0a8977a42c279e.jpg" srcset="https://www.investopedia.com/thmb/W_nd57FmExdW9UYDup3wVzNHdu8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Williams-Act-Final-97b63ab6a319457e8b0a8977a42c279e.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 / Yurle Villegas</p></span> </figcaption></figure> <span class="heading-toc" id="toc-breaking-down-williams-act"></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"> BREAKING DOWN Williams Act </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The <em>Williams Act</em> also includes time constraints that specify the minimum time an offer may be open and the number of days shareholders can make a decision. The law was passed in response to a wave of unannounced takeovers in the 1960s. This posed a threat to managers and shareholders who were forced to make critical decisions under unreasonable time pressure. Legislators passed the <em>Williams Act</em> and amended the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seact1934.asp" rel="noopener noreferrer"><em>Securities Exchange Act</em> of 1934</a> to protect affected parties from ongoing takeovers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> When a tender offer is made, the bidding company must provide full and fair disclosure to shareholders and financial regulators. Any entity making a cash tender offer for a corporation must outline the source of the takeover funds, the purpose for making a bid, and the outlook of the acquired company. That way, shareholders have greater transparency into the potential outcomes of an acquisition.  </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 act aimed to strike a careful balance in the market for corporate governance by providing shareholders with timely information to thoughtfully evaluate tender offers and allowing managers an opportunity to win over shareholders. In passing the legislation, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/government-and-policy-4689793" rel="noopener noreferrer">Congress</a> aimed to protect shareholders without making takeover attempts overly difficult. They recognize takeovers can benefit shareholders and managers when the company is failing or needs new management.  </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-time-to-update-the-williams-act"></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"> Time to Update the <em>Williams Act?</em> </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Some experts believe the ongoing evolution of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporategovernance.asp" rel="noopener noreferrer">corporate governance</a> calls for a comprehensive review of the <em>Williams Act.</em> For one thing, the enactment of federal and state antitakeover laws render the coercive tender offers the <em>Williams Act</em> sought to address ineffective. In addition, the demographic of shareholders for publicly traded companies has changed dramatically in the past 50 years. </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"> Today, majority shareholders are knowledgeable, have access to information and can make decisions on a moment's notice. Other things to consider is the emergence of active shareholders who pursue investments differently from corporate raiders of the past. </p></div>
## DEFINITION of the Williams Act The *Williams Act* is a federal law enacted in 1968 that defines the rules of acquisitions and tender offers. It came in response to a wave of hostile takeover attempts from [corporate raiders](https://www.investopedia.com/terms/c/corporate-raider.asp), making cash tender offers for stocks they owned. Cash tender offers threatened to destroy value by forcing shareholders to tender shares on a shortened timetable. To protect investors, Senator Harrison A. Williams of New Jersey proposed new legislation that required mandatory disclosure of information regarding takeover bids. It demands bidders include all details of a tender offer in filings to the [Securities and Exchange Commissions](https://www.investopedia.com/terms/s/sec.asp) (SEC) and the target company. The filing must include the offer terms, cash source and the bidder's plans for the company after the takeover. ![Williams Act]() ![Williams Act](https://www.investopedia.com/thmb/G5tR8CB4Z90RBEn3fEy0PuXoHJU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Williams-Act-Final-97b63ab6a319457e8b0a8977a42c279e.jpg) Investopedia / Yurle Villegas ## BREAKING DOWN Williams Act The *Williams Act* also includes time constraints that specify the minimum time an offer may be open and the number of days shareholders can make a decision. The law was passed in response to a wave of unannounced takeovers in the 1960s. This posed a threat to managers and shareholders who were forced to make critical decisions under unreasonable time pressure. Legislators passed the *Williams Act* and amended the [*Securities Exchange Act* of 1934](https://www.investopedia.com/terms/s/seact1934.asp) to protect affected parties from ongoing takeovers. When a tender offer is made, the bidding company must provide full and fair disclosure to shareholders and financial regulators. Any entity making a cash tender offer for a corporation must outline the source of the takeover funds, the purpose for making a bid, and the outlook of the acquired company. That way, shareholders have greater transparency into the potential outcomes of an acquisition.  The act aimed to strike a careful balance in the market for corporate governance by providing shareholders with timely information to thoughtfully evaluate tender offers and allowing managers an opportunity to win over shareholders. In passing the legislation, [Congress](https://www.investopedia.com/government-and-policy-4689793) aimed to protect shareholders without making takeover attempts overly difficult. They recognize takeovers can benefit shareholders and managers when the company is failing or needs new management.  ## Time to Update the *Williams Act?* Some experts believe the ongoing evolution of [corporate governance](https://www.investopedia.com/terms/c/corporategovernance.asp) calls for a comprehensive review of the *Williams Act.* For one thing, the enactment of federal and state antitakeover laws render the coercive tender offers the *Williams Act* sought to address ineffective. In addition, the demographic of shareholders for publicly traded companies has changed dramatically in the past 50 years. Today, majority shareholders are knowledgeable, have access to information and can make decisions on a moment's notice. Other things to consider is the emergence of active shareholders who pursue investments differently from corporate raiders of the past.
DEFINITION of the Williams Act The Williams Act is a federal law enacted in 1968 that defines the rules of acquisitions and tender offers. It came in response to a wave of hostile takeover attempts from corporate raiders, making cash tender offers for stocks they owned. Cash tender offers threatened to destroy value by forcing shareholders to tender shares on a shortened timetable. To protect investors, Senator Harrison A. Williams of New Jersey proposed new legislation that required mandatory disclosure of information regarding takeover bids. It demands bidders include all details of a tender offer in filings to the Securities and Exchange Commissions (SEC) and the target company. The filing must include the offer terms, cash source and the bidder's plans for the company after the takeover. Investopedia / Yurle Villegas BREAKING DOWN Williams Act The Williams Act also includes time constraints that specify the minimum time an offer may be open and the number of days shareholders can make a decision. The law was passed in response to a wave of unannounced takeovers in the 1960s. This posed a threat to managers and shareholders who were forced to make critical decisions under unreasonable time pressure. Legislators passed the Williams Act and amended the Securities Exchange Act of 1934 to protect affected parties from ongoing takeovers. When a tender offer is made, the bidding company must provide full and fair disclosure to shareholders and financial regulators. Any entity making a cash tender offer for a corporation must outline the source of the takeover funds, the purpose for making a bid, and the outlook of the acquired company. That way, shareholders have greater transparency into the potential outcomes of an acquisition.  The act aimed to strike a careful balance in the market for corporate governance by providing shareholders with timely information to thoughtfully evaluate tender offers and allowing managers an opportunity to win over shareholders. In passing the legislation, Congress aimed to protect shareholders without making takeover attempts overly difficult. They recognize takeovers can benefit shareholders and managers when the company is failing or needs new management.  Time to Update the Williams Act? Some experts believe the ongoing evolution of corporate governance calls for a comprehensive review of the Williams Act. For one thing, the enactment of federal and state antitakeover laws render the coercive tender offers the Williams Act sought to address ineffective. In addition, the demographic of shareholders for publicly traded companies has changed dramatically in the past 50 years. Today, majority shareholders are knowledgeable, have access to information and can make decisions on a moment's notice. Other things to consider is the emergence of active shareholders who pursue investments differently from corporate raiders of the past.
[ [ "corporate raiders", "https://www.investopedia.com/terms/c/corporate-raider.asp" ], [ "Securities and Exchange Commissions", "https://www.investopedia.com/terms/s/sec.asp" ], [ "Williams Act", "https://www.investopedia.com/thmb/G5tR8CB4Z90RBEn3fEy0PuXoHJU=/1500x0/filters:no_upscale(" ], [ "*Securities Exchange Act* of 1934", "https://www.investopedia.com/terms/s/seact1934.asp" ], [ "Congress", "https://www.investopedia.com/government-and-policy-4689793" ], [ "corporate governance", "https://www.investopedia.com/terms/c/corporategovernance.asp" ] ]
https://www.investopedia.com/ask/answers/09/buy-hold-forex-trading.asp
Is There a Buy-and-Hold Strategy in Forex?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Skeptics of buy-and-hold trading in forex argue that it is a fool's errand because currencies lack the main advantage of stocks. A company's value may soar because of an event such as entering a new market or a break-through product. Currencies, on the other hand, rarely rally against each other unless, for example, a Third World currency devalues because of political or financial turbulence. </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"> Because of this fundamental <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/11/forex-or-stocks.asp">difference</a> between currencies and stock, many consider a buy-and-hold strategy inapplicable to the forex market. However, others consider it a viable strategy for experienced forex traders. </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"> There are different ways to trade in most markets. Traders have been classified into three groups, primarily based on their preferred trading time frame. For simplicity, these groups can be described as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/daytrader.asp">day traders</a>, swing traders, and position traders. Some people consider a position trade or buy-and-hold strategy an investment, but in reality, it is just a long-term trade. </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>While currencies rarely rally against one another in the same sense that stocks do, there are viable reasons for experienced traders to engage in buy-and-hold strategies in forex trading.</li><li>Traders who understand the long-term economic trends in one country versus another can buy-and-hold a currency for months or years in order to recognize profit from their trade.</li><li>Buy-and-hold forex trading can also happen in conjunction with other investments, such as an American investor buying stock in a European company. </li><li>Carry trade refers to a trader selling a currency that provides a low-interest return rate in order to purchase a currency that provides a high-interest return rate.</li><li>Traders consider central bank policies, global sentiments, and trends in unemployment rates when adopting a long-term forex investment strategy.</li></ul></div></div></div> <span class="heading-toc" id="toc-forex-market"></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"> Forex Market </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> In 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>, a trader can hold a position for as long as a few minutes to a few years. Depending on the goal, a trader can take a position based on the fundamental economic trends in one country versus another. For example, a long-term trade in the forex market, or a buy-and-hold position, would be advantageous for someone who had sold dollars to buy euros back in the early 2000s and then held on to that position for a few years.  </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"> Suppose an American buys shares in a company in Europe, they will have to pay for those shares in euros. Thus, there is a requirement to convert dollars to euros. The American trader is speculating on the growth of the European company and also on the appreciation of the euro against the dollar. In this example, the American may benefit from an appreciating value of the shares bought but also from an appreciating currency.  </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"> Of course, conversely, had a European trader bought shares in a company such as General Motors (GM), they would have had to pay for those shares in dollars but would have lost value in both the shares and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency.asp">currency</a> during the same period. </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>Buy-and-hold strategies in forex trading offer long term profit potential, as well as additional profit if the trade features a positive overnight interest rate trading. Limiting factors, however, include the lack of clear entry/exit criteria, the need for patience, the potential for negative overnight interest rates, and the necessity of a broker that is reliable enough to depend on for several years.</p></div></div></div> <span class="heading-toc" id="toc-carry-trade"></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"> Carry Trade </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> If a trader wants to buy and hold a currency, that trader could sell a currency that pays a low-interest rate, such as the yen and buy a currency that pays a high-interest rate, such as the Australian dollar. This would be considered a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currencycarrytrade.asp">carry trade</a>, where the trader will earn the interest differential between the two currencies. While the trader knows how much interest the trade will receive, the trader does not know how the two currencies will continue to perform against each other. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forex.asp">forex</a> traders tend to be short-term traders who constantly time the market swings in the hope of profiting. Those who succeed are seeking long-term profit potential. Traders consider environmental factors such as central bank policies, global sentiments, and trends in unemployment rates. A long period of waiting is required, and many traders assume a forex buy-and-hold position that lasts for years or decades. </p></div>
Skeptics of buy-and-hold trading in forex argue that it is a fool's errand because currencies lack the main advantage of stocks. A company's value may soar because of an event such as entering a new market or a break-through product. Currencies, on the other hand, rarely rally against each other unless, for example, a Third World currency devalues because of political or financial turbulence. Because of this fundamental [difference](https://www.investopedia.com/articles/forex/11/forex-or-stocks.asp) between currencies and stock, many consider a buy-and-hold strategy inapplicable to the forex market. However, others consider it a viable strategy for experienced forex traders. There are different ways to trade in most markets. Traders have been classified into three groups, primarily based on their preferred trading time frame. For simplicity, these groups can be described as [day traders](https://www.investopedia.com/terms/d/daytrader.asp), swing traders, and position traders. Some people consider a position trade or buy-and-hold strategy an investment, but in reality, it is just a long-term trade. ### Key Takeaways * While currencies rarely rally against one another in the same sense that stocks do, there are viable reasons for experienced traders to engage in buy-and-hold strategies in forex trading. * Traders who understand the long-term economic trends in one country versus another can buy-and-hold a currency for months or years in order to recognize profit from their trade. * Buy-and-hold forex trading can also happen in conjunction with other investments, such as an American investor buying stock in a European company. * Carry trade refers to a trader selling a currency that provides a low-interest return rate in order to purchase a currency that provides a high-interest return rate. * Traders consider central bank policies, global sentiments, and trends in unemployment rates when adopting a long-term forex investment strategy. ## Forex Market In the [forex market](https://www.investopedia.com/terms/forex/f/forex-market.asp), a trader can hold a position for as long as a few minutes to a few years. Depending on the goal, a trader can take a position based on the fundamental economic trends in one country versus another. For example, a long-term trade in the forex market, or a buy-and-hold position, would be advantageous for someone who had sold dollars to buy euros back in the early 2000s and then held on to that position for a few years.  Suppose an American buys shares in a company in Europe, they will have to pay for those shares in euros. Thus, there is a requirement to convert dollars to euros. The American trader is speculating on the growth of the European company and also on the appreciation of the euro against the dollar. In this example, the American may benefit from an appreciating value of the shares bought but also from an appreciating currency.  Of course, conversely, had a European trader bought shares in a company such as General Motors (GM), they would have had to pay for those shares in dollars but would have lost value in both the shares and the [currency](https://www.investopedia.com/terms/c/currency.asp) during the same period. ### Buy-and-hold strategies in forex trading offer long term profit potential, as well as additional profit if the trade features a positive overnight interest rate trading. Limiting factors, however, include the lack of clear entry/exit criteria, the need for patience, the potential for negative overnight interest rates, and the necessity of a broker that is reliable enough to depend on for several years. ## Carry Trade If a trader wants to buy and hold a currency, that trader could sell a currency that pays a low-interest rate, such as the yen and buy a currency that pays a high-interest rate, such as the Australian dollar. This would be considered a [carry trade](https://www.investopedia.com/terms/c/currencycarrytrade.asp), where the trader will earn the interest differential between the two currencies. While the trader knows how much interest the trade will receive, the trader does not know how the two currencies will continue to perform against each other. Most [forex](https://www.investopedia.com/terms/f/forex.asp) traders tend to be short-term traders who constantly time the market swings in the hope of profiting. Those who succeed are seeking long-term profit potential. Traders consider environmental factors such as central bank policies, global sentiments, and trends in unemployment rates. A long period of waiting is required, and many traders assume a forex buy-and-hold position that lasts for years or decades.
Skeptics of buy-and-hold trading in forex argue that it is a fool's errand because currencies lack the main advantage of stocks. A company's value may soar because of an event such as entering a new market or a break-through product. Currencies, on the other hand, rarely rally against each other unless, for example, a Third World currency devalues because of political or financial turbulence. Because of this fundamental difference between currencies and stock, many consider a buy-and-hold strategy inapplicable to the forex market. However, others consider it a viable strategy for experienced forex traders. There are different ways to trade in most markets. Traders have been classified into three groups, primarily based on their preferred trading time frame. For simplicity, these groups can be described as day traders, swing traders, and position traders. Some people consider a position trade or buy-and-hold strategy an investment, but in reality, it is just a long-term trade. Key Takeaways While currencies rarely rally against one another in the same sense that stocks do, there are viable reasons for experienced traders to engage in buy-and-hold strategies in forex trading.Traders who understand the long-term economic trends in one country versus another can buy-and-hold a currency for months or years in order to recognize profit from their trade.Buy-and-hold forex trading can also happen in conjunction with other investments, such as an American investor buying stock in a European company. Carry trade refers to a trader selling a currency that provides a low-interest return rate in order to purchase a currency that provides a high-interest return rate.Traders consider central bank policies, global sentiments, and trends in unemployment rates when adopting a long-term forex investment strategy. Forex Market In the forex market, a trader can hold a position for as long as a few minutes to a few years. Depending on the goal, a trader can take a position based on the fundamental economic trends in one country versus another. For example, a long-term trade in the forex market, or a buy-and-hold position, would be advantageous for someone who had sold dollars to buy euros back in the early 2000s and then held on to that position for a few years.  Suppose an American buys shares in a company in Europe, they will have to pay for those shares in euros. Thus, there is a requirement to convert dollars to euros. The American trader is speculating on the growth of the European company and also on the appreciation of the euro against the dollar. In this example, the American may benefit from an appreciating value of the shares bought but also from an appreciating currency.  Of course, conversely, had a European trader bought shares in a company such as General Motors (GM), they would have had to pay for those shares in dollars but would have lost value in both the shares and the currency during the same period. Buy-and-hold strategies in forex trading offer long term profit potential, as well as additional profit if the trade features a positive overnight interest rate trading. Limiting factors, however, include the lack of clear entry/exit criteria, the need for patience, the potential for negative overnight interest rates, and the necessity of a broker that is reliable enough to depend on for several years. Carry Trade If a trader wants to buy and hold a currency, that trader could sell a currency that pays a low-interest rate, such as the yen and buy a currency that pays a high-interest rate, such as the Australian dollar. This would be considered a carry trade, where the trader will earn the interest differential between the two currencies. While the trader knows how much interest the trade will receive, the trader does not know how the two currencies will continue to perform against each other. Most forex traders tend to be short-term traders who constantly time the market swings in the hope of profiting. Those who succeed are seeking long-term profit potential. Traders consider environmental factors such as central bank policies, global sentiments, and trends in unemployment rates. A long period of waiting is required, and many traders assume a forex buy-and-hold position that lasts for years or decades.
[ [ "difference", "https://www.investopedia.com/articles/forex/11/forex-or-stocks.asp" ], [ "day traders", "https://www.investopedia.com/terms/d/daytrader.asp" ], [ "forex market", "https://www.investopedia.com/terms/forex/f/forex-market.asp" ], [ "currency", "https://www.investopedia.com/terms/c/currency.asp" ], [ "carry trade", "https://www.investopedia.com/terms/c/currencycarrytrade.asp" ], [ "forex", "https://www.investopedia.com/terms/f/forex.asp" ] ]
https://www.investopedia.com/american-express-savings-account-rates-7504985
American Express 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-american-express-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"> American Express 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"> American Express offers one savings account option—its High Yield Savings Account. It features a competitive interest rate with no minimum deposit, no minimum balance, and no monthly fees.<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> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_4-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><b>Account Name</b></th> <th><b>Interest Rate</b></th> <th><b>APY</b></th> <th><b>Minimum Deposit</b></th> <th><b>Monthly Fee</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>High Yield Savings Account</td> <td>4.16%</td> <td>4.25%</td> <td>$0</td> <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_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>See the best savings account rates today:</p> <ul> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">Best High-Yield Savings Accounts</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/banks-pay-highest-interest-rates-savings-accounts/">Best Banks for Savings Accounts</a></li> <li><a data-component="link" data-ordinal="3" 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="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-savings-accounts-for-kids-5179494">Best Savings Accounts for Kids</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-savings-account-bonuses-7152450">Best Savings Account Bonuses</a></li> </ul></div></div></div> <span class="heading-toc" id="toc-american-express-savings-accounts-key-features"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> American Express Savings Accounts: Key Features </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_9-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">American Express High Yield Savings Account Key Features</th> </tr> </thead> <tbody data-check="-1"> <tr> <th><b>APY</b></th> <td>4.25%</td> </tr> <tr> <th><b>Minimum Deposit</b></th> <td>$0</td> </tr> <tr> <th><b>Monthly Service Fee</b></th> <td>$0<span data-cite="3"></span></td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> American Express’s savings account APY is nearly 10 times higher than the national average rate of 0.46%.<span class="ql-inline-citation" data-cite="5"></span> And while it has a lower rate than several other major <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> on the market, it's still a competitive rate that can earn account holders a decent return on their savings. </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"> American Express doesn’t require a minimum deposit to open an account, nor does it require a minimum monthly balance. There is no monthly fee, regardless of your balance and whether you make regular deposits. </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-about-american-express-other-savings-options"></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"> About American Express: Other Savings Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> American Express is a major financial institution that offers credit cards, savings accounts, checking accounts, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-express-personal-loans-review-5069612">personal loans</a>. While the company is probably most well known for its credit cards, its savings accounts have become increasingly popular as well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> American Express also offers business financial services, including small business credit cards, business checking accounts, business lines of credit, and payment solutions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> In addition to its high-yield savings account, American Express also offers another way to earn interest on your savings: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-express-cd-rates-7482932">certificates of deposit (CDs)</a>.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> You can earn between 3.00% and 4.50% on a CD with a term of your choice, up to five years. You’re able to lock in your rate for the entire term, so if rates decrease during your CD term, you’ll still earn the same interest rate as when you opened it. The table below shows the rates for each CD term:<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_24-0"> <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><b>CD Term</b></th> <th><b>APY</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>60 months</td> <td>3.00%</td> </tr> <tr> <td>48 months</td> <td>3.00%</td> </tr> <tr> <td>36 months</td> <td>3.00%</td> </tr> <tr> <td>24 months</td> <td>4.00%</td> </tr> <tr> <td>18 months</td> <td>3.25%</td> </tr> <tr> <td>12 months</td> <td>4.35%</td> </tr> <tr> <td>11 months</td> <td>4.50%</td> </tr> </tbody> </table> </div></figure> <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-compare-savings-account-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> Compare Savings Account Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> American Express offers attractive rates on its high-yield savings account and some of its CDs. Compare Amex’s rates with some other savings accounts and find the one that’s best for you. </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 mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_29-0"><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_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-how-much-do-you-need-to-open-an-american-express-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Do You Need to Open an American Express Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>American Express doesn’t have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/minimum_deposit.asp">minimum deposit requirement</a>, so you can open an account without depositing any money. However, you won’t start earning interest until you deposit money into your account.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-how-does-the-american-express-savings-account-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does the American Express Savings Account Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The American Express High Yield Savings Account is an <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">interest-bearing account</a>, which means the bank pays you a certain percentage on the money you have in the account. This interest compounds daily and is deposited monthly—each day the interest you earn is added to your total balance and also begins to earn interest. The more money you have in the account and the longer you have it there, the more interest you’ll earn.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_35-0"><span class="heading-toc" id="toc-does-opening-an-american-express-savings-account-affect-your-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Opening an American Express Savings Account Affect Your Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Opening a savings account doesn’t <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/040715/how-does-your-checking-account-affect-your-credit-score.asp">affect your credit score</a>. However, if you rack up any banking fees that you fail to pay, American Express could report them to the credit bureaus, which would have a negative impact on your credit score.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-is-it-safe-to-open-a-savings-account-with-american-express"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is It Safe to Open a Savings Account With American Express?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, it’s safe to open an American Express savings account. First, the bank uses plenty of security features on its website, including multi-factor authentication, SSL encryption, and others. Additionally, funds in American Express bank accounts are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">FDIC-insured</a>, which means that if American Express goes bankrupt or out of business, your deposits are protected up to $250,000 for each ownership category.<span class="ql-inline-citation" data-cite="4"></span></p></div> </div></div>
## American Express Savings Account Rates American Express offers one savings account option—its High Yield Savings Account. It features a competitive interest rate with no minimum deposit, no minimum balance, and no monthly fees. | **Account Name** | **Interest Rate** | **APY** | **Minimum Deposit** | **Monthly Fee** | | --- | --- | --- | --- | --- | | High Yield Savings Account | 4.16% | 4.25% | $0 | $0 | ### See the best savings account rates today: * [Best High-Yield Savings Accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) * [Best Banks for Savings Accounts](https://www.investopedia.com/personal-finance/banks-pay-highest-interest-rates-savings-accounts/) * [Best Free Savings Accounts](https://www.investopedia.com/best-free-savings-accounts-5191103) * [Best Savings Accounts for Kids](https://www.investopedia.com/best-savings-accounts-for-kids-5179494) * [Best Savings Account Bonuses](https://www.investopedia.com/best-savings-account-bonuses-7152450) ## American Express Savings Accounts: Key Features | American Express High Yield Savings Account Key Features | | | --- | --- | | **APY** | 4.25% | | **Minimum Deposit** | $0 | | **Monthly Service Fee** | $0 | American Express’s savings account APY is nearly 10 times higher than the national average rate of 0.46%. And while it has a lower rate than several other major [high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) on the market, it's still a competitive rate that can earn account holders a decent return on their savings. American Express doesn’t require a minimum deposit to open an account, nor does it require a minimum monthly balance. There is no monthly fee, regardless of your balance and whether you make regular deposits. ## About American Express: Other Savings Options American Express is a major financial institution that offers credit cards, savings accounts, checking accounts, and [personal loans](https://www.investopedia.com/american-express-personal-loans-review-5069612). While the company is probably most well known for its credit cards, its savings accounts have become increasingly popular as well. American Express also offers business financial services, including small business credit cards, business checking accounts, business lines of credit, and payment solutions. In addition to its high-yield savings account, American Express also offers another way to earn interest on your savings: [certificates of deposit (CDs)](https://www.investopedia.com/american-express-cd-rates-7482932).  You can earn between 3.00% and 4.50% on a CD with a term of your choice, up to five years. You’re able to lock in your rate for the entire term, so if rates decrease during your CD term, you’ll still earn the same interest rate as when you opened it. The table below shows the rates for each CD term: | **CD Term** | **APY** | | --- | --- | | 60 months | 3.00% | | 48 months | 3.00% | | 36 months | 3.00% | | 24 months | 4.00% | | 18 months | 3.25% | | 12 months | 4.35% | | 11 months | 4.50% | ## Compare Savings Account Rates American Express offers attractive rates on its high-yield savings account and some of its CDs. Compare Amex’s rates with some other savings accounts and find the one that’s best for you. ## How Much Do You Need to Open an American Express Savings Account? American Express doesn’t have a [minimum deposit requirement](https://www.investopedia.com/terms/m/minimum_deposit.asp), so you can open an account without depositing any money. However, you won’t start earning interest until you deposit money into your account. ## How Does the American Express Savings Account Work? The American Express High Yield Savings Account is an [interest-bearing account](https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp), which means the bank pays you a certain percentage on the money you have in the account. This interest compounds daily and is deposited monthly—each day the interest you earn is added to your total balance and also begins to earn interest. The more money you have in the account and the longer you have it there, the more interest you’ll earn. ## Does Opening an American Express Savings Account Affect Your Credit Score? Opening a savings account doesn’t [affect your credit score](https://www.investopedia.com/ask/answers/040715/how-does-your-checking-account-affect-your-credit-score.asp). However, if you rack up any banking fees that you fail to pay, American Express could report them to the credit bureaus, which would have a negative impact on your credit score. ## Is It Safe to Open a Savings Account With American Express? Yes, it’s safe to open an American Express savings account. First, the bank uses plenty of security features on its website, including multi-factor authentication, SSL encryption, and others. Additionally, funds in American Express bank accounts are [FDIC-insured](https://www.investopedia.com/terms/f/fdic-insured-account.asp), which means that if American Express goes bankrupt or out of business, your deposits are protected up to $250,000 for each ownership category.
American Express Savings Account Rates American Express offers one savings account option—its High Yield Savings Account. It features a competitive interest rate with no minimum deposit, no minimum balance, and no monthly fees. Account Name Interest Rate APY Minimum Deposit Monthly Fee High Yield Savings Account 4.16% 4.25% $0 $0 See the best savings account rates today: Best High-Yield Savings Accounts Best Banks for Savings Accounts Best Free Savings Accounts Best Savings Accounts for Kids Best Savings Account Bonuses American Express Savings Accounts: Key Features American Express High Yield Savings Account Key Features APY 4.25% Minimum Deposit $0 Monthly Service Fee $0 American Express’s savings account APY is nearly 10 times higher than the national average rate of 0.46%. And while it has a lower rate than several other major high-yield savings accounts on the market, it's still a competitive rate that can earn account holders a decent return on their savings. American Express doesn’t require a minimum deposit to open an account, nor does it require a minimum monthly balance. There is no monthly fee, regardless of your balance and whether you make regular deposits. About American Express: Other Savings Options American Express is a major financial institution that offers credit cards, savings accounts, checking accounts, and personal loans. While the company is probably most well known for its credit cards, its savings accounts have become increasingly popular as well. American Express also offers business financial services, including small business credit cards, business checking accounts, business lines of credit, and payment solutions. In addition to its high-yield savings account, American Express also offers another way to earn interest on your savings: certificates of deposit (CDs).  You can earn between 3.00% and 4.50% on a CD with a term of your choice, up to five years. You’re able to lock in your rate for the entire term, so if rates decrease during your CD term, you’ll still earn the same interest rate as when you opened it. The table below shows the rates for each CD term: CD Term APY 60 months 3.00% 48 months 3.00% 36 months 3.00% 24 months 4.00% 18 months 3.25% 12 months 4.35% 11 months 4.50% Compare Savings Account Rates American Express offers attractive rates on its high-yield savings account and some of its CDs. Compare Amex’s rates with some other savings accounts and find the one that’s best for you. How Much Do You Need to Open an American Express Savings Account? American Express doesn’t have a minimum deposit requirement, so you can open an account without depositing any money. However, you won’t start earning interest until you deposit money into your account. How Does the American Express Savings Account Work? The American Express High Yield Savings Account is an interest-bearing account, which means the bank pays you a certain percentage on the money you have in the account. This interest compounds daily and is deposited monthly—each day the interest you earn is added to your total balance and also begins to earn interest. The more money you have in the account and the longer you have it there, the more interest you’ll earn. Does Opening an American Express Savings Account Affect Your Credit Score? Opening a savings account doesn’t affect your credit score. However, if you rack up any banking fees that you fail to pay, American Express could report them to the credit bureaus, which would have a negative impact on your credit score. Is It Safe to Open a Savings Account With American Express? Yes, it’s safe to open an American Express savings account. First, the bank uses plenty of security features on its website, including multi-factor authentication, SSL encryption, and others. Additionally, funds in American Express bank accounts are FDIC-insured, which means that if American Express goes bankrupt or out of business, your deposits are protected up to $250,000 for each ownership category.
[ [ "Best High-Yield Savings Accounts", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "Best Banks for Savings Accounts", "https://www.investopedia.com/personal-finance/banks-pay-highest-interest-rates-savings-accounts/" ], [ "Best Free Savings Accounts", "https://www.investopedia.com/best-free-savings-accounts-5191103" ], [ "Best Savings Accounts for Kids", "https://www.investopedia.com/best-savings-accounts-for-kids-5179494" ], [ "Best Savings Account Bonuses", "https://www.investopedia.com/best-savings-account-bonuses-7152450" ], [ "high-yield savings accounts", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "personal loans", "https://www.investopedia.com/american-express-personal-loans-review-5069612" ], [ "certificates of deposit (CDs)", "https://www.investopedia.com/american-express-cd-rates-7482932" ], [ "minimum deposit requirement", "https://www.investopedia.com/terms/m/minimum_deposit.asp" ], [ "interest-bearing account", "https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp" ], [ "affect your credit score", "https://www.investopedia.com/ask/answers/040715/how-does-your-checking-account-affect-your-credit-score.asp" ], [ "FDIC-insured", "https://www.investopedia.com/terms/f/fdic-insured-account.asp" ] ]
https://www.investopedia.com/how-to-get-a-credit-card-with-bad-credit-5069555
How to Get a Credit Card With Bad Credit
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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> is more than just a three-digit number; it's a measure of your financial health. When you apply for loans or lines of credit, lenders use your credit score, along with other factors, to decide whether to approve you and also what interest rates to charge. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Having bad credit can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-do-if-you-re-rejected-for-a-student-credit-card-5191299">make getting a credit card more difficult,</a> but it's not impossible if you know how to approach it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>Bad credit can be the result of a past credit mistake, but it can also be caused by fraud or identity theft.</li> <li>Having a low credit score may limit your options when <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/are-student-credit-cards-only-for-students-5192525">applying for credit cards</a>.</li> <li>It may be necessary to choose a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-cards-4801582">secured credit card</a> if you can't get approved for a traditional credit card.</li> <li>Before agreeing to any credit card offer, read the terms carefully so you understand the interest rates, fees, and other variables.</li> </ul></div></div></div> <span class="heading-toc" id="toc-what-is-bad-credit"></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 Bad Credit? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Credit scores operate on a range. Where you land on that range will determine whether you're considered to have excellent credit, good credit, or bad credit. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fico-fair-isaac.asp">FICO credit scores</a>, which are widely used by lenders, range from 300 to 850. A score of 800 to 850 is considered exceptional, while a score ranging from 300 to 579 is considered poor.<span class="ql-inline-citation" data-cite="3"></span> Approximately 16% of individuals with a credit score are in the poor range.<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"> A bad credit score can be caused by different things. With FICO scores, your payment history accounts for the largest part of the calculation. Having one or more late or missed payments on your credit history could damage your score significantly. </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"> Bad credit can also be related to more serious situations, such as filing for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankruptcy.asp">bankruptcy</a> or a foreclosure proceeding. Both can cause you to lose significant points, and that negative information can stay on your credit history for up to seven years or 10 years in the case of certain bankruptcy filings.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> In other instances, bad credit may be no fault of your own. If someone steals your identity, for example, they may rack up bills in your name and you might not realize it until you start getting notices from debt collectors. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditbureau.asp">Credit bureaus</a> can also make mistakes in reporting your account information, which can cost you credit score points. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_16-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_17-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>You can get free copies of your credit report from each of the three major credit reporting bureaus through AnnualCreditReport.com. Check your reports carefully for fraudulent activity or errors and dispute any inaccuracies you find.</p></div></div></div> <span class="heading-toc" id="toc-how-to-get-a-credit-card-with-bad-credit"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> How to Get a Credit Card With Bad Credit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> If you have a less than ideal score and want to get a credit card in your name to build or rebuild credit, there are a few things to keep in mind. </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"> First, ask yourself what kind of credit card you're interested in. For example, are you looking for a card that offers rewards on purchases or one with a low annual percentage rate? </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"> Next, consider what kinds of cards you're most likely to qualify for. Many card issuers specify what type of credit is needed to get approved for certain cards. For instance, you can find cards designated for people with excellent credit, good credit, etc. If you know your credit score is in the bad credit range, it's important to look for cards that are a good fit so you don't waste your time applying for ones you won't qualify for. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_25-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_26-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Applying for new credit can trim a few points off your credit score. If you already have bad credit, it's important to avoid overdoing it on credit applications to minimize credit score dings.</p></div></div></div> <span class="heading-toc" id="toc-consider-a-secured-credit-card"></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"> Consider a Secured Credit Card </span> </h2> <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/s/securedcard.asp">Secured credit cards</a> require a cash deposit, which typically doubles as your credit line. If you can come up with the cash for the deposit (often $200 or more), this may be the easiest way to get a credit card despite having bad credit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Secured cards are designed for people who have limited or no credit history or bad credit that they're trying to rebuild. Here's a quick look at their pros and cons: </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-comparisonlist mntl-block" id="mntl-sc-block_32-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_33-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">What We Like</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>May be easier to get approved for a secured card if you have bad credit</p></li> <li><p>Some secured cards allow you to earn rewards on purchases</p></li> <li><p>Secured cards can help you build a good credit history with responsible use</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">What We Don't Like</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>You'll need to have cash available for the security deposit</p></li> <li><p>Secured cards may charge higher APRs and fees compared to unsecured cards</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-try-a-retail-store-card"></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"> Try a Retail Store Card </span> </h2> <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/financial-edge/0511/store-credit-card-traps-to-avoid.aspx">Retail store cards</a> are issued for one specific store or family of stores. You can use these cards to make purchases at those stores, and some offer rewards, discounts, and other incentives for using them. </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"> Unlike secured cards, you won't need to make a cash deposit to open a retail store card, which is a plus. Here's more on the advantages and disadvantages of applying for a retail store card when you have bad credit: </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-comparisonlist mntl-block" id="mntl-sc-block_40-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_41-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">What We Like</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Generally easy to get approved for</p></li> <li><p>Some retail cards offer a substantial discount on your first purchase and/or rewards for future purchases</p></li> <li><p>Retail store cards can help you build credit when used responsibly</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">What We Don't Like</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>The APR can easily outweigh the value of any discounts or rewards you're earning</p></li> <li><p>You're limited as to where you can use retail store cards to make purchases</p></li> </ul> </div> </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-consider-becoming-an-authorized-user"></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"> Consider Becoming an Authorized User </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> A third option for getting a credit card if you have bad credit is to ask someone else to add you to one of their credit cards as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-card-authorized-user.asp">authorized user</a>. Being an authorized user means you can use the card to make purchases, but you don't have to apply for it using your name or credit history. </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"> Authorized user status can reflect positively on your credit history if the primary cardholder pays their bill on time and keeps <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</a> low. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_48-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_49-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">What We Like</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>This can be an easy way to get a credit card without having to apply for one</p></li> <li><p>You're not responsible for any debt associated with the card</p></li> <li><p>You can make purchases and potentially earn rewards</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">What We Don't Like</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Being an authorized user doesn't carry as much credit-building power as having a credit card in your own name</p></li> <li><p>If the primary cardholder pays late or defaults, that can reflect negatively on your credit history</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <span class="heading-toc" id="toc-adopt-positive-habits-to-build-credit"></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"> Adopt Positive Habits to Build Credit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Once you get a credit card—whether it's a secured card, a retail card, or you're an authorized user on someone else's card—it's important to maintain a credit-building mindset when you use it. </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"> That means doing things that will positively affect your credit history, such as: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> <li>Paying your bills on time each month</li><li>Keeping your credit utilization low</li><li>Only applying for new credit when you truly need it</li><li>Keeping older credit accounts open</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> All of these can help you can improve your credit score. As your score rises, you can look into other options for borrowing and building credit, such as unsecured credit cards and personal loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_60-0"><span class="heading-toc" id="toc-what-exactly-is-a-bad-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">What exactly is a bad credit score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>From your FICO (Fair Isaacs Corp.) credit rating, bad credit is in the range of 300-to-579. About 16% of credit histories fall in this range.</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-whats-a-secured-credit-card"></span> <h2 class="mntl-sc-block-questionandanswer__question">What's a secured credit card?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>This type of credit card requires a cash deposit, which typically doubles as your credit line. This may be the easiest way to get a credit card despite having bad credit, provided you can come up with the cash for the deposit (often $200 or more). They are designed to help people who have limited or no credit history build a good credit record and move to an unsecured card.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_64-0"><span class="heading-toc" id="toc-does-opening-a-retail-credit-card-account-boost-a-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does opening a retail credit card account boost a credit score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes. Retail store cards can help you build credit when used responsibly. Some retail cards offer a substantial discount on your first purchase and/or rewards for future purchases. They are typically easy to open.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_66-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> Credit cards can be a useful tool for building credit, and they're also convenient for making purchases and earning rewards. If you have bad credit, opening a credit card account could be an easy way to get your score and credit rating back on track. Just be sure to pay attention to the card's interest rate and fees so you know what you're paying to use it. </p></div>
Your [credit score](https://www.investopedia.com/terms/c/credit_score.asp) is more than just a three-digit number; it's a measure of your financial health. When you apply for loans or lines of credit, lenders use your credit score, along with other factors, to decide whether to approve you and also what interest rates to charge. Having bad credit can [make getting a credit card more difficult,](https://www.investopedia.com/what-to-do-if-you-re-rejected-for-a-student-credit-card-5191299) but it's not impossible if you know how to approach it. ### Key Takeaways * Bad credit can be the result of a past credit mistake, but it can also be caused by fraud or identity theft. * Having a low credit score may limit your options when [applying for credit cards](https://www.investopedia.com/are-student-credit-cards-only-for-students-5192525). * It may be necessary to choose a [secured credit card](https://www.investopedia.com/best-credit-cards-4801582) if you can't get approved for a traditional credit card. * Before agreeing to any credit card offer, read the terms carefully so you understand the interest rates, fees, and other variables. ## What Is Bad Credit? Credit scores operate on a range. Where you land on that range will determine whether you're considered to have excellent credit, good credit, or bad credit. [FICO credit scores](https://www.investopedia.com/terms/f/fico-fair-isaac.asp), which are widely used by lenders, range from 300 to 850. A score of 800 to 850 is considered exceptional, while a score ranging from 300 to 579 is considered poor. Approximately 16% of individuals with a credit score are in the poor range. A bad credit score can be caused by different things. With FICO scores, your payment history accounts for the largest part of the calculation. Having one or more late or missed payments on your credit history could damage your score significantly. Bad credit can also be related to more serious situations, such as filing for [bankruptcy](https://www.investopedia.com/terms/b/bankruptcy.asp) or a foreclosure proceeding. Both can cause you to lose significant points, and that negative information can stay on your credit history for up to seven years or 10 years in the case of certain bankruptcy filings. In other instances, bad credit may be no fault of your own. If someone steals your identity, for example, they may rack up bills in your name and you might not realize it until you start getting notices from debt collectors. [Credit bureaus](https://www.investopedia.com/terms/c/creditbureau.asp) can also make mistakes in reporting your account information, which can cost you credit score points. ### Tip You can get free copies of your credit report from each of the three major credit reporting bureaus through AnnualCreditReport.com. Check your reports carefully for fraudulent activity or errors and dispute any inaccuracies you find. ## How to Get a Credit Card With Bad Credit If you have a less than ideal score and want to get a credit card in your name to build or rebuild credit, there are a few things to keep in mind. First, ask yourself what kind of credit card you're interested in. For example, are you looking for a card that offers rewards on purchases or one with a low annual percentage rate? Next, consider what kinds of cards you're most likely to qualify for. Many card issuers specify what type of credit is needed to get approved for certain cards. For instance, you can find cards designated for people with excellent credit, good credit, etc. If you know your credit score is in the bad credit range, it's important to look for cards that are a good fit so you don't waste your time applying for ones you won't qualify for. ### Important Applying for new credit can trim a few points off your credit score. If you already have bad credit, it's important to avoid overdoing it on credit applications to minimize credit score dings. ## Consider a Secured Credit Card [Secured credit cards](https://www.investopedia.com/terms/s/securedcard.asp) require a cash deposit, which typically doubles as your credit line. If you can come up with the cash for the deposit (often $200 or more), this may be the easiest way to get a credit card despite having bad credit. Secured cards are designed for people who have limited or no credit history or bad credit that they're trying to rebuild. Here's a quick look at their pros and cons: What We Like * May be easier to get approved for a secured card if you have bad credit * Some secured cards allow you to earn rewards on purchases * Secured cards can help you build a good credit history with responsible use What We Don't Like * You'll need to have cash available for the security deposit * Secured cards may charge higher APRs and fees compared to unsecured cards ## Try a Retail Store Card [Retail store cards](https://www.investopedia.com/financial-edge/0511/store-credit-card-traps-to-avoid.aspx) are issued for one specific store or family of stores. You can use these cards to make purchases at those stores, and some offer rewards, discounts, and other incentives for using them. Unlike secured cards, you won't need to make a cash deposit to open a retail store card, which is a plus. Here's more on the advantages and disadvantages of applying for a retail store card when you have bad credit: What We Like * Generally easy to get approved for * Some retail cards offer a substantial discount on your first purchase and/or rewards for future purchases * Retail store cards can help you build credit when used responsibly What We Don't Like * The APR can easily outweigh the value of any discounts or rewards you're earning * You're limited as to where you can use retail store cards to make purchases ## Consider Becoming an Authorized User A third option for getting a credit card if you have bad credit is to ask someone else to add you to one of their credit cards as an [authorized user](https://www.investopedia.com/terms/c/credit-card-authorized-user.asp). Being an authorized user means you can use the card to make purchases, but you don't have to apply for it using your name or credit history. Authorized user status can reflect positively on your credit history if the primary cardholder pays their bill on time and keeps [credit utilization](https://www.investopedia.com/terms/c/credit-utilization-rate.asp) low. What We Like * This can be an easy way to get a credit card without having to apply for one * You're not responsible for any debt associated with the card * You can make purchases and potentially earn rewards What We Don't Like * Being an authorized user doesn't carry as much credit-building power as having a credit card in your own name * If the primary cardholder pays late or defaults, that can reflect negatively on your credit history ## Adopt Positive Habits to Build Credit Once you get a credit card—whether it's a secured card, a retail card, or you're an authorized user on someone else's card—it's important to maintain a credit-building mindset when you use it. That means doing things that will positively affect your credit history, such as: * Paying your bills on time each month * Keeping your credit utilization low * Only applying for new credit when you truly need it * Keeping older credit accounts open All of these can help you can improve your credit score. As your score rises, you can look into other options for borrowing and building credit, such as unsecured credit cards and personal loans. ## What exactly is a bad credit score? From your FICO (Fair Isaacs Corp.) credit rating, bad credit is in the range of 300-to-579. About 16% of credit histories fall in this range. ## What's a secured credit card? This type of credit card requires a cash deposit, which typically doubles as your credit line. This may be the easiest way to get a credit card despite having bad credit, provided you can come up with the cash for the deposit (often $200 or more). They are designed to help people who have limited or no credit history build a good credit record and move to an unsecured card. ## Does opening a retail credit card account boost a credit score? Yes. Retail store cards can help you build credit when used responsibly. Some retail cards offer a substantial discount on your first purchase and/or rewards for future purchases. They are typically easy to open. ## The Bottom Line Credit cards can be a useful tool for building credit, and they're also convenient for making purchases and earning rewards. If you have bad credit, opening a credit card account could be an easy way to get your score and credit rating back on track. Just be sure to pay attention to the card's interest rate and fees so you know what you're paying to use it.
Your credit score is more than just a three-digit number; it's a measure of your financial health. When you apply for loans or lines of credit, lenders use your credit score, along with other factors, to decide whether to approve you and also what interest rates to charge. Having bad credit can make getting a credit card more difficult, but it's not impossible if you know how to approach it. Key Takeaways Bad credit can be the result of a past credit mistake, but it can also be caused by fraud or identity theft. Having a low credit score may limit your options when applying for credit cards. It may be necessary to choose a secured credit card if you can't get approved for a traditional credit card. Before agreeing to any credit card offer, read the terms carefully so you understand the interest rates, fees, and other variables. What Is Bad Credit? Credit scores operate on a range. Where you land on that range will determine whether you're considered to have excellent credit, good credit, or bad credit. FICO credit scores, which are widely used by lenders, range from 300 to 850. A score of 800 to 850 is considered exceptional, while a score ranging from 300 to 579 is considered poor. Approximately 16% of individuals with a credit score are in the poor range. A bad credit score can be caused by different things. With FICO scores, your payment history accounts for the largest part of the calculation. Having one or more late or missed payments on your credit history could damage your score significantly. Bad credit can also be related to more serious situations, such as filing for bankruptcy or a foreclosure proceeding. Both can cause you to lose significant points, and that negative information can stay on your credit history for up to seven years or 10 years in the case of certain bankruptcy filings. In other instances, bad credit may be no fault of your own. If someone steals your identity, for example, they may rack up bills in your name and you might not realize it until you start getting notices from debt collectors. Credit bureaus can also make mistakes in reporting your account information, which can cost you credit score points. Tip You can get free copies of your credit report from each of the three major credit reporting bureaus through AnnualCreditReport.com. Check your reports carefully for fraudulent activity or errors and dispute any inaccuracies you find. How to Get a Credit Card With Bad Credit If you have a less than ideal score and want to get a credit card in your name to build or rebuild credit, there are a few things to keep in mind. First, ask yourself what kind of credit card you're interested in. For example, are you looking for a card that offers rewards on purchases or one with a low annual percentage rate? Next, consider what kinds of cards you're most likely to qualify for. Many card issuers specify what type of credit is needed to get approved for certain cards. For instance, you can find cards designated for people with excellent credit, good credit, etc. If you know your credit score is in the bad credit range, it's important to look for cards that are a good fit so you don't waste your time applying for ones you won't qualify for. Important Applying for new credit can trim a few points off your credit score. If you already have bad credit, it's important to avoid overdoing it on credit applications to minimize credit score dings. Consider a Secured Credit Card Secured credit cards require a cash deposit, which typically doubles as your credit line. If you can come up with the cash for the deposit (often $200 or more), this may be the easiest way to get a credit card despite having bad credit. Secured cards are designed for people who have limited or no credit history or bad credit that they're trying to rebuild. Here's a quick look at their pros and cons: What We Like May be easier to get approved for a secured card if you have bad credit Some secured cards allow you to earn rewards on purchases Secured cards can help you build a good credit history with responsible use What We Don't Like You'll need to have cash available for the security deposit Secured cards may charge higher APRs and fees compared to unsecured cards Try a Retail Store Card Retail store cards are issued for one specific store or family of stores. You can use these cards to make purchases at those stores, and some offer rewards, discounts, and other incentives for using them. Unlike secured cards, you won't need to make a cash deposit to open a retail store card, which is a plus. Here's more on the advantages and disadvantages of applying for a retail store card when you have bad credit: What We Like Generally easy to get approved for Some retail cards offer a substantial discount on your first purchase and/or rewards for future purchases Retail store cards can help you build credit when used responsibly What We Don't Like The APR can easily outweigh the value of any discounts or rewards you're earning You're limited as to where you can use retail store cards to make purchases Consider Becoming an Authorized User A third option for getting a credit card if you have bad credit is to ask someone else to add you to one of their credit cards as an authorized user. Being an authorized user means you can use the card to make purchases, but you don't have to apply for it using your name or credit history. Authorized user status can reflect positively on your credit history if the primary cardholder pays their bill on time and keeps credit utilization low. What We Like This can be an easy way to get a credit card without having to apply for one You're not responsible for any debt associated with the card You can make purchases and potentially earn rewards What We Don't Like Being an authorized user doesn't carry as much credit-building power as having a credit card in your own name If the primary cardholder pays late or defaults, that can reflect negatively on your credit history Adopt Positive Habits to Build Credit Once you get a credit card—whether it's a secured card, a retail card, or you're an authorized user on someone else's card—it's important to maintain a credit-building mindset when you use it. That means doing things that will positively affect your credit history, such as: Paying your bills on time each monthKeeping your credit utilization lowOnly applying for new credit when you truly need itKeeping older credit accounts open All of these can help you can improve your credit score. As your score rises, you can look into other options for borrowing and building credit, such as unsecured credit cards and personal loans. What exactly is a bad credit score? From your FICO (Fair Isaacs Corp.) credit rating, bad credit is in the range of 300-to-579. About 16% of credit histories fall in this range. What's a secured credit card? This type of credit card requires a cash deposit, which typically doubles as your credit line. This may be the easiest way to get a credit card despite having bad credit, provided you can come up with the cash for the deposit (often $200 or more). They are designed to help people who have limited or no credit history build a good credit record and move to an unsecured card. Does opening a retail credit card account boost a credit score? Yes. Retail store cards can help you build credit when used responsibly. Some retail cards offer a substantial discount on your first purchase and/or rewards for future purchases. They are typically easy to open. The Bottom Line Credit cards can be a useful tool for building credit, and they're also convenient for making purchases and earning rewards. If you have bad credit, opening a credit card account could be an easy way to get your score and credit rating back on track. Just be sure to pay attention to the card's interest rate and fees so you know what you're paying to use it.
[ [ "credit score", "https://www.investopedia.com/terms/c/credit_score.asp" ], [ "make getting a credit card more difficult,", "https://www.investopedia.com/what-to-do-if-you-re-rejected-for-a-student-credit-card-5191299" ], [ "applying for credit cards", "https://www.investopedia.com/are-student-credit-cards-only-for-students-5192525" ], [ "secured credit card", "https://www.investopedia.com/best-credit-cards-4801582" ], [ "FICO credit scores", "https://www.investopedia.com/terms/f/fico-fair-isaac.asp" ], [ "bankruptcy", "https://www.investopedia.com/terms/b/bankruptcy.asp" ], [ "Credit bureaus", "https://www.investopedia.com/terms/c/creditbureau.asp" ], [ "Secured credit cards", "https://www.investopedia.com/terms/s/securedcard.asp" ], [ "Retail store cards", "https://www.investopedia.com/financial-edge/0511/store-credit-card-traps-to-avoid.aspx" ], [ "authorized user", "https://www.investopedia.com/terms/c/credit-card-authorized-user.asp" ], [ "credit utilization", "https://www.investopedia.com/terms/c/credit-utilization-rate.asp" ] ]
https://www.investopedia.com/terms/l/lender.asp
Lenders: Definition, Types, and How They Make Decisions on Loans
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-lender"></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 Lender? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A lender is an individual, a group (public or private), or a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialinstitution.asp">financial institution</a> that makes funds available to a person or business with the expectation that the funds will be repaid. Repayment will include the payment of any interest or fees.<span class="ql-inline-citation" data-cite="1"></span> <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">Repayment</a> may occur in increments (as in a monthly mortgage payment) or as a lump sum. One of the largest loans consumers take out from lenders is a mortgage.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A lender is an individual, a public or private group, or a financial institution that makes funds available to a person or business with the expectation that the funds will be repaid.</li><li>Repayment includes the payment of any interest or fees.</li><li>Repayment may occur in increments (as in a monthly mortgage payment) or as a lump sum.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-lenders"></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 Lenders </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Lenders provide funds for a variety of reasons, such as a home mortgage, an automobile loan, or a small business loan. The terms of the loan specify how it must be satisfied (e.g., the repayment period) and the consequences of missing payments and default. A lender may go to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collectionagency.asp">collection agency</a> to recover any funds that are past due. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-how-do-lenders-make-loan-decisions"></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 Lenders Make Loan Decisions? </span> </h2> <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"> Individual borrowers </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Qualifying for a loan depends largely on the borrower’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a>. The lender examines the borrower’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a>, which details the names of other lenders extending credit (current and previous), the types of credit extended, the borrower’s repayment history, and more. The report helps the lender determine whether—based on current employment and income—the borrower would be comfortable managing an additional loan payment. As part of their decision about creditworthiness, lenders may also use the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ficoscore.asp">Fair Isaac Corporation (FICO) score</a> in the borrower’s credit report.<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>The lender may also evaluate the borrower’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dti.asp">debt-to-income (DTI) ratio</a>—which compares current and new debt to before-tax income—to determine the borrower’s ability to pay.<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_15-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/110614/what-difference-between-secured-and-unsecured-debts.asp">When applying for a secured loan</a>, such as an auto loan or a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/heloc/">home equity line of credit (HELOC)</a>, the borrower pledges collateral. The lender will make an evaluation of the collateral’s full value and subtract any existing debt secured by that collateral from its value. The remaining value of the collateral will be the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equity</a> that affects the lending decision (i.e., the amount of money that the lender could recoup if the asset were liquidated).<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The lender also evaluates a borrower’s available <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital.asp">capital</a>, which includes savings, investments, and other assets that could be used to repay the loan if income is ever cut due to a job loss or other financial challenge. The lender may ask what the borrower plans to do with the loan, such as use it to purchase a vehicle or other property. Other factors may also be considered, such as environmental or economic conditions.<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> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Business borrowers </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Different lenders have different rules and procedures for business borrowers. </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"> Banks, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/041015/what-difference-between-savings-loan-company-and-bank.asp">savings and loans</a>, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditunion.asp">credit unions</a> that offer <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/small-business-administration.asp">Small Business Administration (SBA)</a> loans must adhere to the guidelines of that program. </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"> Private institutions, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/angelinvestor.asp">angel investors</a>, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/venturecapitalist.asp">venture capitalists</a> lend money based on their own criteria. These lenders will also look at the purpose of the business, the character of the business owner, the location of business operations, and the projected annual sales and growth for the business.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Small-business owners prove their ability for loan repayment by providing lenders both personal and business <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balancesheet.asp">balance sheets</a>. The balance sheets detail assets, liabilities, and the net worth of the business and the individual. Although business owners may propose a repayment plan, the lender has the final say on the terms. </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-where-can-i-get-a-small-business-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Can I Get a Small Business Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One good lender option for small business borrowers is the Small Business Administration (SBA), a U.S. government agency that promotes the economy by assisting small businesses with loans and advocacy. The SBA has a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.sba.gov">website</a> and at least one office in every state.</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-what-are-the-different-types-of-mortgage-lenders"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Different Types of Mortgage Lenders?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The three most common options for borrowers seeking a mortgage lender are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgagebroker.asp">mortgage brokers</a>, direct lenders (e.g., banks and credit unions), and secondary market lenders (e.g., <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/08/fannie-mae-freddie-mac-credit-crisis.asp">Fannie Mae and Freddie Mac</a>).</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_32-0"><span class="heading-toc" id="toc-how-can-i-get-a-mortgage-with-bad-credit"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Get a Mortgage with Bad Credit?</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/best-mortgage-lenders-for-bad-credit-5113497">Getting a mortgage when you have bad credit is possible</a>, but a larger down payment, mortgage insurance, and a higher interest rate will likely be required.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> When you need to borrow money for a personal purchase or jumpstart your business, there are many options. When choosing a lender, look at their reputation and longevity—banks and other financial institutions are the traditional choices, but angel investors and online micro-lenders are gaining popularity. Before borrowing, make sure you understand the full breadth of your loan agreement and can afford to repay it. </p></div>
## What Is a Lender? A lender is an individual, a group (public or private), or a [financial institution](https://www.investopedia.com/terms/f/financialinstitution.asp) that makes funds available to a person or business with the expectation that the funds will be repaid. Repayment will include the payment of any interest or fees. [Repayment](https://www.investopedia.com/terms/r/repayment.asp) may occur in increments (as in a monthly mortgage payment) or as a lump sum. One of the largest loans consumers take out from lenders is a mortgage. ### Key Takeaways * A lender is an individual, a public or private group, or a financial institution that makes funds available to a person or business with the expectation that the funds will be repaid. * Repayment includes the payment of any interest or fees. * Repayment may occur in increments (as in a monthly mortgage payment) or as a lump sum. ## Understanding Lenders Lenders provide funds for a variety of reasons, such as a home mortgage, an automobile loan, or a small business loan. The terms of the loan specify how it must be satisfied (e.g., the repayment period) and the consequences of missing payments and default. A lender may go to a [collection agency](https://www.investopedia.com/terms/c/collectionagency.asp) to recover any funds that are past due. ## How Do Lenders Make Loan Decisions? ### Individual borrowers Qualifying for a loan depends largely on the borrower’s [credit history](https://www.investopedia.com/terms/c/credit-history.asp). The lender examines the borrower’s [credit report](https://www.investopedia.com/terms/c/creditreport.asp), which details the names of other lenders extending credit (current and previous), the types of credit extended, the borrower’s repayment history, and more. The report helps the lender determine whether—based on current employment and income—the borrower would be comfortable managing an additional loan payment. As part of their decision about creditworthiness, lenders may also use the [Fair Isaac Corporation (FICO) score](https://www.investopedia.com/terms/f/ficoscore.asp) in the borrower’s credit report. ### The lender may also evaluate the borrower’s [debt-to-income (DTI) ratio](https://www.investopedia.com/terms/d/dti.asp)—which compares current and new debt to before-tax income—to determine the borrower’s ability to pay. [When applying for a secured loan](https://www.investopedia.com/ask/answers/110614/what-difference-between-secured-and-unsecured-debts.asp), such as an auto loan or a [home equity line of credit (HELOC)](https://www.investopedia.com/mortgage/heloc/), the borrower pledges collateral. The lender will make an evaluation of the collateral’s full value and subtract any existing debt secured by that collateral from its value. The remaining value of the collateral will be the [equity](https://www.investopedia.com/terms/e/equity.asp) that affects the lending decision (i.e., the amount of money that the lender could recoup if the asset were liquidated). The lender also evaluates a borrower’s available [capital](https://www.investopedia.com/terms/c/capital.asp), which includes savings, investments, and other assets that could be used to repay the loan if income is ever cut due to a job loss or other financial challenge. The lender may ask what the borrower plans to do with the loan, such as use it to purchase a vehicle or other property. Other factors may also be considered, such as environmental or economic conditions. ### Business borrowers Different lenders have different rules and procedures for business borrowers. Banks, [savings and loans](https://www.investopedia.com/ask/answers/041015/what-difference-between-savings-loan-company-and-bank.asp), and [credit unions](https://www.investopedia.com/terms/c/creditunion.asp) that offer [Small Business Administration (SBA)](https://www.investopedia.com/terms/s/small-business-administration.asp) loans must adhere to the guidelines of that program. Private institutions, [angel investors](https://www.investopedia.com/terms/a/angelinvestor.asp), and [venture capitalists](https://www.investopedia.com/terms/v/venturecapitalist.asp) lend money based on their own criteria. These lenders will also look at the purpose of the business, the character of the business owner, the location of business operations, and the projected annual sales and growth for the business. Small-business owners prove their ability for loan repayment by providing lenders both personal and business [balance sheets](https://www.investopedia.com/terms/b/balancesheet.asp). The balance sheets detail assets, liabilities, and the net worth of the business and the individual. Although business owners may propose a repayment plan, the lender has the final say on the terms. ## Where Can I Get a Small Business Loan? One good lender option for small business borrowers is the Small Business Administration (SBA), a U.S. government agency that promotes the economy by assisting small businesses with loans and advocacy. The SBA has a [website](https://www.sba.gov) and at least one office in every state. ## What Are the Different Types of Mortgage Lenders? The three most common options for borrowers seeking a mortgage lender are [mortgage brokers](https://www.investopedia.com/terms/m/mortgagebroker.asp), direct lenders (e.g., banks and credit unions), and secondary market lenders (e.g., [Fannie Mae and Freddie Mac](https://www.investopedia.com/articles/economics/08/fannie-mae-freddie-mac-credit-crisis.asp)). ## How Can I Get a Mortgage with Bad Credit? [Getting a mortgage when you have bad credit is possible](https://www.investopedia.com/best-mortgage-lenders-for-bad-credit-5113497), but a larger down payment, mortgage insurance, and a higher interest rate will likely be required. ## The Bottom Line When you need to borrow money for a personal purchase or jumpstart your business, there are many options. When choosing a lender, look at their reputation and longevity—banks and other financial institutions are the traditional choices, but angel investors and online micro-lenders are gaining popularity. Before borrowing, make sure you understand the full breadth of your loan agreement and can afford to repay it.
What Is a Lender? A lender is an individual, a group (public or private), or a financial institution that makes funds available to a person or business with the expectation that the funds will be repaid. Repayment will include the payment of any interest or fees. Repayment may occur in increments (as in a monthly mortgage payment) or as a lump sum. One of the largest loans consumers take out from lenders is a mortgage. Key Takeaways A lender is an individual, a public or private group, or a financial institution that makes funds available to a person or business with the expectation that the funds will be repaid.Repayment includes the payment of any interest or fees.Repayment may occur in increments (as in a monthly mortgage payment) or as a lump sum. Understanding Lenders Lenders provide funds for a variety of reasons, such as a home mortgage, an automobile loan, or a small business loan. The terms of the loan specify how it must be satisfied (e.g., the repayment period) and the consequences of missing payments and default. A lender may go to a collection agency to recover any funds that are past due. How Do Lenders Make Loan Decisions? Individual borrowers Qualifying for a loan depends largely on the borrower’s credit history. The lender examines the borrower’s credit report, which details the names of other lenders extending credit (current and previous), the types of credit extended, the borrower’s repayment history, and more. The report helps the lender determine whether—based on current employment and income—the borrower would be comfortable managing an additional loan payment. As part of their decision about creditworthiness, lenders may also use the Fair Isaac Corporation (FICO) score in the borrower’s credit report. The lender may also evaluate the borrower’s debt-to-income (DTI) ratio—which compares current and new debt to before-tax income—to determine the borrower’s ability to pay. When applying for a secured loan, such as an auto loan or a home equity line of credit (HELOC), the borrower pledges collateral. The lender will make an evaluation of the collateral’s full value and subtract any existing debt secured by that collateral from its value. The remaining value of the collateral will be the equity that affects the lending decision (i.e., the amount of money that the lender could recoup if the asset were liquidated). The lender also evaluates a borrower’s available capital, which includes savings, investments, and other assets that could be used to repay the loan if income is ever cut due to a job loss or other financial challenge. The lender may ask what the borrower plans to do with the loan, such as use it to purchase a vehicle or other property. Other factors may also be considered, such as environmental or economic conditions. Business borrowers Different lenders have different rules and procedures for business borrowers. Banks, savings and loans, and credit unions that offer Small Business Administration (SBA) loans must adhere to the guidelines of that program. Private institutions, angel investors, and venture capitalists lend money based on their own criteria. These lenders will also look at the purpose of the business, the character of the business owner, the location of business operations, and the projected annual sales and growth for the business. Small-business owners prove their ability for loan repayment by providing lenders both personal and business balance sheets. The balance sheets detail assets, liabilities, and the net worth of the business and the individual. Although business owners may propose a repayment plan, the lender has the final say on the terms. Where Can I Get a Small Business Loan? One good lender option for small business borrowers is the Small Business Administration (SBA), a U.S. government agency that promotes the economy by assisting small businesses with loans and advocacy. The SBA has a website and at least one office in every state. What Are the Different Types of Mortgage Lenders? The three most common options for borrowers seeking a mortgage lender are mortgage brokers, direct lenders (e.g., banks and credit unions), and secondary market lenders (e.g., Fannie Mae and Freddie Mac). How Can I Get a Mortgage with Bad Credit? Getting a mortgage when you have bad credit is possible, but a larger down payment, mortgage insurance, and a higher interest rate will likely be required. The Bottom Line When you need to borrow money for a personal purchase or jumpstart your business, there are many options. When choosing a lender, look at their reputation and longevity—banks and other financial institutions are the traditional choices, but angel investors and online micro-lenders are gaining popularity. Before borrowing, make sure you understand the full breadth of your loan agreement and can afford to repay it.
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https://www.investopedia.com/varo-money-review-4846225
Varo Money Review
<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="comp product-review-content product-review-content--finance product-review--base" id="product-review-content--finance_1-0"> <div class="comp js-toc-appear article-container article-intro mntl-block" id="article-intro_1-0"> <div class="comp product-card" data-tracking-container="true" data-tracking-id="product-card" id="product-card_1-0" style="--imgWidth: 0px"> <div class="product-card__content"> <div class="product-card__intro expert-content"> <figure class="comp figure-article figure-3x2 product-card__image litho-figure-article mntl-universal-primary-image primary-image" id="product-card__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Varo Money" class="primary-image__image mntl-primary-image--blurry" height="1000" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/jqOb6YXLjOoYftk8e1H2CZCBjgM=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/varo-money-logo-a7908b9c14c64ec4b3dedf305836c961.png" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDQAFAPAAAAAAADEbkiH5BAEAAAAALAAAAAANAAUAQAgfAAMAACBwoMGDAQQmTDiQIUGHCwk+VCixIESKDC0GBAA7')" width="1500"/> <noscript> <img alt="Varo Money" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="1000" src="https://www.investopedia.com/thmb/jqOb6YXLjOoYftk8e1H2CZCBjgM=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/varo-money-logo-a7908b9c14c64ec4b3dedf305836c961.png" width="1500"/> </noscript> </div> </div> </figure><!-- end: comp figure-article figure-3x2 product-card__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp js-sticky-riser-show product-card__cta commerce-block mntl-block" id="product-card__cta_1-0"> <a class="commerce-button mntl-text-link" data-tracking-container="false" href="https://www.varomoney.com/" id="commerce-button_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp js-sticky-riser-show product-card__cta commerce-block mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> Founded in 2015, Varo is a mobile-first firm that offers checking and savings accounts.<span class="ql-inline-citation" data-cite="3"></span> As a startup, Varo seeks to disrupt traditional banking (even the online-only variety) by providing monthly fee-free accounts and an entirely mobile experience. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block" data-click-action="Product Tab Click" data-tracking-container="true" data-tracking-id="Full Product Review"> <ul class="tabbed-sc-block__tabs"> <li class="tabbed-sc-block__tab js-tabbed-tab is-active is-initial-load" data-tab-index="1"><span class="tabbed-sc-block__title">Pros &amp; Cons</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="2"><span class="tabbed-sc-block__title">Key Takeaways</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="3"><span class="tabbed-sc-block__title">Company Overview</span></li> </ul> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content is-active is-initial-load" data-tab-index="1"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_1-0-2"> <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-monthly-fee checking and savings accounts</p></li> <li><p>Low-fee cash advance</p></li> <li><p>Access to over 55,000 Allpoint ATMs</p></li> <li><p>Impressive savings rate</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>Cash deposit is only available through a third party that charges fees</p></li> <li><p>No checks</p></li> <li><p>Only two deposit accounts are available</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Key Takeaways</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="2"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-4"> <li>Varo is a mobile-first firm that provides checking and savings accounts with no monthly fee.</li><li>It's part of the Allpoint ATM network which offers fee-free use of over 55,000 ATMs.<span class="ql-inline-citation" data-cite="5"></span></li><li>Varo isn't set up to accept cash deposits. You must use a third-party retailer if you want to deposit cash.</li><li>Varo might not be a good match for you if you write a fair number of paper checks for payments because it doesn't issue them.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Company Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-6"> Varo describes itself as a "branchless" banking institution because it's digital and mobile-focused, but it does maintain a brick-and-mortar headquarters in San Francisco.<span class="ql-inline-citation" data-cite="3"></span> However, its customer service is based in an area using Mountain Time. It's a member of the FDIC and all deposits are FDIC-insured up to $250,000.<span class="ql-inline-citation" data-cite="6"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block" id="mntl-sc-block_1-0-7"> <div class="comp product-spec-tool definition-list" id="product-spec-tool_1-0"> <ul class="definition-list__container"> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Year Founded</span> <span class="definition-list__item-content definition-list__item-content-0"> 2015 </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Official Website</span> <span class="definition-list__item-content definition-list__item-content-1"> www.varomoney.com </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Banking Products Offered</span> <span class="definition-list__item-content definition-list__item-content-2"> Savings and checking </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Customer Service</span> <span class="definition-list__item-content definition-list__item-content-3"> Phone line: Monday–Friday, 8 a.m. to 4:30 p.m. (MT) 1-877-377-VARO </span> </span> </li> </ul> </div><!-- end: comp product-spec-tool definition-list --> </div><!-- end: comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block --> </div> </div> </div> </div><!-- end: comp product-card --> </div><!-- end: comp js-toc-appear article-container article-intro mntl-block --> <div class="loc body-content article-container"> <div class="comp article-body article-content mntl-block" id="article-content_1-0"> <div class="comp left-nav js-sticky-container product-review__left-nav mntl-block" id="product-review__left-nav_1-0"> <div class="comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block" data-desktop-bp="54em" data-tracking-container="true" id="product-review__toc_1-0"> <div class="comp sticky-toc-widget__product-container mntl-block" id="sticky-toc-widget__product-container_1-0"> <figure class="comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image" id="sticky-toc-widget__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Varo Money" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/j00Da33q6HViuoTw48_KJ48QvfI=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/varo-money-logo-a7908b9c14c64ec4b3dedf305836c961.png" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDQAFAPAAAAAAADEbkiH5BAEAAAAALAAAAAANAAUAQAgfAAMAACBwoMGDAQQmTDiQIUGHCwk+VCixIESKDC0GBAA7')" width="1500"/> <noscript> <img alt="Varo Money" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/j00Da33q6HViuoTw48_KJ48QvfI=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/varo-money-logo-a7908b9c14c64ec4b3dedf305836c961.png" width="1500"/> </noscript> </div> </div> </figure><!-- end: comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp sticky-toc-widget__cta commerce-block mntl-block" id="sticky-toc-widget__cta_1-0"> <a class="commerce-button mntl-text-link" data-tracking-container="false" href="https://www.varomoney.com/" id="commerce-button_2-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp sticky-toc-widget__cta commerce-block mntl-block --> </div><!-- end: comp sticky-toc-widget__product-container mntl-block --> <div class="comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="sticky-toc-widget__toc_3-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_3-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_3-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_5-0"> Table of Contents</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_3-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="View All" id="mntl-toc-toggle__btn_3-0"> View All</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-Varo Money Review" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_6-0"> Varo Money Review</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_3-0"> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Pros Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pros-explained" id="mntl-toc__list-item-link_3-0" rel="nocaes"><span class="link__wrapper">Pros Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Cons Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-cons-explained" id="mntl-toc__list-item-link_3-0-1" rel="nocaes"><span class="link__wrapper">Cons Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Best For" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-who-is-varo-best-for" id="mntl-toc__list-item-link_3-0-2" rel="nocaes"><span class="link__wrapper">Best For</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Bank Offerings" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-what-does-varo-offer" id="mntl-toc__list-item-link_3-0-3" rel="nocaes"><span class="link__wrapper">Bank Offerings</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Service" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-varo-customer-service" id="mntl-toc__list-item-link_3-0-4" rel="nocaes"><span class="link__wrapper">Customer Service</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-5"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How to Bank" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-bank-with-varo" id="mntl-toc__list-item-link_3-0-5" rel="nocaes"><span class="link__wrapper">How to Bank</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-6"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-6"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Final Verdict" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-final-verdict" id="mntl-toc__list-item-link_3-0-6" rel="nocaes"><span class="link__wrapper">Final Verdict</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-7"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-7"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-FAQs" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-frequently-asked-questions-faqs" id="mntl-toc__list-item-link_3-0-7" rel="nocaes"><span class="link__wrapper">FAQs</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-8"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-8"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_3-0-8" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block --> </div><!-- end: comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block --> </div><!-- end: comp left-nav js-sticky-container product-review__left-nav mntl-block --> <div class="comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block" data-tracking-container="true" id="product-review__content_1-0"> <span class="heading-toc" id="toc-pros-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0"> <span class="mntl-sc-block-heading__text"> Pros Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-1"> <li><strong>No-monthly-fee checking and savings accounts: </strong>Varo offers checking and savings accounts with no monthly fee. You'll pay no maintenance fees, no overdraft fees if you're eligible for this perk, no in-network ATM fees, no foreign transaction fees, no debit card replacement fees, and no transfer fees. The biggest exception is a $3.00 out-of-network ATM fee, which is easy to avoid by using one of over 55,000 in-network Allpoint ATMs.<span class="ql-inline-citation" data-cite="23"></span><span class="ql-inline-citation" data-cite="7"></span></li><li><strong>Low-fee cash advance:</strong> Varo Advance provides up to $500 as an advance for qualified account holders. Advances come with a fee depending on how much you're borrowing. You must qualify for the Varo Advance program by receiving at least $800 in total qualifying direct deposits.<span class="ql-inline-citation" data-cite="15"></span></li><li><strong>Access to over 55,000 Allpoint ATMs: </strong>Varo is part of the Allpoint ATM network which has over 55,000 ATMs.</li><li><strong>Impressive savings rate:</strong> Savers with Varo can earn between 3.00% APY and 5.00% APY depending on their balance.<span class="ql-inline-citation" data-cite="10"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-cons-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-2"> <span class="mntl-sc-block-heading__text"> Cons Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-3"> <li><strong>Cash deposit only available through a third party that charges fees: </strong>You'll have to visit a retailer that participates in the Green Dot network, such as Dollar General, Walgreens, CVS, 7-Eleven, or Walmart, and pay up to $4.95 to add cash to your account at the register if you want to deposit money into your Varo checking account.<span class="ql-inline-citation" data-cite="11"></span> You can't deposit cash directly into your Varo savings account. You must deposit it into your checking account first then transfer it to savings on the mobile app.</li><li><strong>No checks:</strong> Varo doesn't provide paper checks with its checking account but you can send payments through the mobile app. There's no fee for this service.</li><li><strong>Only two deposit accounts available: </strong>Varo doesn't offer any deposit accounts other than checking and savings accounts. It doesn't offer certificates of deposit (CDs) or money market accounts.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-who-is-varo-best-for"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-4"> <span class="mntl-sc-block-heading__text"> Who Is Varo Best For? </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-5"> Varo will appeal to customers who prefer a mobile experience, who want to avoid fees, and who want a competitive savings rate. Varo would be a food fit for customers who: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-6"> <li>Are tech-savvy and enjoy handling their banking on their phone</li><li>Want a fee-free banking experience</li><li>Don’t often need to deposit cash</li><li>Want a high interest rate on their savings account</li><li>Don’t need more than the basic checking and savings account</li><li>Want easy access to fee-free ATMs</li><li>Don’t write many paper checks</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-what-does-varo-offer"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-7"> <span class="mntl-sc-block-heading__text"> What Does Varo Offer? </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-8"> As an online and mobile-first startup, Varo keeps its offerings very simple. The only accounts offered by Varo are savings and checking. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-9"> <span class="mntl-sc-block-subheading__text"> Savings Account </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-10"> The sole Varo savings account is a high-yield account with no fees whatsoever. Savers can earn up to a 5.00% APY on some of their balance with the account. You must first open a checking account known as the Varo Bank Account to open a Varo savings account. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-11"> The base interest rate that the account automatically earns is 3.00% APY as of May 2023. Account holders can qualify to earn 5.00% APY on the first $5,000 of deposits if they meet two conditions. The first is having $1,000 per month of qualifying direct deposits. The second condition is to have a positive balance in both of your Varo accounts at the end of the month.<span class="ql-inline-citation" data-cite="12"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-12"> You're required to have a Varo checking account in order to open a Varo savings account, but the institution offers some benefits with this structure. Varo has two automatic savings options to help encourage you to reach your savings goals. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ol class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-13"> <li><strong>Save Your Pay: </strong>This program allows you to choose a percentage of each direct deposit into your Varo checking account and have it automatically transferred to your Varo savings account.</li><li><strong>Save Your Change:</strong> Anytime you make a purchase with your debit card, Varo will round up the purchase to the nearest dollar with this program and transfer that amount from your Varo checking account to your Varo savings account.</li> </ol><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-14"> <span class="mntl-sc-block-subheading__text"> Checking Account </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-15"> The only checking account option is officially known as the Varo Bank Account, and it packs quite an impressive punch for a fairly simple offering. The benefits of this account include all of the following: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-16"> <li><strong>No Monthly Fees: </strong>You really can enjoy monthly fee-free banking with no minimum balance, no monthly maintenance fee, no overdraft fees or interest owed for overdrafts, no transfer fees, no foreign transaction fees, and no debit card replacement fees,</li><li><strong>Early Direct Deposit:</strong> You may be able to access your money as many as two days earlier than payday if you set up direct deposit of your paycheck. Varo will deposit your money in your bank account as soon as it receives the direct deposit notification. You may also be able to access the direct deposit of your tax refund up to two days early.</li><li><strong>Varo Advance: </strong>You're<strong> </strong>eligible for Varo Advance if your account is at least 30 days old, you have activated your debit card, and you receive at least $1,000 in direct deposits per month. You can receive cash advances of up to $250. Advances of up to $20 have no fees, but small fees apply on all advances larger than $20.<span class="ql-inline-citation" data-cite="14"></span></li><li><strong>Visa Debit Card:</strong> The Varo Bank Account comes with a Visa-branded debit card that can be used anywhere Visa is accepted. You can connect Apple Pay, Google Pay, PayPal, Cash App, and Venmo with your debit card for effortless payments anywhere. You're also eligible for the Visa Zero Liability guarantee that ensures that you won’t be held responsible for unauthorized charges on your debit card. Replacement cards are free.</li><li><strong>Excellent App: </strong>Varo needs a great mobile app because it's a digital-only, mobile-first bank, and it definitely delivers. The app allows you to deposit checks with mobile check deposit, send money instantly to other Varo customers, track spending and account activity with instant alerts, and even link external accounts so you can transfer money and track your finances across Varo and other financial platforms. The app has a 4.9-star rating on the Apple App Store and a 4.7-star rating on Google Play.<span class="ql-inline-citation" data-cite="16"></span><span class="ql-inline-citation" data-cite="17"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-17"> The Varo Bank Account has a lot to offer the right customer, but it’s not a good fit for everyone. The fact that you have to pay a third party to deposit cash means that anyone who regularly receives cash may want to look elsewhere for a basic checking account. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-18"> It’s also a good idea to double-check if there are Allpoint ATMs in your area before signing up for a Varo Bank Account. A network of 55,000 ATMs covers a lot of territory, but that doesn’t necessarily mean that everyone can easily find an Allpoint ATM near them.<span class="ql-inline-citation" data-cite="18"></span> The one exception to this fee-free account is the $3.00 out-of-network ATM fee.<span class="ql-inline-citation" data-cite="23"></span> This could be an expensive exception if there are no convenient Allpoint ATMs near you. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-varo-customer-service"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-19"> <span class="mntl-sc-block-heading__text"> Varo Customer Service </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-20"> There's a robust help section on Varo's website that's set up as an easy-to-use FAQ and is searchable. Chat support is available seven days a week from 8 a.m. to 4:30 p.m. Mountain Time. Phone support is available at 877-377-VARO on Monday through Friday from 8 a.m. to 4:30 p.m. Mountain Time. These hours exclude federal holidays. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-bank-with-varo"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-21"> <span class="mntl-sc-block-heading__text"> How to Bank With Varo </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-22"> Signing up for an account with Varo starts on its website. You can enter your email and some other identifying information and create your account on the website. You can download the app to finish opening your account from there. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-note 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_2-0-23"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>It's impossible to bank with Varo without a smartphone or computer.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-note mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-final-verdict"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-24"> <span class="mntl-sc-block-heading__text"> Final Verdict </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-25"> Varo doesn't have a wide array of products and services, but it makes sure that what it does offer is excellent. The no-strings-attached fee-free accounts make this a good option for young and newly-banked customers, and the impressive APY on the high yield savings account can tempt even veteran savers. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-26"> The fact that Varo is digital-only and mobile-first, and doesn't have a great solution to the problem of cash deposits means that this isn't necessarily the right institution for everyone. But Varo is an excellent competitor in the world of online and mobile banking. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-frequently-asked-questions-faqs"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-27"> <span class="mntl-sc-block-heading__text"> Frequently Asked Questions (FAQs) </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-28"> <span class="mntl-sc-block-subheading__text"> Does Varo give you money instantly? </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-29"> You can access cash through any Allpoint ATM. There are over 55,000 of them.<span class="ql-inline-citation" data-cite="20"></span> You can take cash advances of up to $500 each if you're a qualified account holder.<span class="ql-inline-citation" data-cite="21"></span> You can also use your Varo Bank Visa debit card to access cash from most stores and many banks or credit unions. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-30"> <span class="mntl-sc-block-subheading__text"> How long does it take to get money from Varo? </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-31"> You can access your money from a Varo account at any Allpoint ATM, and you might be able to get it two days earlier than usual if you arrange to have your paycheck or tax refund directly deposited. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-32"> <span class="mntl-sc-block-subheading__text"> What is Varo's withdrawal limit? </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-33"> You can withdraw up to $1,000 a day from ATMs or by using your debit card at a bank or credit union. The limit on debit card cash advances at a store is $500 a day.<span class="ql-inline-citation" data-cite="1"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-34"> <span class="mntl-sc-block-subheading__text"> Can I use Zelle with Varo? </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-35"> You can enroll in Zelle at Varo if you had a Zelle transaction in your Varo account before Nov. 3, 2022. You can send, request, or receive money with Zelle in your Varo app after you enroll. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-36"> <span class="mntl-sc-block-subheading__text"> Will Varo let you overdraft? </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-37"> Varo will honor overdrafts and there are no overdraft fees for eligible accountholders, but the bank recommends tapping into Varo Advance instead if you have any forewarning that you don't have sufficient funds in your account to honor a payment you issued. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-38"> You have to qualify for Varo Advance, but you can access cash instantly this way rather than physically withdraw it from your account and deplete your balance. But you must repay your advance plus and any fee within 30 days if you want to take another advance in the future.<span class="ql-inline-citation" data-cite="21"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-39"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-40"> Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks, including products available, interest rates, fees, and accessibility to ensure that our content helps users make the right decision for their savings and banking needs. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-link-closest-header="false" data-tracking-container="true" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_2-0-41"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="none" data-tracking-container="true" href="https://www.varomoney.com/" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div><!-- end: comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block --> </div><!-- end: comp article-body article-content mntl-block --> </div> </div><!-- end: comp product-review-content product-review-content--finance product-review--base --> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-3"><p>Crunchbase. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.crunchbase.com/organization/varo-money">Varo Money</a>."</p></li> <li class="mntl-sources__source" id="citation-5"><p>Varo. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://support.varomoney.com/hc/en-us/articles/360039980451-How-can-I-withdraw-cash-with-no-fees-" rel="nofollow sponsored">How Can I Withdraw Cash With No Fees?</a>"</p></li> <li class="mntl-sources__source" id="citation-6"><p>Varo. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.varomoney.com/" rel="nofollow sponsored">Make Money. Then Make It (All) Happen</a>."</p></li> <li class="mntl-sources__source" id="citation-23"><p>Varo. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://support.varomoney.com/hc/en-us/articles/360039570872-Why-did-I-get-charged-an-ATM-withdrawal-fee-out-of-network-" rel="nofollow sponsored">Why Did I Get Charged an ATM Withdrawal Fee (Out of Network)?</a>"</p></li> <li class="mntl-sources__source" id="citation-7"><p>Varo. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://support.varomoney.com/hc/en-us/articles/360039980451-How-can-I-withdraw-cash-with-no-fees-" rel="nofollow sponsored">How Can I Withdraw Cash With No Fees?</a>"</p></li> <li class="mntl-sources__source" id="citation-15"><p>Varo. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.varomoney.com/cash-advance/" rel="nofollow sponsored">Varo Cash Advance</a>."</p></li> <li class="mntl-sources__source" id="citation-10"><p>Varo. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.varomoney.com/savings-account/" rel="nofollow sponsored">Online Savings Account</a>."</p></li> <li class="mntl-sources__source" id="citation-11"><p>Varo. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://support.varomoney.com/hc/en-us/articles/360027572811-How-do-I-deposit-cash-to-my-Varo-Bank-Account-" rel="nofollow sponsored">How Do I Deposit Cash to My Varo Bank Account?</a>"</p></li> <li class="mntl-sources__source" id="citation-12"><p>Varo. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.varomoney.com/savings-account/" rel="nofollow sponsored">Online Savings Account</a>."</p></li> <li class="mntl-sources__source" id="citation-14"><p>Varo. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.varomoney.com/cash-advance/" rel="nofollow sponsored">Varo Cash Advance</a>."</p></li> <li class="mntl-sources__source" id="citation-16"><p>Apple App Store. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://apps.apple.com/us/app/varo-bank-mobile-banking/id1517676784" rel="nofollow sponsored">Varo Bank: Mobile Banking</a>."</p></li> <li class="mntl-sources__source" id="citation-17"><p>Google Play. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://play.google.com/store/apps/details?id=com.varomoney.bank&amp;hl=en_US&amp;gl=US" rel="nofollow sponsored">Varo Bank: Mobile Banking</a>."</p></li> <li class="mntl-sources__source" id="citation-18"><p>Varo. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://support.varomoney.com/hc/en-us/articles/360039980451-How-can-I-withdraw-cash-with-no-fees-" rel="nofollow sponsored">How Can I Withdraw Cash With No Fees?</a>"</p></li> <li class="mntl-sources__source" id="citation-20"><p>Varo. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://support.varomoney.com/hc/en-us/articles/360039980451-How-can-I-withdraw-cash-with-no-fees-" rel="nofollow sponsored">How Can I Withdraw Cash With No Fees?</a>"</p></li> <li class="mntl-sources__source" id="citation-21"><p>Varo. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.varomoney.com/cash-advance/" rel="nofollow sponsored">Varo Cash Advance</a>."</p></li> <li class="mntl-sources__source" id="citation-1"><p>Varo. 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![Varo Money](https://www.investopedia.com/thmb/jqOb6YXLjOoYftk8e1H2CZCBjgM=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/varo-money-logo-a7908b9c14c64ec4b3dedf305836c961.png) ![Varo Money](https://www.investopedia.com/thmb/jqOb6YXLjOoYftk8e1H2CZCBjgM=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/varo-money-logo-a7908b9c14c64ec4b3dedf305836c961.png) [Open Account](https://www.varomoney.com/) Founded in 2015, Varo is a mobile-first firm that offers checking and savings accounts. As a startup, Varo seeks to disrupt traditional banking (even the online-only variety) by providing monthly fee-free accounts and an entirely mobile experience. * Pros & Cons * Key Takeaways * Company Overview Pros & Cons Pros * No-monthly-fee checking and savings accounts * Low-fee cash advance * Access to over 55,000 Allpoint ATMs * Impressive savings rate Cons * Cash deposit is only available through a third party that charges fees * No checks * Only two deposit accounts are available Key Takeaways * Varo is a mobile-first firm that provides checking and savings accounts with no monthly fee. * It's part of the Allpoint ATM network which offers fee-free use of over 55,000 ATMs. * Varo isn't set up to accept cash deposits. You must use a third-party retailer if you want to deposit cash. * Varo might not be a good match for you if you write a fair number of paper checks for payments because it doesn't issue them. Company Overview Varo describes itself as a "branchless" banking institution because it's digital and mobile-focused, but it does maintain a brick-and-mortar headquarters in San Francisco. However, its customer service is based in an area using Mountain Time. It's a member of the FDIC and all deposits are FDIC-insured up to $250,000. * Year Founded 2015 * Official Website www.varomoney.com * Banking Products Offered Savings and checking * Customer Service Phone line: Monday–Friday, 8 a.m. to 4:30 p.m. (MT) 1-877-377-VARO ![Varo Money](https://www.investopedia.com/thmb/j00Da33q6HViuoTw48_KJ48QvfI=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/varo-money-logo-a7908b9c14c64ec4b3dedf305836c961.png) ![Varo Money](https://www.investopedia.com/thmb/j00Da33q6HViuoTw48_KJ48QvfI=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/varo-money-logo-a7908b9c14c64ec4b3dedf305836c961.png) [Open Account](https://www.varomoney.com/) Table of Contents View All Varo Money Review * [Pros Explained](#toc-pros-explained) * [Cons Explained](#toc-cons-explained) * [Best For](#toc-who-is-varo-best-for) * [Bank Offerings](#toc-what-does-varo-offer) * [Customer Service](#toc-varo-customer-service) * [How to Bank](#toc-how-to-bank-with-varo) * [Final Verdict](#toc-final-verdict) * [FAQs](#toc-frequently-asked-questions-faqs) * [Methodology](#toc-methodology) ## Pros Explained * **No-monthly-fee checking and savings accounts:** Varo offers checking and savings accounts with no monthly fee. You'll pay no maintenance fees, no overdraft fees if you're eligible for this perk, no in-network ATM fees, no foreign transaction fees, no debit card replacement fees, and no transfer fees. The biggest exception is a $3.00 out-of-network ATM fee, which is easy to avoid by using one of over 55,000 in-network Allpoint ATMs. * **Low-fee cash advance:** Varo Advance provides up to $500 as an advance for qualified account holders. Advances come with a fee depending on how much you're borrowing. You must qualify for the Varo Advance program by receiving at least $800 in total qualifying direct deposits. * **Access to over 55,000 Allpoint ATMs:** Varo is part of the Allpoint ATM network which has over 55,000 ATMs. * **Impressive savings rate:** Savers with Varo can earn between 3.00% APY and 5.00% APY depending on their balance. ## Cons Explained * **Cash deposit only available through a third party that charges fees:** You'll have to visit a retailer that participates in the Green Dot network, such as Dollar General, Walgreens, CVS, 7-Eleven, or Walmart, and pay up to $4.95 to add cash to your account at the register if you want to deposit money into your Varo checking account. You can't deposit cash directly into your Varo savings account. You must deposit it into your checking account first then transfer it to savings on the mobile app. * **No checks:** Varo doesn't provide paper checks with its checking account but you can send payments through the mobile app. There's no fee for this service. * **Only two deposit accounts available:** Varo doesn't offer any deposit accounts other than checking and savings accounts. It doesn't offer certificates of deposit (CDs) or money market accounts. ## Who Is Varo Best For? Varo will appeal to customers who prefer a mobile experience, who want to avoid fees, and who want a competitive savings rate. Varo would be a food fit for customers who: * Are tech-savvy and enjoy handling their banking on their phone * Want a fee-free banking experience * Don’t often need to deposit cash * Want a high interest rate on their savings account * Don’t need more than the basic checking and savings account * Want easy access to fee-free ATMs * Don’t write many paper checks ## What Does Varo Offer? As an online and mobile-first startup, Varo keeps its offerings very simple. The only accounts offered by Varo are savings and checking. ### Savings Account The sole Varo savings account is a high-yield account with no fees whatsoever. Savers can earn up to a 5.00% APY on some of their balance with the account. You must first open a checking account known as the Varo Bank Account to open a Varo savings account. The base interest rate that the account automatically earns is 3.00% APY as of May 2023. Account holders can qualify to earn 5.00% APY on the first $5,000 of deposits if they meet two conditions. The first is having $1,000 per month of qualifying direct deposits. The second condition is to have a positive balance in both of your Varo accounts at the end of the month. You're required to have a Varo checking account in order to open a Varo savings account, but the institution offers some benefits with this structure. Varo has two automatic savings options to help encourage you to reach your savings goals. 1. **Save Your Pay:** This program allows you to choose a percentage of each direct deposit into your Varo checking account and have it automatically transferred to your Varo savings account. 2. **Save Your Change:** Anytime you make a purchase with your debit card, Varo will round up the purchase to the nearest dollar with this program and transfer that amount from your Varo checking account to your Varo savings account. ### Checking Account The only checking account option is officially known as the Varo Bank Account, and it packs quite an impressive punch for a fairly simple offering. The benefits of this account include all of the following: * **No Monthly Fees:** You really can enjoy monthly fee-free banking with no minimum balance, no monthly maintenance fee, no overdraft fees or interest owed for overdrafts, no transfer fees, no foreign transaction fees, and no debit card replacement fees, * **Early Direct Deposit:** You may be able to access your money as many as two days earlier than payday if you set up direct deposit of your paycheck. Varo will deposit your money in your bank account as soon as it receives the direct deposit notification. You may also be able to access the direct deposit of your tax refund up to two days early. * **Varo Advance:** You'reeligible for Varo Advance if your account is at least 30 days old, you have activated your debit card, and you receive at least $1,000 in direct deposits per month. You can receive cash advances of up to $250. Advances of up to $20 have no fees, but small fees apply on all advances larger than $20. * **Visa Debit Card:** The Varo Bank Account comes with a Visa-branded debit card that can be used anywhere Visa is accepted. You can connect Apple Pay, Google Pay, PayPal, Cash App, and Venmo with your debit card for effortless payments anywhere. You're also eligible for the Visa Zero Liability guarantee that ensures that you won’t be held responsible for unauthorized charges on your debit card. Replacement cards are free. * **Excellent App:** Varo needs a great mobile app because it's a digital-only, mobile-first bank, and it definitely delivers. The app allows you to deposit checks with mobile check deposit, send money instantly to other Varo customers, track spending and account activity with instant alerts, and even link external accounts so you can transfer money and track your finances across Varo and other financial platforms. The app has a 4.9-star rating on the Apple App Store and a 4.7-star rating on Google Play. The Varo Bank Account has a lot to offer the right customer, but it’s not a good fit for everyone. The fact that you have to pay a third party to deposit cash means that anyone who regularly receives cash may want to look elsewhere for a basic checking account. It’s also a good idea to double-check if there are Allpoint ATMs in your area before signing up for a Varo Bank Account. A network of 55,000 ATMs covers a lot of territory, but that doesn’t necessarily mean that everyone can easily find an Allpoint ATM near them. The one exception to this fee-free account is the $3.00 out-of-network ATM fee. This could be an expensive exception if there are no convenient Allpoint ATMs near you. ## Varo Customer Service There's a robust help section on Varo's website that's set up as an easy-to-use FAQ and is searchable. Chat support is available seven days a week from 8 a.m. to 4:30 p.m. Mountain Time. Phone support is available at 877-377-VARO on Monday through Friday from 8 a.m. to 4:30 p.m. Mountain Time. These hours exclude federal holidays. ## How to Bank With Varo Signing up for an account with Varo starts on its website. You can enter your email and some other identifying information and create your account on the website. You can download the app to finish opening your account from there. It's impossible to bank with Varo without a smartphone or computer. ## Final Verdict Varo doesn't have a wide array of products and services, but it makes sure that what it does offer is excellent. The no-strings-attached fee-free accounts make this a good option for young and newly-banked customers, and the impressive APY on the high yield savings account can tempt even veteran savers. The fact that Varo is digital-only and mobile-first, and doesn't have a great solution to the problem of cash deposits means that this isn't necessarily the right institution for everyone. But Varo is an excellent competitor in the world of online and mobile banking. ## Frequently Asked Questions (FAQs) ### Does Varo give you money instantly? You can access cash through any Allpoint ATM. There are over 55,000 of them. You can take cash advances of up to $500 each if you're a qualified account holder. You can also use your Varo Bank Visa debit card to access cash from most stores and many banks or credit unions. ### How long does it take to get money from Varo? You can access your money from a Varo account at any Allpoint ATM, and you might be able to get it two days earlier than usual if you arrange to have your paycheck or tax refund directly deposited. ### What is Varo's withdrawal limit? You can withdraw up to $1,000 a day from ATMs or by using your debit card at a bank or credit union. The limit on debit card cash advances at a store is $500 a day. ### Can I use Zelle with Varo? You can enroll in Zelle at Varo if you had a Zelle transaction in your Varo account before Nov. 3, 2022. You can send, request, or receive money with Zelle in your Varo app after you enroll. ### Will Varo let you overdraft? Varo will honor overdrafts and there are no overdraft fees for eligible accountholders, but the bank recommends tapping into Varo Advance instead if you have any forewarning that you don't have sufficient funds in your account to honor a payment you issued. You have to qualify for Varo Advance, but you can access cash instantly this way rather than physically withdraw it from your account and deplete your balance. But you must repay your advance plus and any fee within 30 days if you want to take another advance in the future. ## Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks, including products available, interest rates, fees, and accessibility to ensure that our content helps users make the right decision for their savings and banking needs. [Open Account](https://www.varomoney.com/) 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. Crunchbase. "[Varo Money](https://www.crunchbase.com/organization/varo-money)." 2. Varo. "[How Can I Withdraw Cash With No Fees?](https://support.varomoney.com/hc/en-us/articles/360039980451-How-can-I-withdraw-cash-with-no-fees-)" 3. Varo. "[Make Money. Then Make It (All) Happen](https://www.varomoney.com/)." 4. Varo. "[Why Did I Get Charged an ATM Withdrawal Fee (Out of Network)?](https://support.varomoney.com/hc/en-us/articles/360039570872-Why-did-I-get-charged-an-ATM-withdrawal-fee-out-of-network-)" 5. Varo. "[How Can I Withdraw Cash With No Fees?](https://support.varomoney.com/hc/en-us/articles/360039980451-How-can-I-withdraw-cash-with-no-fees-)" 6. Varo. "[Varo Cash Advance](https://www.varomoney.com/cash-advance/)." 7. Varo. "[Online Savings Account](https://www.varomoney.com/savings-account/)." 8. Varo. "[How Do I Deposit Cash to My Varo Bank Account?](https://support.varomoney.com/hc/en-us/articles/360027572811-How-do-I-deposit-cash-to-my-Varo-Bank-Account-)" 9. Varo. "[Online Savings Account](https://www.varomoney.com/savings-account/)." 10. Varo. "[Varo Cash Advance](https://www.varomoney.com/cash-advance/)." 11. Apple App Store. "[Varo Bank: Mobile Banking](https://apps.apple.com/us/app/varo-bank-mobile-banking/id1517676784)." 12. Google Play. "[Varo Bank: Mobile Banking](https://play.google.com/store/apps/details?id=com.varomoney.bank&hl=en_US&gl=US)." 13. Varo. "[How Can I Withdraw Cash With No Fees?](https://support.varomoney.com/hc/en-us/articles/360039980451-How-can-I-withdraw-cash-with-no-fees-)" 14. Varo. "[How Can I Withdraw Cash With No Fees?](https://support.varomoney.com/hc/en-us/articles/360039980451-How-can-I-withdraw-cash-with-no-fees-)" 15. Varo. "[Varo Cash Advance](https://www.varomoney.com/cash-advance/)." 16. Varo. "[Can I Get Cash at ATMs?](https://support.varomoney.com/hc/en-us/articles/360000557703-Can-I-get-cash-at-ATMs-)" Related Articles [![Regions Bank]() ![Regions Bank](https://www.investopedia.com/thmb/fz1sSXiMmH9ArRgLiyhXpUz_2Ec=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/regions-bank-260ece120ed749a2a89d384e566304dd.jpg) Regions Bank Review 2024](https://www.investopedia.com/regions-bank-review-8644041) [![A cheerful mother and daughter hold a debit card while looking at a tablet computer.]() ![A cheerful mother and daughter hold a debit card while looking at a tablet computer.](https://www.investopedia.com/thmb/18jTGGsVbNn3-9GtkMZnJgEA4o4=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Momanddaughterwithdebitcard-adbb458ebc024b029df9696f82a62248.jpeg) Venmo Teen Debit Card Review 2024](https://www.investopedia.com/venmo-teen-debit-card-review-8399586) [![KeyBank]() ![KeyBank](https://www.investopedia.com/thmb/18XifhlpmzK1gbxk75JCDuxZUDA=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Key_Bank-4e1550638a7b42548bcad15989a517a5.jpg) KeyBank Review 2024](https://www.investopedia.com/keybank-review-8638216) [![Close Up of a Fountain Pen Writing on a Check]() ![Close Up of a Fountain Pen Writing on a Check](https://www.investopedia.com/thmb/Y_AwnkPVNjY8LKI96oIu50y1A5U=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Primary-Image-best-free-checking-accounts-of-2023-7153155-de0ede33b150478c9969e1873132aef1.jpg) Best Free Checking Accounts](https://www.investopedia.com/best-free-checking-accounts-7153155) [![Best Online Banks]() ![Best Online Banks](https://www.investopedia.com/thmb/M9pk3ruQk4w-0ok7f-YfO9U6IYg=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1383931917-16f7e81b08344140b4041462de226112.jpg) The 6 Best Online Banks for May 2024](https://www.investopedia.com/best-online-banks-5190371) [![Checking Accounts with No ATM Fees]() ![Checking Accounts with No ATM Fees](https://www.investopedia.com/thmb/LDZK5j49UrMycS1AosZmlGG5w1o=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1356329142-16fd1cd33e544fada6594b010ed98dcd.jpg) Best Checking Accounts With No ATM Fees](https://www.investopedia.com/best-checking-accounts-with-no-atm-fees-5079489)
Open Account Founded in 2015, Varo is a mobile-first firm that offers checking and savings accounts. As a startup, Varo seeks to disrupt traditional banking (even the online-only variety) by providing monthly fee-free accounts and an entirely mobile experience. Pros & Cons Key Takeaways Company Overview Pros & Cons Pros No-monthly-fee checking and savings accounts Low-fee cash advance Access to over 55,000 Allpoint ATMs Impressive savings rate Cons Cash deposit is only available through a third party that charges fees No checks Only two deposit accounts are available Key Takeaways Varo is a mobile-first firm that provides checking and savings accounts with no monthly fee.It's part of the Allpoint ATM network which offers fee-free use of over 55,000 ATMs.Varo isn't set up to accept cash deposits. You must use a third-party retailer if you want to deposit cash.Varo might not be a good match for you if you write a fair number of paper checks for payments because it doesn't issue them. Company Overview Varo describes itself as a "branchless" banking institution because it's digital and mobile-focused, but it does maintain a brick-and-mortar headquarters in San Francisco. However, its customer service is based in an area using Mountain Time. It's a member of the FDIC and all deposits are FDIC-insured up to $250,000. Year Founded 2015 Official Website www.varomoney.com Banking Products Offered Savings and checking Customer Service Phone line: Monday–Friday, 8 a.m. to 4:30 p.m. (MT) 1-877-377-VARO Open Account Table of Contents View All Varo Money Review Pros Explained Cons Explained Best For Bank Offerings Customer Service How to Bank Final Verdict FAQs Methodology Pros Explained No-monthly-fee checking and savings accounts: Varo offers checking and savings accounts with no monthly fee. You'll pay no maintenance fees, no overdraft fees if you're eligible for this perk, no in-network ATM fees, no foreign transaction fees, no debit card replacement fees, and no transfer fees. The biggest exception is a $3.00 out-of-network ATM fee, which is easy to avoid by using one of over 55,000 in-network Allpoint ATMs.Low-fee cash advance: Varo Advance provides up to $500 as an advance for qualified account holders. Advances come with a fee depending on how much you're borrowing. You must qualify for the Varo Advance program by receiving at least $800 in total qualifying direct deposits.Access to over 55,000 Allpoint ATMs: Varo is part of the Allpoint ATM network which has over 55,000 ATMs.Impressive savings rate: Savers with Varo can earn between 3.00% APY and 5.00% APY depending on their balance. Cons Explained Cash deposit only available through a third party that charges fees: You'll have to visit a retailer that participates in the Green Dot network, such as Dollar General, Walgreens, CVS, 7-Eleven, or Walmart, and pay up to $4.95 to add cash to your account at the register if you want to deposit money into your Varo checking account. You can't deposit cash directly into your Varo savings account. You must deposit it into your checking account first then transfer it to savings on the mobile app.No checks: Varo doesn't provide paper checks with its checking account but you can send payments through the mobile app. There's no fee for this service.Only two deposit accounts available: Varo doesn't offer any deposit accounts other than checking and savings accounts. It doesn't offer certificates of deposit (CDs) or money market accounts. Who Is Varo Best For? Varo will appeal to customers who prefer a mobile experience, who want to avoid fees, and who want a competitive savings rate. Varo would be a food fit for customers who: Are tech-savvy and enjoy handling their banking on their phoneWant a fee-free banking experienceDon’t often need to deposit cashWant a high interest rate on their savings accountDon’t need more than the basic checking and savings accountWant easy access to fee-free ATMsDon’t write many paper checks What Does Varo Offer? As an online and mobile-first startup, Varo keeps its offerings very simple. The only accounts offered by Varo are savings and checking. Savings Account The sole Varo savings account is a high-yield account with no fees whatsoever. Savers can earn up to a 5.00% APY on some of their balance with the account. You must first open a checking account known as the Varo Bank Account to open a Varo savings account. The base interest rate that the account automatically earns is 3.00% APY as of May 2023. Account holders can qualify to earn 5.00% APY on the first $5,000 of deposits if they meet two conditions. The first is having $1,000 per month of qualifying direct deposits. The second condition is to have a positive balance in both of your Varo accounts at the end of the month. You're required to have a Varo checking account in order to open a Varo savings account, but the institution offers some benefits with this structure. Varo has two automatic savings options to help encourage you to reach your savings goals. Save Your Pay: This program allows you to choose a percentage of each direct deposit into your Varo checking account and have it automatically transferred to your Varo savings account.Save Your Change: Anytime you make a purchase with your debit card, Varo will round up the purchase to the nearest dollar with this program and transfer that amount from your Varo checking account to your Varo savings account. Checking Account The only checking account option is officially known as the Varo Bank Account, and it packs quite an impressive punch for a fairly simple offering. The benefits of this account include all of the following: No Monthly Fees: You really can enjoy monthly fee-free banking with no minimum balance, no monthly maintenance fee, no overdraft fees or interest owed for overdrafts, no transfer fees, no foreign transaction fees, and no debit card replacement fees,Early Direct Deposit: You may be able to access your money as many as two days earlier than payday if you set up direct deposit of your paycheck. Varo will deposit your money in your bank account as soon as it receives the direct deposit notification. You may also be able to access the direct deposit of your tax refund up to two days early.Varo Advance: You're eligible for Varo Advance if your account is at least 30 days old, you have activated your debit card, and you receive at least $1,000 in direct deposits per month. You can receive cash advances of up to $250. Advances of up to $20 have no fees, but small fees apply on all advances larger than $20.Visa Debit Card: The Varo Bank Account comes with a Visa-branded debit card that can be used anywhere Visa is accepted. You can connect Apple Pay, Google Pay, PayPal, Cash App, and Venmo with your debit card for effortless payments anywhere. You're also eligible for the Visa Zero Liability guarantee that ensures that you won’t be held responsible for unauthorized charges on your debit card. Replacement cards are free.Excellent App: Varo needs a great mobile app because it's a digital-only, mobile-first bank, and it definitely delivers. The app allows you to deposit checks with mobile check deposit, send money instantly to other Varo customers, track spending and account activity with instant alerts, and even link external accounts so you can transfer money and track your finances across Varo and other financial platforms. The app has a 4.9-star rating on the Apple App Store and a 4.7-star rating on Google Play. The Varo Bank Account has a lot to offer the right customer, but it’s not a good fit for everyone. The fact that you have to pay a third party to deposit cash means that anyone who regularly receives cash may want to look elsewhere for a basic checking account. It’s also a good idea to double-check if there are Allpoint ATMs in your area before signing up for a Varo Bank Account. A network of 55,000 ATMs covers a lot of territory, but that doesn’t necessarily mean that everyone can easily find an Allpoint ATM near them. The one exception to this fee-free account is the $3.00 out-of-network ATM fee. This could be an expensive exception if there are no convenient Allpoint ATMs near you. Varo Customer Service There's a robust help section on Varo's website that's set up as an easy-to-use FAQ and is searchable. Chat support is available seven days a week from 8 a.m. to 4:30 p.m. Mountain Time. Phone support is available at 877-377-VARO on Monday through Friday from 8 a.m. to 4:30 p.m. Mountain Time. These hours exclude federal holidays. How to Bank With Varo Signing up for an account with Varo starts on its website. You can enter your email and some other identifying information and create your account on the website. You can download the app to finish opening your account from there. It's impossible to bank with Varo without a smartphone or computer. Final Verdict Varo doesn't have a wide array of products and services, but it makes sure that what it does offer is excellent. The no-strings-attached fee-free accounts make this a good option for young and newly-banked customers, and the impressive APY on the high yield savings account can tempt even veteran savers. The fact that Varo is digital-only and mobile-first, and doesn't have a great solution to the problem of cash deposits means that this isn't necessarily the right institution for everyone. But Varo is an excellent competitor in the world of online and mobile banking. Frequently Asked Questions (FAQs) Does Varo give you money instantly? You can access cash through any Allpoint ATM. There are over 55,000 of them. You can take cash advances of up to $500 each if you're a qualified account holder. You can also use your Varo Bank Visa debit card to access cash from most stores and many banks or credit unions. How long does it take to get money from Varo? You can access your money from a Varo account at any Allpoint ATM, and you might be able to get it two days earlier than usual if you arrange to have your paycheck or tax refund directly deposited. What is Varo's withdrawal limit? You can withdraw up to $1,000 a day from ATMs or by using your debit card at a bank or credit union. The limit on debit card cash advances at a store is $500 a day. Can I use Zelle with Varo? You can enroll in Zelle at Varo if you had a Zelle transaction in your Varo account before Nov. 3, 2022. You can send, request, or receive money with Zelle in your Varo app after you enroll. Will Varo let you overdraft? Varo will honor overdrafts and there are no overdraft fees for eligible accountholders, but the bank recommends tapping into Varo Advance instead if you have any forewarning that you don't have sufficient funds in your account to honor a payment you issued. You have to qualify for Varo Advance, but you can access cash instantly this way rather than physically withdraw it from your account and deplete your balance. But you must repay your advance plus and any fee within 30 days if you want to take another advance in the future. Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks, including products available, interest rates, fees, and accessibility to ensure that our content helps users make the right decision for their savings and banking needs. Open Account 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. Crunchbase. "Varo Money." Varo. "How Can I Withdraw Cash With No Fees?" Varo. "Make Money. Then Make It (All) Happen." Varo. "Why Did I Get Charged an ATM Withdrawal Fee (Out of Network)?" Varo. "How Can I Withdraw Cash With No Fees?" Varo. "Varo Cash Advance." Varo. "Online Savings Account." Varo. "How Do I Deposit Cash to My Varo Bank Account?" Varo. "Online Savings Account." Varo. "Varo Cash Advance." Apple App Store. "Varo Bank: Mobile Banking." Google Play. "Varo Bank: Mobile Banking." Varo. "How Can I Withdraw Cash With No Fees?" Varo. "How Can I Withdraw Cash With No Fees?" Varo. "Varo Cash Advance." Varo. "Can I Get Cash at ATMs?" Related Articles Regions Bank Review 2024 Venmo Teen Debit Card Review 2024 KeyBank Review 2024 Best Free Checking Accounts The 6 Best Online Banks for May 2024 Best Checking Accounts With No ATM Fees
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https://www.investopedia.com/ask/answers/how-companys-stock-price-and-market-cap-determined/
How Are a Company's Stock Price and Market Cap Determined?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> A company's worth—or its total <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>—is called its <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>, or market cap. A company's market cap at any given time can be determined by multiplying its stock price by the number of shares outstanding. </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"> Therefore, any significant change in a stock price results in an equal percentage change in the company's market cap. This is one of the reasons why <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investors</a> are so concerned with stock prices. A $0.10 drop in a stock price results in a $100,000 loss on paper for a shareholder with one million shares. </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 company's market capitalization—also called its market cap—is a straightforward measure of the company's market value.</li><li>Market cap is calculated by taking the current share price and multiplying it by the number of shares outstanding.</li><li>For example, a company with 50 million shares and a stock price of $100 per share would have a market cap of $5 billion.</li><li>Stocks are often classified according to the company's respective market value, Big caps are companies that have a large market value while small caps have a small market value.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-is-share-price-determined"></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 Is Share Price Determined? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Broadly speaking, prices in the stock market are driven by <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>. This makes the stock market similar to other economic markets. When a stock share is sold, a buyer and seller exchange money for share ownership. The price for which the stock is purchased becomes the new market price. When another share is sold, this price becomes the newest market price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> There are various techniques and formulas that can be used to predict the future price of a company's shares. Called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/ddm.asp">dividend discount models</a> (DDMs), they are based on the concept that a stock's current price equals the sum total of all its future dividend payments (when discounted back to their present value). By determining a company's share by the sum total of its expected future dividends, dividend discount models use the theory of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timevalueofmoney.asp#:~:text=The%20time%20value%20of%20money%20%28TVM%29%20is%20the%20concept%20that,be%20paid%20in%20the%20future.">time value of money</a> (TVM). </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"> A company's market capitalization is calculated by multiplying its share price by the number of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outstandingshares.asp">shares outstanding</a>: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <blockquote class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> <strong>Market Capitalization = share price x number of shares outstanding</strong> </blockquote> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> A company's market cap is first established in an initial public offering (IPO). In preparing for this process, a company pays a third party (typically an investment bank) to determine the value of a company, and recommend how many shares to offer to the public and at what price. For example, a company whose value is estimated at $100 million may want to issue 10 million shares at $10 per share. </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"> Once a company goes public and its shares start trading on a stock exchange, its share price is determined by <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> in the market. If there is a high demand for its shares, the price will increase. If the company's future growth potential looks dubious, sellers of the stock can drive down its price. </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"> For example, suppose that Microsoft (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSF">MSFT</a>) is trading for $71.41 on Sept. 8, 2022, and has 7.7 billion shares outstanding. Assume also that the company is valued at $71.41 x 7.7 billion = $550 billion. Meanwhile, Meta (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>), formerly Facebook, has a $162.06 stock price and 2.69 billion shares outstanding (market cap = $435.5 billion). As of this date, Meta is worth less than Microsoft. </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-misconceptions-about-market-capitalization"></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"> Misconceptions About Market Capitalization </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Although it is often used to describe a company (e.g., <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/large-cap.asp">large cap</a> vs. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/small-cap.asp">small cap</a>), market cap does not measure the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equity</a> value of a company. Only a thorough analysis of a company's <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundamentals.asp">fundamentals</a> can do that. </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"> Market capitalization is an inadequate way to value a company because its market price is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/06/stockpriceandearnings.asp">not necessarily a reflection</a> of how much a piece of the business is worth. Shares are often over- or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/undervalued.asp">undervalued</a> by the market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Market price shows only how much the market is willing to pay for its shares, not how much it is actually worth.  </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"> Even though market cap measures the cost of buying all of a company's shares, it does not determine the amount the company would cost to acquire in a merger transaction. </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"> While market cap is often used synonymously with a company's market value, market cap really refers only to the market value of a company's equity, not its market value overall, which would include the value of its debt or assets. </p></div>
A company's worth—or its total [market value](https://www.investopedia.com/terms/m/marketvalue.asp)—is called its [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp), or market cap. A company's market cap at any given time can be determined by multiplying its stock price by the number of shares outstanding. Therefore, any significant change in a stock price results in an equal percentage change in the company's market cap. This is one of the reasons why [investors](https://www.investopedia.com/terms/i/investor.asp) are so concerned with stock prices. A $0.10 drop in a stock price results in a $100,000 loss on paper for a shareholder with one million shares. ### Key Takeaways * A company's market capitalization—also called its market cap—is a straightforward measure of the company's market value. * Market cap is calculated by taking the current share price and multiplying it by the number of shares outstanding. * For example, a company with 50 million shares and a stock price of $100 per share would have a market cap of $5 billion. * Stocks are often classified according to the company's respective market value, Big caps are companies that have a large market value while small caps have a small market value. ## How Is Share Price Determined? Broadly speaking, prices in the stock market are driven by [supply and demand](https://www.investopedia.com/terms/l/law-of-supply-demand.asp). This makes the stock market similar to other economic markets. When a stock share is sold, a buyer and seller exchange money for share ownership. The price for which the stock is purchased becomes the new market price. When another share is sold, this price becomes the newest market price. There are various techniques and formulas that can be used to predict the future price of a company's shares. Called [dividend discount models](https://www.investopedia.com/terms/d/ddm.asp) (DDMs), they are based on the concept that a stock's current price equals the sum total of all its future dividend payments (when discounted back to their present value). By determining a company's share by the sum total of its expected future dividends, dividend discount models use the theory of the [time value of money](https://www.investopedia.com/terms/t/timevalueofmoney.asp#:~:text=The%20time%20value%20of%20money%20%28TVM%29%20is%20the%20concept%20that,be%20paid%20in%20the%20future.) (TVM). A company's market capitalization is calculated by multiplying its share price by the number of [shares outstanding](https://www.investopedia.com/terms/o/outstandingshares.asp): > **Market Capitalization = share price x number of shares outstanding** A company's market cap is first established in an initial public offering (IPO). In preparing for this process, a company pays a third party (typically an investment bank) to determine the value of a company, and recommend how many shares to offer to the public and at what price. For example, a company whose value is estimated at $100 million may want to issue 10 million shares at $10 per share. Once a company goes public and its shares start trading on a stock exchange, its share price is determined by [supply and demand](https://www.investopedia.com/terms/l/law-of-supply-demand.asp) in the market. If there is a high demand for its shares, the price will increase. If the company's future growth potential looks dubious, sellers of the stock can drive down its price. For example, suppose that Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSF)) is trading for $71.41 on Sept. 8, 2022, and has 7.7 billion shares outstanding. Assume also that the company is valued at $71.41 x 7.7 billion = $550 billion. Meanwhile, Meta ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)), formerly Facebook, has a $162.06 stock price and 2.69 billion shares outstanding (market cap = $435.5 billion). As of this date, Meta is worth less than Microsoft. ## Misconceptions About Market Capitalization Although it is often used to describe a company (e.g., [large cap](https://www.investopedia.com/terms/l/large-cap.asp) vs. [small cap](https://www.investopedia.com/terms/s/small-cap.asp)), market cap does not measure the [equity](https://www.investopedia.com/terms/e/equity.asp) value of a company. Only a thorough analysis of a company's [fundamentals](https://www.investopedia.com/terms/f/fundamentals.asp) can do that. Market capitalization is an inadequate way to value a company because its market price is [not necessarily a reflection](https://www.investopedia.com/ask/answers/06/stockpriceandearnings.asp) of how much a piece of the business is worth. Shares are often over- or [undervalued](https://www.investopedia.com/terms/u/undervalued.asp) by the market. Market price shows only how much the market is willing to pay for its shares, not how much it is actually worth.  Even though market cap measures the cost of buying all of a company's shares, it does not determine the amount the company would cost to acquire in a merger transaction. While market cap is often used synonymously with a company's market value, market cap really refers only to the market value of a company's equity, not its market value overall, which would include the value of its debt or assets.
A company's worth—or its total market value—is called its market capitalization, or market cap. A company's market cap at any given time can be determined by multiplying its stock price by the number of shares outstanding. Therefore, any significant change in a stock price results in an equal percentage change in the company's market cap. This is one of the reasons why investors are so concerned with stock prices. A $0.10 drop in a stock price results in a $100,000 loss on paper for a shareholder with one million shares. Key Takeaways A company's market capitalization—also called its market cap—is a straightforward measure of the company's market value.Market cap is calculated by taking the current share price and multiplying it by the number of shares outstanding.For example, a company with 50 million shares and a stock price of $100 per share would have a market cap of $5 billion.Stocks are often classified according to the company's respective market value, Big caps are companies that have a large market value while small caps have a small market value. How Is Share Price Determined? Broadly speaking, prices in the stock market are driven by supply and demand. This makes the stock market similar to other economic markets. When a stock share is sold, a buyer and seller exchange money for share ownership. The price for which the stock is purchased becomes the new market price. When another share is sold, this price becomes the newest market price. There are various techniques and formulas that can be used to predict the future price of a company's shares. Called dividend discount models (DDMs), they are based on the concept that a stock's current price equals the sum total of all its future dividend payments (when discounted back to their present value). By determining a company's share by the sum total of its expected future dividends, dividend discount models use the theory of the time value of money (TVM). A company's market capitalization is calculated by multiplying its share price by the number of shares outstanding: Market Capitalization = share price x number of shares outstanding A company's market cap is first established in an initial public offering (IPO). In preparing for this process, a company pays a third party (typically an investment bank) to determine the value of a company, and recommend how many shares to offer to the public and at what price. For example, a company whose value is estimated at $100 million may want to issue 10 million shares at $10 per share. Once a company goes public and its shares start trading on a stock exchange, its share price is determined by supply and demand in the market. If there is a high demand for its shares, the price will increase. If the company's future growth potential looks dubious, sellers of the stock can drive down its price. For example, suppose that Microsoft (MSFT) is trading for $71.41 on Sept. 8, 2022, and has 7.7 billion shares outstanding. Assume also that the company is valued at $71.41 x 7.7 billion = $550 billion. Meanwhile, Meta (META), formerly Facebook, has a $162.06 stock price and 2.69 billion shares outstanding (market cap = $435.5 billion). As of this date, Meta is worth less than Microsoft. Misconceptions About Market Capitalization Although it is often used to describe a company (e.g., large cap vs. small cap), market cap does not measure the equity value of a company. Only a thorough analysis of a company's fundamentals can do that. Market capitalization is an inadequate way to value a company because its market price is not necessarily a reflection of how much a piece of the business is worth. Shares are often over- or undervalued by the market. Market price shows only how much the market is willing to pay for its shares, not how much it is actually worth.  Even though market cap measures the cost of buying all of a company's shares, it does not determine the amount the company would cost to acquire in a merger transaction. While market cap is often used synonymously with a company's market value, market cap really refers only to the market value of a company's equity, not its market value overall, which would include the value of its debt or assets.
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https://www.investopedia.com/new-federal-rule-restricts-colleges-withholding-transcripts-for-unpaid-debt-8379693
New Federal Rule Restricts Colleges Withholding Transcripts For Unpaid Debt
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A new rule bans colleges from withholding transcripts from students over unpaid debts if the courses were at least in part paid for by federal student loans or other federal aid.<br/></li><li>An estimated 6.6 million people had college credits withheld by schools, hurting their ability to get jobs or continue their educations.<br/></li><li>The new rule includes other consumer protections, including for students whose colleges close abruptly.<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"> If you haven’t been able to get a transcript from your college because of unpaid debts, that might soon change.<br/><br/>Colleges will no longer be allowed to withhold transcripts from students over unpaid bills under finalized rules announced by the Department of Education Tuesday. The rule, announced alongside several other consumer protections for student loan borrowers, would prohibit transcript withholding as long as the student paid for some of their courses with federal student loans or other federal financial aid.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span><br/><br/>Many colleges and universities won’t release transcripts to students who owe money to the institutions for debts including student loans, potentially locking them out of jobs or further higher education, since graduate schools and employers often require proof of candidates’ education.  </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"> Roughly 6.6 million people had at least some of their college credits withheld by educational institutions, according to a 2021 analysis by researchers at Ithaka S+R, a nonprofit think tank.<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_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The Department of Education’s new restrictions are the latest move by the administration of President Joe Biden to free up students’ transcripts. Last year, the Consumer Financial Protection Bureau, the government’s consumer protection watchdog agency, warned colleges it was illegal under existing laws to withhold transcripts over unpaid debts in the view of the CFPB.<span class="ql-inline-citation" data-cite="4"></span> Several states already banned the practice.  </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 rule may have some unintended consequences. During the rulemaking process, representatives of colleges argued that they would have to use outside debt collection agencies if they couldn’t withhold transcripts anymore, potentially disrupting borrowers’ lives more than before.<span class="ql-inline-citation" data-cite="5"></span><br/><br/>In addition to banning transcript withholding, the new rules give the Education Department more power to intervene when schools show signs of financial distress.  </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 rule is intended to prevent students from being stranded when their schools close abruptly, which can be disruptive to students’ education and costly for taxpayers. Last year, the Department of Education forgave $5.8 billion in student loans for students at Corinthian, a network of for-profit colleges that closed in 2015.<span class="ql-inline-citation" data-cite="6"></span><br/><br/>Other parts of the rule require colleges to give students clearer communication about financial aid, spelling out what has to be paid back and what doesn’t. Colleges must also provide adequate career counseling services under the new rules, among other consumer protections.<br/><br/>“Today’s regulations prioritize students and taxpayers and continue our work to fix a broken student loan system,” said Under Secretary of Education James Kvaal in a statement. “They will help prevent fly-by-night colleges from leaving students and taxpayers holding the bag for shoddy educations. They will give students some common-sense protections like clear information on the true cost of college and access to their transcripts when their courses were federally funded.”<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 * A new rule bans colleges from withholding transcripts from students over unpaid debts if the courses were at least in part paid for by federal student loans or other federal aid. * An estimated 6.6 million people had college credits withheld by schools, hurting their ability to get jobs or continue their educations. * The new rule includes other consumer protections, including for students whose colleges close abruptly. If you haven’t been able to get a transcript from your college because of unpaid debts, that might soon change. Colleges will no longer be allowed to withhold transcripts from students over unpaid bills under finalized rules announced by the Department of Education Tuesday. The rule, announced alongside several other consumer protections for student loan borrowers, would prohibit transcript withholding as long as the student paid for some of their courses with federal student loans or other federal financial aid. Many colleges and universities won’t release transcripts to students who owe money to the institutions for debts including student loans, potentially locking them out of jobs or further higher education, since graduate schools and employers often require proof of candidates’ education.  Roughly 6.6 million people had at least some of their college credits withheld by educational institutions, according to a 2021 analysis by researchers at Ithaka S+R, a nonprofit think tank. The Department of Education’s new restrictions are the latest move by the administration of President Joe Biden to free up students’ transcripts. Last year, the Consumer Financial Protection Bureau, the government’s consumer protection watchdog agency, warned colleges it was illegal under existing laws to withhold transcripts over unpaid debts in the view of the CFPB. Several states already banned the practice.  The rule may have some unintended consequences. During the rulemaking process, representatives of colleges argued that they would have to use outside debt collection agencies if they couldn’t withhold transcripts anymore, potentially disrupting borrowers’ lives more than before. In addition to banning transcript withholding, the new rules give the Education Department more power to intervene when schools show signs of financial distress.  The rule is intended to prevent students from being stranded when their schools close abruptly, which can be disruptive to students’ education and costly for taxpayers. Last year, the Department of Education forgave $5.8 billion in student loans for students at Corinthian, a network of for-profit colleges that closed in 2015. Other parts of the rule require colleges to give students clearer communication about financial aid, spelling out what has to be paid back and what doesn’t. Colleges must also provide adequate career counseling services under the new rules, among other consumer protections. “Today’s regulations prioritize students and taxpayers and continue our work to fix a broken student loan system,” said Under Secretary of Education James Kvaal in a statement. “They will help prevent fly-by-night colleges from leaving students and taxpayers holding the bag for shoddy educations. They will give students some common-sense protections like clear information on the true cost of college and access to their transcripts when their courses were federally funded.” Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
Key Takeaways A new rule bans colleges from withholding transcripts from students over unpaid debts if the courses were at least in part paid for by federal student loans or other federal aid.An estimated 6.6 million people had college credits withheld by schools, hurting their ability to get jobs or continue their educations.The new rule includes other consumer protections, including for students whose colleges close abruptly. If you haven’t been able to get a transcript from your college because of unpaid debts, that might soon change.Colleges will no longer be allowed to withhold transcripts from students over unpaid bills under finalized rules announced by the Department of Education Tuesday. The rule, announced alongside several other consumer protections for student loan borrowers, would prohibit transcript withholding as long as the student paid for some of their courses with federal student loans or other federal financial aid.Many colleges and universities won’t release transcripts to students who owe money to the institutions for debts including student loans, potentially locking them out of jobs or further higher education, since graduate schools and employers often require proof of candidates’ education.  Roughly 6.6 million people had at least some of their college credits withheld by educational institutions, according to a 2021 analysis by researchers at Ithaka S+R, a nonprofit think tank. The Department of Education’s new restrictions are the latest move by the administration of President Joe Biden to free up students’ transcripts. Last year, the Consumer Financial Protection Bureau, the government’s consumer protection watchdog agency, warned colleges it was illegal under existing laws to withhold transcripts over unpaid debts in the view of the CFPB. Several states already banned the practice.  The rule may have some unintended consequences. During the rulemaking process, representatives of colleges argued that they would have to use outside debt collection agencies if they couldn’t withhold transcripts anymore, potentially disrupting borrowers’ lives more than before.In addition to banning transcript withholding, the new rules give the Education Department more power to intervene when schools show signs of financial distress.  The rule is intended to prevent students from being stranded when their schools close abruptly, which can be disruptive to students’ education and costly for taxpayers. Last year, the Department of Education forgave $5.8 billion in student loans for students at Corinthian, a network of for-profit colleges that closed in 2015.Other parts of the rule require colleges to give students clearer communication about financial aid, spelling out what has to be paid back and what doesn’t. Colleges must also provide adequate career counseling services under the new rules, among other consumer protections.“Today’s regulations prioritize students and taxpayers and continue our work to fix a broken student loan system,” said Under Secretary of Education James Kvaal in a statement. “They will help prevent fly-by-night colleges from leaving students and taxpayers holding the bag for shoddy educations. They will give students some common-sense protections like clear information on the true cost of college and access to their transcripts when their courses were federally funded.” Do you have a news tip for Investopedia reporters? Please email us at [email protected]
https://www.investopedia.com/terms/g/guaranteed-loan.asp
Guaranteed Loan: 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-a-guaranteed-loan"></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 Guaranteed Loan? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A guaranteed loan is a loan that a third party guarantees—or assumes the debt obligation for—in the event that the borrower <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">defaults</a>. Sometimes, a guaranteed loan is guaranteed by a government agency, which will purchase the debt from the lending financial institution and take on responsibility for the loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A guaranteed loan is a type of loan in which a third party agrees to pay if the borrower should default.</li><li>A guaranteed loan is used by borrowers with poor credit or little in the way of financial resources; it enables financially unattractive candidates to qualify for a loan and assures that the lender won't lose money.</li><li>Guaranteed mortgages, federal student loans, and payday loans are all examples of guaranteed loans.</li><li>Guaranteed mortgages are usually backed by the Federal Housing Administration or the Department of Veteran Affairs; federal student loans are backed by the U.S. Department of Education; payday loans are guaranteed by the borrower's paycheck.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-guaranteed-loan-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 Guaranteed Loan Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A guaranteed loan agreement may be made when a borrower is an unattractive candidate for a regular bank loan. It is a way for people who need financial assistance to secure funds when they otherwise may not qualify to acquire them. And the guarantee means that the lending institution does not incur excessive risk in issuing these loans. </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-types-of-guaranteed-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> Types of Guaranteed Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> There are a variety of guaranteed loans. Some are safe and reliable ways to raise money, but others involve risks that can include unusually high interest rates. Borrowers should carefully scrutinize the terms of any guaranteed loan they are considering. </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"> <span class="mntl-sc-block-subheading__text"> Guaranteed Mortgages </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> One example of a guaranteed loan is a guaranteed mortgage. The third party guaranteeing these home loans in most instances is the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA).<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Homebuyers who are considered risky borrowers—they don't qualify for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/conventionalmortgage.asp">conventional mortgage</a>, for example, or they don't have an adequate down payment and have to borrow close to 100% of the home's value—may get a guaranteed mortgage. FHA loans require that borrowers pay mortgage insurance to protect the lender in case the borrower defaults on their home loan.<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> <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"> Federal Student Loans </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Another type of guaranteed loan is a federal student loan, which is guaranteed by an agency of the federal government. Federal student loans are the easiest student loans to qualify for—there is no credit check, for example—and they have the best terms and lowest interest rates because the U.S. Department of Education guarantees them with taxpayer dollars.<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 order to apply for a federal student loan, you must complete and submit the Free Application for Federal Student Aid, or FAFSA, each year that you want to remain eligible for federal student aid. Repayment on these loans begins after the student leaves college or drops below half-time enrollment. Many loans also have a grace period.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-payday-loans"></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"> Payday Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The third type of guaranteed loan is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payday-loans.asp">payday loan</a>. When someone takes out a payday loan, their paycheck plays the role of the third party that guarantees the loan. A lending organization gives the borrower a loan, and the borrower writes the lender a post-dated check that the lender then cashes on that date—typically two weeks later. Sometimes lenders will require electronic access to a borrower's account to pull out funds, but it's best not to sign onto a guaranteed loan under those circumstances, especially if the lender isn't a traditional bank.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_25-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_26-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Payday guaranteed loans often ensnare borrowers in a cycle of debt with interest rates as high as 400% or more.<span class="ql-inline-citation" data-cite="6"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The problem with payday loans is that they tend to create a cycle of debt, which can cause additional problems for people who are already in tough financial straits. This can happen when a borrower doesn't have the funds to repay their loan at the end of the typical two-week term. In such a scenario, the loan rolls into another loan with a whole new round of fees. Interest rates can be as high as 400% or more—and lenders typically charge the highest rates allowed under local laws. Some unscrupulous lenders may even attempt to cash a borrower's check before the post date, which creates the risk of overdraft.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/111714/8-alternatives-credit-card-cash-advance.asp">Alternatives to payday guaranteed loans</a> include <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp">unsecured personal loans</a>, which are available through local banks or online, credit card cash advances (you can save considerable money over payday loans <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/111414/how-does-interest-work-cash-advance-my-credit-card.asp">even with rates on advances as high as 30%</a>), or borrowing from a family member.<span class="ql-inline-citation" data-cite="7"></span> </p></div>
## What Is a Guaranteed Loan? A guaranteed loan is a loan that a third party guarantees—or assumes the debt obligation for—in the event that the borrower [defaults](https://www.investopedia.com/terms/d/default2.asp). Sometimes, a guaranteed loan is guaranteed by a government agency, which will purchase the debt from the lending financial institution and take on responsibility for the loan. ### Key Takeaways * A guaranteed loan is a type of loan in which a third party agrees to pay if the borrower should default. * A guaranteed loan is used by borrowers with poor credit or little in the way of financial resources; it enables financially unattractive candidates to qualify for a loan and assures that the lender won't lose money. * Guaranteed mortgages, federal student loans, and payday loans are all examples of guaranteed loans. * Guaranteed mortgages are usually backed by the Federal Housing Administration or the Department of Veteran Affairs; federal student loans are backed by the U.S. Department of Education; payday loans are guaranteed by the borrower's paycheck. ## How a Guaranteed Loan Works A guaranteed loan agreement may be made when a borrower is an unattractive candidate for a regular bank loan. It is a way for people who need financial assistance to secure funds when they otherwise may not qualify to acquire them. And the guarantee means that the lending institution does not incur excessive risk in issuing these loans. ## Types of Guaranteed Loans There are a variety of guaranteed loans. Some are safe and reliable ways to raise money, but others involve risks that can include unusually high interest rates. Borrowers should carefully scrutinize the terms of any guaranteed loan they are considering. ### Guaranteed Mortgages One example of a guaranteed loan is a guaranteed mortgage. The third party guaranteeing these home loans in most instances is the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA). Homebuyers who are considered risky borrowers—they don't qualify for a [conventional mortgage](https://www.investopedia.com/terms/c/conventionalmortgage.asp), for example, or they don't have an adequate down payment and have to borrow close to 100% of the home's value—may get a guaranteed mortgage. FHA loans require that borrowers pay mortgage insurance to protect the lender in case the borrower defaults on their home loan. ### Federal Student Loans Another type of guaranteed loan is a federal student loan, which is guaranteed by an agency of the federal government. Federal student loans are the easiest student loans to qualify for—there is no credit check, for example—and they have the best terms and lowest interest rates because the U.S. Department of Education guarantees them with taxpayer dollars. In order to apply for a federal student loan, you must complete and submit the Free Application for Federal Student Aid, or FAFSA, each year that you want to remain eligible for federal student aid. Repayment on these loans begins after the student leaves college or drops below half-time enrollment. Many loans also have a grace period. ## Payday Loans The third type of guaranteed loan is a [payday loan](https://www.investopedia.com/terms/p/payday-loans.asp). When someone takes out a payday loan, their paycheck plays the role of the third party that guarantees the loan. A lending organization gives the borrower a loan, and the borrower writes the lender a post-dated check that the lender then cashes on that date—typically two weeks later. Sometimes lenders will require electronic access to a borrower's account to pull out funds, but it's best not to sign onto a guaranteed loan under those circumstances, especially if the lender isn't a traditional bank. ### Payday guaranteed loans often ensnare borrowers in a cycle of debt with interest rates as high as 400% or more. The problem with payday loans is that they tend to create a cycle of debt, which can cause additional problems for people who are already in tough financial straits. This can happen when a borrower doesn't have the funds to repay their loan at the end of the typical two-week term. In such a scenario, the loan rolls into another loan with a whole new round of fees. Interest rates can be as high as 400% or more—and lenders typically charge the highest rates allowed under local laws. Some unscrupulous lenders may even attempt to cash a borrower's check before the post date, which creates the risk of overdraft. [Alternatives to payday guaranteed loans](https://www.investopedia.com/articles/personal-finance/111714/8-alternatives-credit-card-cash-advance.asp) include [unsecured personal loans](https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp), which are available through local banks or online, credit card cash advances (you can save considerable money over payday loans [even with rates on advances as high as 30%](https://www.investopedia.com/ask/answers/111414/how-does-interest-work-cash-advance-my-credit-card.asp)), or borrowing from a family member.
What Is a Guaranteed Loan? A guaranteed loan is a loan that a third party guarantees—or assumes the debt obligation for—in the event that the borrower defaults. Sometimes, a guaranteed loan is guaranteed by a government agency, which will purchase the debt from the lending financial institution and take on responsibility for the loan. Key Takeaways A guaranteed loan is a type of loan in which a third party agrees to pay if the borrower should default.A guaranteed loan is used by borrowers with poor credit or little in the way of financial resources; it enables financially unattractive candidates to qualify for a loan and assures that the lender won't lose money.Guaranteed mortgages, federal student loans, and payday loans are all examples of guaranteed loans.Guaranteed mortgages are usually backed by the Federal Housing Administration or the Department of Veteran Affairs; federal student loans are backed by the U.S. Department of Education; payday loans are guaranteed by the borrower's paycheck. How a Guaranteed Loan Works A guaranteed loan agreement may be made when a borrower is an unattractive candidate for a regular bank loan. It is a way for people who need financial assistance to secure funds when they otherwise may not qualify to acquire them. And the guarantee means that the lending institution does not incur excessive risk in issuing these loans. Types of Guaranteed Loans There are a variety of guaranteed loans. Some are safe and reliable ways to raise money, but others involve risks that can include unusually high interest rates. Borrowers should carefully scrutinize the terms of any guaranteed loan they are considering. Guaranteed Mortgages One example of a guaranteed loan is a guaranteed mortgage. The third party guaranteeing these home loans in most instances is the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA). Homebuyers who are considered risky borrowers—they don't qualify for a conventional mortgage, for example, or they don't have an adequate down payment and have to borrow close to 100% of the home's value—may get a guaranteed mortgage. FHA loans require that borrowers pay mortgage insurance to protect the lender in case the borrower defaults on their home loan. Federal Student Loans Another type of guaranteed loan is a federal student loan, which is guaranteed by an agency of the federal government. Federal student loans are the easiest student loans to qualify for—there is no credit check, for example—and they have the best terms and lowest interest rates because the U.S. Department of Education guarantees them with taxpayer dollars. In order to apply for a federal student loan, you must complete and submit the Free Application for Federal Student Aid, or FAFSA, each year that you want to remain eligible for federal student aid. Repayment on these loans begins after the student leaves college or drops below half-time enrollment. Many loans also have a grace period. Payday Loans The third type of guaranteed loan is a payday loan. When someone takes out a payday loan, their paycheck plays the role of the third party that guarantees the loan. A lending organization gives the borrower a loan, and the borrower writes the lender a post-dated check that the lender then cashes on that date—typically two weeks later. Sometimes lenders will require electronic access to a borrower's account to pull out funds, but it's best not to sign onto a guaranteed loan under those circumstances, especially if the lender isn't a traditional bank. Payday guaranteed loans often ensnare borrowers in a cycle of debt with interest rates as high as 400% or more. The problem with payday loans is that they tend to create a cycle of debt, which can cause additional problems for people who are already in tough financial straits. This can happen when a borrower doesn't have the funds to repay their loan at the end of the typical two-week term. In such a scenario, the loan rolls into another loan with a whole new round of fees. Interest rates can be as high as 400% or more—and lenders typically charge the highest rates allowed under local laws. Some unscrupulous lenders may even attempt to cash a borrower's check before the post date, which creates the risk of overdraft. Alternatives to payday guaranteed loans include unsecured personal loans, which are available through local banks or online, credit card cash advances (you can save considerable money over payday loans even with rates on advances as high as 30%), or borrowing from a family member.
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https://www.investopedia.com/financial-edge/0212/how-the-internet-has-changed-investing.aspx
How the Internet Has Changed 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"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The Internet has been one of the most revolutionary and disruptive technologies in history, creating a major <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/paradigm-shift.asp">paradigm shift</a>. It has had a profound impact on the way that consumers listen to music, watch movies, buy and sell products, and communicate. It has also had a hugely beneficial impact on investing, especially for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retailinvestor.asp">retail investors</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>While we take the internet for granted today, trading in U.S. markets dates back over a century.</li><li>When the internet arrived, it revolutionized trading by introducing electronic markets and automatic order execution.</li><li>This resulted in lower fees, more efficient markets, and greater information and transparency for investors.</li></ul></div></div></div> <span class="heading-toc" id="toc-evolution-of-communication"></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"> Evolution of Communication </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The wide availability of information is perhaps the biggest benefit that the Internet has had on investing. Prior to the Internet, the retail investor's best bet was to head to the local library to read financial literature, and research companies and securities such as stocks, bonds, and mutual funds. </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 other option was to contact a company directly for the latest financial report, which could prove costly in terms of postage for large financial reports and could take some time, as the investor would have to wait until the report was printed and sent by the firm's investor relation department. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> With the Internet, an investor can find an online company report from 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> website immediately after it is posted. Large financial documents can be downloaded within seconds and can be searched for keywords, topics, or specific financial statements. Companies also maintain online investor relations pages, where these same filings can be found, as can annual reports and other presentations made to investors at industry conferences. </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"> Hundreds of websites also maintain and compile financial information for investors to analyze and understand. Previously, financial intermediaries, such as brokers and investment managers, had an advantage over individual investors. This included more resources to obtain large financial reports or pay for expensive services to perform security analysis. These days, many free websites provide financial information while others charge nominal annual fees for more specialized data. </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-lower-fees"></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"> Lower Fees </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The other primary benefit that the Internet has had on investing is the effect it has on lowering fees for investors. In particular, retail investors have seen a dramatic decline in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commission.asp">commission</a> rates they pay to trade securities. These days, it is very common to find an online broker offering around $10 to make a common stock trade. Prior to the wide availability of discount brokers, full-service brokers were able to exert their control over the market and charge what now seem like exorbitant commission rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> A "Money Magazine" article from 1992, right as the Internet was just beginning to enter the consumer market, detailed that a full-service broker could charge a 2.5% commission for a stock trade. The example it provided was a $250 commission to trade 100 shares of a stock trading at $100 per share. </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"> Trading itself has benefited from electronic networks that can send trade information through Internet piping. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/high-frequency-trading.asp">High-frequency traders</a> (HFT) are often the subject of much controversy and accused of contributing to above-average stock market volatility. However, these traders have also been credited with reducing bid-ask spreads, which is simply the different cost that exists when buying (the bid price) and selling (the ask price) a security. </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 days, the spread is down to pennies but used to be much wider and allowed brokerage firms another opportunity to take money from investor pockets and place it in their own. </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-other-key-benefits"></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"> Other Key Benefits </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> An academic study from the Wharton Business School back in 2000 summed up the key benefits that the Internet has had on investing in three principal factors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The first was <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transparency.asp">transparency</a>, or the ability for a much wider base of investors to analyze information and come to their own conclusions on how to properly price securities.<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_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> It also defined differential pricing, which speaks to the demise of full-service brokers that charged high prices until the Internet significantly lowered the costs that the industry could charge to make financial transactions.<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_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Finally, it spoke of disintermediation, which again referred to the ability for investors to bypass old school, full-service brokers and advisors for both information and the trading of securities.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-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"> Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Overall, the Internet has placed considerable power in the hands of individuals, and this has had a profound effect on how the investor obtains financial information. Equally importantly, it has lowered costs significantly for most financial market participants. </p></div>
The Internet has been one of the most revolutionary and disruptive technologies in history, creating a major [paradigm shift](https://www.investopedia.com/terms/p/paradigm-shift.asp). It has had a profound impact on the way that consumers listen to music, watch movies, buy and sell products, and communicate. It has also had a hugely beneficial impact on investing, especially for [retail investors](https://www.investopedia.com/terms/r/retailinvestor.asp). ### Key Takeaways * While we take the internet for granted today, trading in U.S. markets dates back over a century. * When the internet arrived, it revolutionized trading by introducing electronic markets and automatic order execution. * This resulted in lower fees, more efficient markets, and greater information and transparency for investors. ## Evolution of Communication The wide availability of information is perhaps the biggest benefit that the Internet has had on investing. Prior to the Internet, the retail investor's best bet was to head to the local library to read financial literature, and research companies and securities such as stocks, bonds, and mutual funds. The other option was to contact a company directly for the latest financial report, which could prove costly in terms of postage for large financial reports and could take some time, as the investor would have to wait until the report was printed and sent by the firm's investor relation department. With the Internet, an investor can find an online company report from the [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp) website immediately after it is posted. Large financial documents can be downloaded within seconds and can be searched for keywords, topics, or specific financial statements. Companies also maintain online investor relations pages, where these same filings can be found, as can annual reports and other presentations made to investors at industry conferences. Hundreds of websites also maintain and compile financial information for investors to analyze and understand. Previously, financial intermediaries, such as brokers and investment managers, had an advantage over individual investors. This included more resources to obtain large financial reports or pay for expensive services to perform security analysis. These days, many free websites provide financial information while others charge nominal annual fees for more specialized data. ## Lower Fees The other primary benefit that the Internet has had on investing is the effect it has on lowering fees for investors. In particular, retail investors have seen a dramatic decline in the [commission](https://www.investopedia.com/terms/c/commission.asp) rates they pay to trade securities. These days, it is very common to find an online broker offering around $10 to make a common stock trade. Prior to the wide availability of discount brokers, full-service brokers were able to exert their control over the market and charge what now seem like exorbitant commission rates. A "Money Magazine" article from 1992, right as the Internet was just beginning to enter the consumer market, detailed that a full-service broker could charge a 2.5% commission for a stock trade. The example it provided was a $250 commission to trade 100 shares of a stock trading at $100 per share. Trading itself has benefited from electronic networks that can send trade information through Internet piping. [High-frequency traders](https://www.investopedia.com/terms/h/high-frequency-trading.asp) (HFT) are often the subject of much controversy and accused of contributing to above-average stock market volatility. However, these traders have also been credited with reducing bid-ask spreads, which is simply the different cost that exists when buying (the bid price) and selling (the ask price) a security. These days, the spread is down to pennies but used to be much wider and allowed brokerage firms another opportunity to take money from investor pockets and place it in their own. ## Other Key Benefits An academic study from the Wharton Business School back in 2000 summed up the key benefits that the Internet has had on investing in three principal factors. The first was [transparency](https://www.investopedia.com/terms/t/transparency.asp), or the ability for a much wider base of investors to analyze information and come to their own conclusions on how to properly price securities. It also defined differential pricing, which speaks to the demise of full-service brokers that charged high prices until the Internet significantly lowered the costs that the industry could charge to make financial transactions. Finally, it spoke of disintermediation, which again referred to the ability for investors to bypass old school, full-service brokers and advisors for both information and the trading of securities. ## Bottom Line Overall, the Internet has placed considerable power in the hands of individuals, and this has had a profound effect on how the investor obtains financial information. Equally importantly, it has lowered costs significantly for most financial market participants.
The Internet has been one of the most revolutionary and disruptive technologies in history, creating a major paradigm shift. It has had a profound impact on the way that consumers listen to music, watch movies, buy and sell products, and communicate. It has also had a hugely beneficial impact on investing, especially for retail investors. Key Takeaways While we take the internet for granted today, trading in U.S. markets dates back over a century.When the internet arrived, it revolutionized trading by introducing electronic markets and automatic order execution.This resulted in lower fees, more efficient markets, and greater information and transparency for investors. Evolution of Communication The wide availability of information is perhaps the biggest benefit that the Internet has had on investing. Prior to the Internet, the retail investor's best bet was to head to the local library to read financial literature, and research companies and securities such as stocks, bonds, and mutual funds. The other option was to contact a company directly for the latest financial report, which could prove costly in terms of postage for large financial reports and could take some time, as the investor would have to wait until the report was printed and sent by the firm's investor relation department. With the Internet, an investor can find an online company report from the Securities and Exchange Commission (SEC) website immediately after it is posted. Large financial documents can be downloaded within seconds and can be searched for keywords, topics, or specific financial statements. Companies also maintain online investor relations pages, where these same filings can be found, as can annual reports and other presentations made to investors at industry conferences. Hundreds of websites also maintain and compile financial information for investors to analyze and understand. Previously, financial intermediaries, such as brokers and investment managers, had an advantage over individual investors. This included more resources to obtain large financial reports or pay for expensive services to perform security analysis. These days, many free websites provide financial information while others charge nominal annual fees for more specialized data. Lower Fees The other primary benefit that the Internet has had on investing is the effect it has on lowering fees for investors. In particular, retail investors have seen a dramatic decline in the commission rates they pay to trade securities. These days, it is very common to find an online broker offering around $10 to make a common stock trade. Prior to the wide availability of discount brokers, full-service brokers were able to exert their control over the market and charge what now seem like exorbitant commission rates. A "Money Magazine" article from 1992, right as the Internet was just beginning to enter the consumer market, detailed that a full-service broker could charge a 2.5% commission for a stock trade. The example it provided was a $250 commission to trade 100 shares of a stock trading at $100 per share. Trading itself has benefited from electronic networks that can send trade information through Internet piping. High-frequency traders (HFT) are often the subject of much controversy and accused of contributing to above-average stock market volatility. However, these traders have also been credited with reducing bid-ask spreads, which is simply the different cost that exists when buying (the bid price) and selling (the ask price) a security. These days, the spread is down to pennies but used to be much wider and allowed brokerage firms another opportunity to take money from investor pockets and place it in their own. Other Key Benefits An academic study from the Wharton Business School back in 2000 summed up the key benefits that the Internet has had on investing in three principal factors. The first was transparency, or the ability for a much wider base of investors to analyze information and come to their own conclusions on how to properly price securities. It also defined differential pricing, which speaks to the demise of full-service brokers that charged high prices until the Internet significantly lowered the costs that the industry could charge to make financial transactions. Finally, it spoke of disintermediation, which again referred to the ability for investors to bypass old school, full-service brokers and advisors for both information and the trading of securities. Bottom Line Overall, the Internet has placed considerable power in the hands of individuals, and this has had a profound effect on how the investor obtains financial information. Equally importantly, it has lowered costs significantly for most financial market participants.
[ [ "paradigm shift", "https://www.investopedia.com/terms/p/paradigm-shift.asp" ], [ "retail investors", "https://www.investopedia.com/terms/r/retailinvestor.asp" ], [ "Securities and Exchange Commission (SEC)", "https://www.investopedia.com/terms/s/sec.asp" ], [ "commission", "https://www.investopedia.com/terms/c/commission.asp" ], [ "High-frequency traders", "https://www.investopedia.com/terms/h/high-frequency-trading.asp" ], [ "transparency", "https://www.investopedia.com/terms/t/transparency.asp" ] ]
https://www.investopedia.com/american-express-bank-review-4847224
American Express Bank Review 2024
<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="comp product-review-content product-review-content--finance product-review--base" id="product-review-content--finance_1-0"> <div class="comp js-toc-appear article-container article-intro mntl-block" id="article-intro_1-0"> <div class="comp product-card" data-tracking-container="true" data-tracking-id="product-card" id="product-card_1-0" style="--imgWidth: 0px"> <div class="product-card__content"> <div class="product-card__intro expert-content"> <figure class="comp figure-article figure-2x1 product-card__image litho-figure-article mntl-universal-primary-image primary-image" id="product-card__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="American Express" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/PmHwunGzncLEWeUzTY_-Amr4Vjw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/American-Expresscopy-0e09bd9568ed4942a96a1c68dfe2c159.jpg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhIAACAPIAAABuzQFv0ABx0Q940////wBuzQBuzQBuzSwAAAAAIAACAEIIIwAJBBA4kIDBgwQRChwQoGFDgRAfFjQI4KBDAQgdEiw4MEBAADs=')" width="1500"/> <noscript> <img alt="American Express" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/PmHwunGzncLEWeUzTY_-Amr4Vjw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/American-Expresscopy-0e09bd9568ed4942a96a1c68dfe2c159.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_1-0"> <span class="figure-article-caption-owner"><p>American Express</p></span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-article figure-2x1 product-card__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp js-sticky-riser-show product-card__cta commerce-block mntl-block" id="product-card__cta_1-0"> <a class="commerce-button mntl-text-link" data-tracking-container="false" href="https://www.americanexpress.com/" id="commerce-button_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp js-sticky-riser-show product-card__cta commerce-block mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> American Express has been around since 1850 and is a household name in the credit card industry for its popular rewards credit cards. Besides credit cards, though, the online-only American Express Bank offers a couple of personal banking options, including a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp">high-yield savings account</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificates of deposit (CDs)</a>. This in-depth review will help you decide if American Express Bank is right for you. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block" data-click-action="Product Tab Click" data-tracking-container="true" data-tracking-id="Full Product Review"> <ul class="tabbed-sc-block__tabs"> <li class="tabbed-sc-block__tab js-tabbed-tab is-active is-initial-load" data-tab-index="1"><span class="tabbed-sc-block__title">Pros &amp; Cons</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="2"><span class="tabbed-sc-block__title">Company Overview</span></li> </ul> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content is-active is-initial-load" data-tab-index="1"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_1-0-2"> <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>Competitive rate on savings account</p></li> <li><p>No minimum deposit requirements</p></li> <li><p>No monthly fees</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Average CD rates</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Company Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="2"> <div class="comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block" id="mntl-sc-block_1-0-4"> <div class="comp product-spec-tool definition-list" id="product-spec-tool_1-0"> <ul class="definition-list__container"> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Year Founded</span> <span class="definition-list__item-content definition-list__item-content-0"> 1850 </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Official Website</span> <span class="definition-list__item-content definition-list__item-content-1"> www.americanexpress.com </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Banking Products Offered</span> <span class="definition-list__item-content definition-list__item-content-2"> Savings, CDs, credit cards </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Customer Support</span> <span class="definition-list__item-content definition-list__item-content-3"> 24/7 Phone: 1-800-446-6307 </span> </span> </li> </ul> </div><!-- end: comp product-spec-tool definition-list --> </div><!-- end: comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block --> </div> </div> </div> </div><!-- end: comp product-card --> </div><!-- end: comp js-toc-appear article-container article-intro mntl-block --> <div class="loc body-content article-container"> <div class="comp article-body article-content mntl-block" id="article-content_1-0"> <div class="comp left-nav js-sticky-container product-review__left-nav mntl-block" id="product-review__left-nav_1-0"> <div class="comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block" data-desktop-bp="54em" data-tracking-container="true" id="product-review__toc_1-0"> <div class="comp sticky-toc-widget__product-container mntl-block" id="sticky-toc-widget__product-container_1-0"> <figure class="comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image" id="sticky-toc-widget__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="American Express" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/PmHwunGzncLEWeUzTY_-Amr4Vjw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/American-Expresscopy-0e09bd9568ed4942a96a1c68dfe2c159.jpg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhIAACAPIAAABuzQFv0ABx0Q940////wBuzQBuzQBuzSwAAAAAIAACAEIIIwAJBBA4kIDBgwQRChwQoGFDgRAfFjQI4KBDAQgdEiw4MEBAADs=')" width="1500"/> <noscript> <img alt="American Express" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/PmHwunGzncLEWeUzTY_-Amr4Vjw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/American-Expresscopy-0e09bd9568ed4942a96a1c68dfe2c159.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_2-0"> <span class="figure-article-caption-owner"><p>American Express</p></span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp sticky-toc-widget__cta commerce-block mntl-block" id="sticky-toc-widget__cta_1-0"> <a class="commerce-button mntl-text-link" data-tracking-container="false" href="https://www.americanexpress.com/" id="commerce-button_2-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp sticky-toc-widget__cta commerce-block mntl-block --> </div><!-- end: comp sticky-toc-widget__product-container mntl-block --> <div class="comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="sticky-toc-widget__toc_3-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_3-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_3-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_5-0"> Table of Contents</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_3-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="View All" id="mntl-toc-toggle__btn_3-0"> View All</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-American Express Bank Review 2024" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_6-0"> American Express Bank Review 2024</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_3-0"> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Pros Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pros-explained" id="mntl-toc__list-item-link_3-0" rel="nocaes"><span class="link__wrapper">Pros Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Cons Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-cons-explained" id="mntl-toc__list-item-link_3-0-1" rel="nocaes"><span class="link__wrapper">Cons Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Best For" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-who-is-american-express-bank-best-for" id="mntl-toc__list-item-link_3-0-2" rel="nocaes"><span class="link__wrapper">Best For</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Bank Offerings" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-what-does-american-express-bank-offer" id="mntl-toc__list-item-link_3-0-3" rel="nocaes"><span class="link__wrapper">Bank Offerings</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Service" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-american-express-bank-customer-service" id="mntl-toc__list-item-link_3-0-4" rel="nocaes"><span class="link__wrapper">Customer Service</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-5"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How To Bank" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-bank-with-american-express-bank" id="mntl-toc__list-item-link_3-0-5" rel="nocaes"><span class="link__wrapper">How To Bank</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-6"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-6"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_3-0-6" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block --> </div><!-- end: comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block --> </div><!-- end: comp left-nav js-sticky-container product-review__left-nav mntl-block --> <div class="comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block" data-tracking-container="true" id="product-review__content_1-0"> <span class="heading-toc" id="toc-pros-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0"> <span class="mntl-sc-block-heading__text"> Pros Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-1"> <li><strong>Competitive rate on savings account</strong> – Although it’s not high enough <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">to compete with the best high-yield savings accounts</a>, American Express Personal Savings accounts still earn a 4.25% <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apy.asp">annual percentage yield (APY)</a>.<span class="ql-inline-citation" data-cite="4"></span> This is well above the current national average for savings accounts of 0.46%.<span class="ql-inline-citation" data-cite="1"></span></li> <li><strong>No minimum deposit requirements</strong> – Anyone can open an account with American Express Bank. Neither savings accounts nor CDs have minimum deposit requirements.</li> <li><strong>No monthly fees</strong> – There are no monthly maintenance fees charged on any American Express Bank accounts.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-cons-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-2"> <span class="mntl-sc-block-heading__text"> Cons Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-3"> <li><strong>Average CD rates</strong> – American Express Bank’s CD rates don’t compare with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates on the market</a>.<span class="ql-inline-citation" data-cite="5"></span> For more-competitive rates, you’ll have to look elsewhere.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-who-is-american-express-bank-best-for"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-4"> <span class="mntl-sc-block-heading__text"> Who Is American Express Bank Best For? </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-5"> American Express Bank should appeal to individuals looking for a simple high-yield savings account. It’s an especially good fit for consumers who are looking to: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-6"> <li>Earn competitive rates on a high-yield savings account</li><li>Supplement accounts at another bank</li><li>Bank without worrying about minimum balances and monthly fees</li><li>Access their accounts online 24/7</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-what-does-american-express-bank-offer"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-7"> <span class="mntl-sc-block-heading__text"> What Does American Express Bank Offer? </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-8"> <li>Savings account</li><li>CDs</li><li>Credit cards</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-9"> <span class="mntl-sc-block-subheading__text"> Personal Savings Account </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-10"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-express-savings-account-rates-7504985">Personal Savings</a> is a high-yield savings account that’s also the only savings account offered by American Express Bank. Customers currently earn a 4.25% APY, which is not bad but also not as good as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">rates offered by other online banks</a>.<span class="ql-inline-citation" data-cite="4"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-11"> A plus for Personal Savings accounts is the lack of minimum opening and ongoing balance requirements. There is also no monthly maintenance fee. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-12"> Funds in an American Express Personal Savings account are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor.<span class="ql-inline-citation" data-cite="4"></span> You can also link external bank accounts, allowing you to transfer money in and out of the account as needed. You can set up recurring transfers into your Personal Savings account <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-save-money-4589942">to build toward savings goals</a>, such as an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergency_fund.asp">emergency fund</a> or a vacation fund. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-13"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">American Express Bank Personal Savings Account</th> </tr> <tr> <th>Account Name</th> <th>Minimum Opening Deposit</th> <th>Monthly Fee</th> <th>APY</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Personal Savings </td> <td>$0</td> <td>$0</td> <td>4.25%</td> </tr> </tbody> </table> <figcaption>(As of May 10, 2024)</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-14"> <span class="mntl-sc-block-subheading__text"> CDs </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-15"> American Express Bank also offers CDs with terms ranging from 11 months to five years. One-year and two-year CDs offer 4.35% and 4.00% APYs respectively, but the best return is on the 11-month CD's 4.50% APY.<span class="ql-inline-citation" data-cite="5"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-16"> Interest earned on CDs through American Express Bank is credited on a monthly basis. Customers have options on what happens to that interest:<span class="ql-inline-citation" data-cite="6"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-17"> <li>Do nothing and interest compounds until the CD reaches maturity (default option)</li><li>Have it transferred automatically each month to your Amex savings account</li><li>Have it transferred automatically each month to another linked bank account</li><li>Have it mailed to you via monthly, quarterly, or annual checks</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-18"> CDs automatically renew at the maturity date if you don't do anything. Customers should receive correspondence from American Express Bank at least 10 days before the maturity date, so they can decide.<span class="ql-inline-citation" data-cite="7"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-19"> American Express Bank CDs are subject to an early withdrawal penalty if you take out funds, other than interest before the account reaches maturity. The early withdrawal penalties are as follows:<span class="ql-inline-citation" data-cite="8"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-20"> <li>CD terms of less than one year – 90 days’ interest on the withdrawn amount</li><li>CD terms of at least one year but under four years – 270 days’ interest on the withdrawn amount</li><li>CD terms of at least four years but under five years – 365 days’ interest on the withdrawn amount</li><li>CD terms of five years – 540 days’ interest on the withdrawn amount</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-21"> <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">American Express Bank CD Rates</th> </tr> <tr> <th>Term </th> <th>APY</th> </tr> </thead> <tbody data-check="0"> <tr> <td>11 months</td> <td>4.50%</td> </tr> <tr> <td>12 Months</td> <td>4.35%</td> </tr> <tr> <td>18 Months</td> <td>3.25%</td> </tr> <tr> <td>24 Months</td> <td>4.00%</td> </tr> <tr> <td>36 Months</td> <td>3.00%</td> </tr> <tr> <td>48 Months</td> <td>3.00%</td> </tr> <tr> <td>60 Months</td> <td>3.00%</td> </tr> </tbody> </table> <figcaption>(As of May 10, 2024)</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-22"> <span class="mntl-sc-block-subheading__text"> Credit Cards </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-23"> American Express offers a wide range of credit cards, although they aren’t directly tied to its banking operations. Credit cards include a variety of travel credit cards, cash-back cards, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/111414/understanding-credit-card-balance-transfers.asp">a balance transfer card</a>, and a host of business credit cards. Here are some of the cards it offers.<span class="ql-inline-citation" data-cite="9"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-24"> <span class="mntl-sc-block-subheading__text"> General Travel Rewards Cards </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-25"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-express-gold-card-review-4798632">American Express Gold Card</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-express-green-card-review-4800347">American Express Green Card</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-express-platinum-card-review-4795813">The Platinum Card</a></li> <li>Blue from American Express</li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/amex-everyday-preferred-credit-card-review-4798648">Amex EveryDay Preferred Credit Card</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/hilton-honors-american-express-aspire-card-review-4799649">Hilton Honors American Express Aspire Card</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/hilton-honors-american-express-card-review-4799650">Hilton Honors Card</a></li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/hilton-honors-american-express-surpass-credit-card-review-4796365">Hilton Honors American Express Surpass Card</a></li> <li><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/delta-skymiles-blue-amex-credit-card-review-4796432">Delta SkyMiles Blue American Express Card</a></li> <li><a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/delta-skymiles-gold-american-express-card-review-4802116">Delta SkyMiles Gold American Express Card</a></li> <li><a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/delta-skymiles-platinum-american-express-card-review-4802137">Delta SkyMiles Platinum American Express Card</a></li> <li><a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/delta-skymiles-reserve-american-express-card-review-4802150">Delta SkyMiles Reserve American Express Card</a></li> <li><a data-component="link" data-ordinal="12" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/marriott-bonvoy-brilliant-american-express-card-review-4796408">Marriott Bonvoy Brilliant American Express Card</a></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-26"> <span class="mntl-sc-block-subheading__text"> Cash-Back Credit Cards </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-27"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/blue-cash-everyday-credit-card-review-4798655" rel="noopener noreferrer">Blue Cash Everyday Card</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/amex-blue-cash-preferred-review-4768778" rel="noopener noreferrer">Blue Cash Preferred Card</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-express-cash-magnet-card-review-4798867" rel="noopener noreferrer">Cash Magnet Card</a></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-28"> <span class="mntl-sc-block-subheading__text"> Balance Transfer Credit Cards </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-29"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/amex-everyday-card-review-4795861" rel="noopener noreferrer">Amex EveryDay Credit Card</a></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-30"> <span class="mntl-sc-block-subheading__text"> Business Credit Cards </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-31"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-business-platinum-card-from-american-express-review-4801693" rel="noopener noreferrer">Business Platinum Card</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-express-business-gold-review-4801030" rel="noopener noreferrer">Business Gold Card</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-express-blue-business-cash-review-4800836" rel="noopener noreferrer">Blue Business Cash Card</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/blue-business-plus-credit-card-from-american-express-review-4801690" rel="noopener noreferrer">Blue Business Plus Credit Card</a></li> <li>Amazon Business Card</li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/amazon-business-prime-american-express-card-review-4801704" rel="noopener noreferrer">Amazon Business Prime Card</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/delta-skymiles-platinum-business-credit-card-review-4802170" rel="noopener noreferrer">Delta SkyMiles Platinum Business Card</a></li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/delta-skymiles-gold-business-american-express-card-review-4802169" rel="noopener noreferrer">Delta SkyMiles Gold Business Card</a></li> <li><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/hilton-honors-american-express-business-card-review-4801700" rel="noopener noreferrer">Hilton Honors Business Card</a></li> <li><a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/marriott-bonvoy-business-american-express-card-review-4802621" rel="noopener noreferrer">Marriott Bonvoy Business Card</a></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-american-express-bank-customer-service"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-32"> <span class="mntl-sc-block-heading__text"> American Express Bank Customer Service </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-33"> American Express’ website features a thorough FAQ section, but if you need more personal service, there are two options. Customers can receive support through its customer service phone line (1-800-446-6307), which is available 24/7, or you can write to: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-34"> American Express National Bank </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-35"> P.O. Box 30384 </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-36"> Salt Lake City, Utah 84130 </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-37"> As it’s an online bank, there is no in-person support available. American Express Bank doesn’t currently offer any chat support either.<span class="ql-inline-citation" data-cite="10"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-bank-with-american-express-bank"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-38"> <span class="mntl-sc-block-heading__text"> How to Bank With American Express Bank </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-39"> To open an account with American Express Bank, you can apply online at AmericanExpress.com. You must be at least 18 years old and a U.S. citizen or resident alien to be eligible for an account.<span class="ql-inline-citation" data-cite="11"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-40"> You’ll be asked to provide personal information, including your name, address, date of birth, and Social Security number. After agreeing to terms and conditions, you have the option to fund your account and set up online account access. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-finalverdict 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_2-0-41"> <span class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"> Verdict</span><!-- end: comp mntl-sc-block-callout-heading mntl-text-block --> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>American Express Bank is ideal for customers who are only looking for a decent high-yield savings account, not full-service or in-person banking. It offers average CD rates for the most part, but customers looking for CDs with longer terms can still earn interest at a competitive rate.</p> <p>American Express Bank lacks many popular features available with other online banks. It’s almost unforgivable for an online bank not to offer mobile access at this point. The only ways to make deposits are by electronic transfer, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/directdeposit.asp">direct deposit</a>, or mailing a check.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-finalverdict mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-42"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-43"> Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks—including products available, interest rates, fees, and accessibility—to ensure that our content helps users make the right decision for their savings and banking needs. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-link-closest-header="false" data-tracking-container="true" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_2-0-44"> <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"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="none" data-tracking-container="true" href="https://www.americanexpress.com/" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div><!-- end: comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block --> </div><!-- end: comp article-body article-content mntl-block --> </div> </div><!-- end: comp product-review-content product-review-content--finance product-review--base --> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-4"><p>American Express. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.americanexpress.com/en-us/banking/online-savings/high-yield-savings/?extlink=as=search=71700000087431593_58700007433014242__p66753313059_550208740970&amp;gclid=EAIaIQobChMIhIm1uqfk9AIVBJyzCh0rXgJDEAAYASAAEgJZE_D_BwE&amp;gclsrc=aw.ds" rel="nofollow sponsored">High Yield Savings Account</a>."</p></li> <li class="mntl-sources__source" id="citation-1"><p>Federal Deposit Insurance Corporation. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.fdic.gov/regulations/resources/rates/">National Rates and Rate Caps</a>."</p></li> <li class="mntl-sources__source" id="citation-5"><p>American Express. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.americanexpress.com/en-us/banking/online-savings/cd/?linknav=savings-nav-cd" rel="nofollow sponsored">CD Rates</a>."</p></li> <li class="mntl-sources__source" id="citation-6"><p>American Express. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.americanexpress.com/en-us/banking/online-savings/faq/compounding-interest-on-cd/" rel="nofollow sponsored">How does the interest on a CD compound, and can I choose to pay out the interest on a CD</a>?"</p></li> <li class="mntl-sources__source" id="citation-7"><p>American Express. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.americanexpress.com/en-us/banking/online-savings/faq/maturity-date/" rel="nofollow sponsored">What is a Maturity Date and what happens after that date</a>?"</p></li> <li class="mntl-sources__source" id="citation-8"><p>American Express. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.americanexpress.com/en-us/banking/online-savings/faq/early-withdrawal-from-cd/" rel="nofollow sponsored">What if I want to withdraw my funds from my CD before the Maturity Date</a>?"</p></li> <li class="mntl-sources__source" id="citation-9"><p>American Express. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.americanexpress.com/us/credit-cards/?inav=menu_cards_pc_viewallcards" rel="nofollow sponsored">Credit Cards</a>."</p></li> <li class="mntl-sources__source" id="citation-10"><p>American Express. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.americanexpress.com/en-us/banking/online-savings/contact-us/?intlink=savingshome-support-contact" rel="nofollow sponsored">Contact Us</a>."</p></li> <li class="mntl-sources__source" id="citation-11"><p>American Express. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.americanexpress.com/content/dam/amex/en-us/banking/personal-savings/deposit_account_agreement.pdf" rel="nofollow sponsored">Consumer Deposit Account Agreement</a>."</p></li> </ol> </div> </div></div> <div class="comp prm-recirc related-recirc-section--articles mntl-block" data-tracking-container="true" id="prm-recirc_1-0"><section class="comp related-articles" data-tracking-container="true" id="related-articles_1-0"> <span class="related-articles__header type--camel"> Related Articles </span> <div class="loc recirc-content"><div class="comp related-articles__card-list-1 card-list--related-articles mntl-document-card-list mntl-card-list mntl-block" data-chunk="36" id="related-articles__card-list-1_1-0"><a class="comp mntl-card-list-items mntl-document-card mntl-card related-articles__link card" data-cta="Read Now ▸" data-doc-id="8644041" data-ordinal="1" data-tax-levels="" 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![American Express](https://www.investopedia.com/thmb/PmHwunGzncLEWeUzTY_-Amr4Vjw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/American-Expresscopy-0e09bd9568ed4942a96a1c68dfe2c159.jpg) ![American Express](https://www.investopedia.com/thmb/PmHwunGzncLEWeUzTY_-Amr4Vjw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/American-Expresscopy-0e09bd9568ed4942a96a1c68dfe2c159.jpg) American Express [Open Account](https://www.americanexpress.com/) American Express has been around since 1850 and is a household name in the credit card industry for its popular rewards credit cards. Besides credit cards, though, the online-only American Express Bank offers a couple of personal banking options, including a [high-yield savings account](https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp) and [certificates of deposit (CDs)](https://www.investopedia.com/terms/c/certificateofdeposit.asp). This in-depth review will help you decide if American Express Bank is right for you. * Pros & Cons * Company Overview Pros & Cons Pros * Competitive rate on savings account * No minimum deposit requirements * No monthly fees Cons * Average CD rates Company Overview * Year Founded 1850 * Official Website www.americanexpress.com * Banking Products Offered Savings, CDs, credit cards * Customer Support 24/7 Phone: 1-800-446-6307 ![American Express](https://www.investopedia.com/thmb/PmHwunGzncLEWeUzTY_-Amr4Vjw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/American-Expresscopy-0e09bd9568ed4942a96a1c68dfe2c159.jpg) ![American Express](https://www.investopedia.com/thmb/PmHwunGzncLEWeUzTY_-Amr4Vjw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/American-Expresscopy-0e09bd9568ed4942a96a1c68dfe2c159.jpg) American Express [Open Account](https://www.americanexpress.com/) Table of Contents View All American Express Bank Review 2024 * [Pros Explained](#toc-pros-explained) * [Cons Explained](#toc-cons-explained) * [Best For](#toc-who-is-american-express-bank-best-for) * [Bank Offerings](#toc-what-does-american-express-bank-offer) * [Customer Service](#toc-american-express-bank-customer-service) * [How To Bank](#toc-how-to-bank-with-american-express-bank) * [Methodology](#toc-methodology) ## Pros Explained * **Competitive rate on savings account** – Although it’s not high enough [to compete with the best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633), American Express Personal Savings accounts still earn a 4.25% [annual percentage yield (APY)](https://www.investopedia.com/terms/a/apy.asp). This is well above the current national average for savings accounts of 0.46%. * **No minimum deposit requirements** – Anyone can open an account with American Express Bank. Neither savings accounts nor CDs have minimum deposit requirements. * **No monthly fees** – There are no monthly maintenance fees charged on any American Express Bank accounts. ## Cons Explained * **Average CD rates** – American Express Bank’s CD rates don’t compare with the [best CD rates on the market](https://www.investopedia.com/best-cd-rates-4770214). For more-competitive rates, you’ll have to look elsewhere. ## Who Is American Express Bank Best For? American Express Bank should appeal to individuals looking for a simple high-yield savings account. It’s an especially good fit for consumers who are looking to: * Earn competitive rates on a high-yield savings account * Supplement accounts at another bank * Bank without worrying about minimum balances and monthly fees * Access their accounts online 24/7 ## What Does American Express Bank Offer? * Savings account * CDs * Credit cards ### Personal Savings Account [Personal Savings](https://www.investopedia.com/american-express-savings-account-rates-7504985) is a high-yield savings account that’s also the only savings account offered by American Express Bank. Customers currently earn a 4.25% APY, which is not bad but also not as good as [rates offered by other online banks](https://www.investopedia.com/best-high-yield-savings-accounts-4770633). A plus for Personal Savings accounts is the lack of minimum opening and ongoing balance requirements. There is also no monthly maintenance fee. Funds in an American Express Personal Savings account are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor. You can also link external bank accounts, allowing you to transfer money in and out of the account as needed. You can set up recurring transfers into your Personal Savings account [to build toward savings goals](https://www.investopedia.com/how-to-save-money-4589942), such as an [emergency fund](https://www.investopedia.com/terms/e/emergency_fund.asp) or a vacation fund. | American Express Bank Personal Savings Account | | | | | --- | --- | --- | --- | | Account Name | Minimum Opening Deposit | Monthly Fee | APY | | Personal Savings | $0 | $0 | 4.25% | (As of May 10, 2024) ### CDs American Express Bank also offers CDs with terms ranging from 11 months to five years. One-year and two-year CDs offer 4.35% and 4.00% APYs respectively, but the best return is on the 11-month CD's 4.50% APY. Interest earned on CDs through American Express Bank is credited on a monthly basis. Customers have options on what happens to that interest: * Do nothing and interest compounds until the CD reaches maturity (default option) * Have it transferred automatically each month to your Amex savings account * Have it transferred automatically each month to another linked bank account * Have it mailed to you via monthly, quarterly, or annual checks CDs automatically renew at the maturity date if you don't do anything. Customers should receive correspondence from American Express Bank at least 10 days before the maturity date, so they can decide. American Express Bank CDs are subject to an early withdrawal penalty if you take out funds, other than interest before the account reaches maturity. The early withdrawal penalties are as follows: * CD terms of less than one year – 90 days’ interest on the withdrawn amount * CD terms of at least one year but under four years – 270 days’ interest on the withdrawn amount * CD terms of at least four years but under five years – 365 days’ interest on the withdrawn amount * CD terms of five years – 540 days’ interest on the withdrawn amount | American Express Bank CD Rates | | | --- | --- | | Term | APY | | 11 months | 4.50% | | 12 Months | 4.35% | | 18 Months | 3.25% | | 24 Months | 4.00% | | 36 Months | 3.00% | | 48 Months | 3.00% | | 60 Months | 3.00% | (As of May 10, 2024) ### Credit Cards American Express offers a wide range of credit cards, although they aren’t directly tied to its banking operations. Credit cards include a variety of travel credit cards, cash-back cards, [a balance transfer card](https://www.investopedia.com/articles/personal-finance/111414/understanding-credit-card-balance-transfers.asp), and a host of business credit cards. Here are some of the cards it offers. ### General Travel Rewards Cards * [American Express Gold Card](https://www.investopedia.com/american-express-gold-card-review-4798632) * [American Express Green Card](https://www.investopedia.com/american-express-green-card-review-4800347) * [The Platinum Card](https://www.investopedia.com/american-express-platinum-card-review-4795813) * Blue from American Express * [Amex EveryDay Preferred Credit Card](https://www.investopedia.com/amex-everyday-preferred-credit-card-review-4798648) * [Hilton Honors American Express Aspire Card](https://www.investopedia.com/hilton-honors-american-express-aspire-card-review-4799649) * [Hilton Honors Card](https://www.investopedia.com/hilton-honors-american-express-card-review-4799650) * [Hilton Honors American Express Surpass Card](https://www.investopedia.com/hilton-honors-american-express-surpass-credit-card-review-4796365) * [Delta SkyMiles Blue American Express Card](https://www.investopedia.com/delta-skymiles-blue-amex-credit-card-review-4796432) * [Delta SkyMiles Gold American Express Card](https://www.investopedia.com/delta-skymiles-gold-american-express-card-review-4802116) * [Delta SkyMiles Platinum American Express Card](https://www.investopedia.com/delta-skymiles-platinum-american-express-card-review-4802137) * [Delta SkyMiles Reserve American Express Card](https://www.investopedia.com/delta-skymiles-reserve-american-express-card-review-4802150) * [Marriott Bonvoy Brilliant American Express Card](https://www.investopedia.com/marriott-bonvoy-brilliant-american-express-card-review-4796408) ### Cash-Back Credit Cards * [Blue Cash Everyday Card](https://www.investopedia.com/blue-cash-everyday-credit-card-review-4798655) * [Blue Cash Preferred Card](https://www.investopedia.com/amex-blue-cash-preferred-review-4768778) * [Cash Magnet Card](https://www.investopedia.com/american-express-cash-magnet-card-review-4798867) ### Balance Transfer Credit Cards * [Amex EveryDay Credit Card](https://www.investopedia.com/amex-everyday-card-review-4795861) ### Business Credit Cards * [Business Platinum Card](https://www.investopedia.com/the-business-platinum-card-from-american-express-review-4801693) * [Business Gold Card](https://www.investopedia.com/american-express-business-gold-review-4801030) * [Blue Business Cash Card](https://www.investopedia.com/american-express-blue-business-cash-review-4800836) * [Blue Business Plus Credit Card](https://www.investopedia.com/blue-business-plus-credit-card-from-american-express-review-4801690) * Amazon Business Card * [Amazon Business Prime Card](https://www.investopedia.com/amazon-business-prime-american-express-card-review-4801704) * [Delta SkyMiles Platinum Business Card](https://www.investopedia.com/delta-skymiles-platinum-business-credit-card-review-4802170) * [Delta SkyMiles Gold Business Card](https://www.investopedia.com/delta-skymiles-gold-business-american-express-card-review-4802169) * [Hilton Honors Business Card](https://www.investopedia.com/hilton-honors-american-express-business-card-review-4801700) * [Marriott Bonvoy Business Card](https://www.investopedia.com/marriott-bonvoy-business-american-express-card-review-4802621) ## American Express Bank Customer Service American Express’ website features a thorough FAQ section, but if you need more personal service, there are two options. Customers can receive support through its customer service phone line (1-800-446-6307), which is available 24/7, or you can write to: American Express National Bank P.O. Box 30384 Salt Lake City, Utah 84130 As it’s an online bank, there is no in-person support available. American Express Bank doesn’t currently offer any chat support either. ## How to Bank With American Express Bank To open an account with American Express Bank, you can apply online at AmericanExpress.com. You must be at least 18 years old and a U.S. citizen or resident alien to be eligible for an account. You’ll be asked to provide personal information, including your name, address, date of birth, and Social Security number. After agreeing to terms and conditions, you have the option to fund your account and set up online account access. Verdict American Express Bank is ideal for customers who are only looking for a decent high-yield savings account, not full-service or in-person banking. It offers average CD rates for the most part, but customers looking for CDs with longer terms can still earn interest at a competitive rate. American Express Bank lacks many popular features available with other online banks. It’s almost unforgivable for an online bank not to offer mobile access at this point. The only ways to make deposits are by electronic transfer, [direct deposit](https://www.investopedia.com/terms/d/directdeposit.asp), or mailing a check. ## Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks—including products available, interest rates, fees, and accessibility—to ensure that our content helps users make the right decision for their savings and banking needs. [Open Account](https://www.americanexpress.com/) 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. American Express. "[High Yield Savings Account](https://www.americanexpress.com/en-us/banking/online-savings/high-yield-savings/?extlink=as=search=71700000087431593_58700007433014242__p66753313059_550208740970&gclid=EAIaIQobChMIhIm1uqfk9AIVBJyzCh0rXgJDEAAYASAAEgJZE_D_BwE&gclsrc=aw.ds)." 2. Federal Deposit Insurance Corporation. "[National Rates and Rate Caps](https://www.fdic.gov/regulations/resources/rates/)." 3. American Express. "[CD Rates](https://www.americanexpress.com/en-us/banking/online-savings/cd/?linknav=savings-nav-cd)." 4. American Express. "[How does the interest on a CD compound, and can I choose to pay out the interest on a CD](https://www.americanexpress.com/en-us/banking/online-savings/faq/compounding-interest-on-cd/)?" 5. American Express. "[What is a Maturity Date and what happens after that date](https://www.americanexpress.com/en-us/banking/online-savings/faq/maturity-date/)?" 6. American Express. "[What if I want to withdraw my funds from my CD before the Maturity Date](https://www.americanexpress.com/en-us/banking/online-savings/faq/early-withdrawal-from-cd/)?" 7. American Express. "[Credit Cards](https://www.americanexpress.com/us/credit-cards/?inav=menu_cards_pc_viewallcards)." 8. American Express. "[Contact Us](https://www.americanexpress.com/en-us/banking/online-savings/contact-us/?intlink=savingshome-support-contact)." 9. American Express. "[Consumer Deposit Account Agreement](https://www.americanexpress.com/content/dam/amex/en-us/banking/personal-savings/deposit_account_agreement.pdf)." 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American Express Open Account American Express has been around since 1850 and is a household name in the credit card industry for its popular rewards credit cards. Besides credit cards, though, the online-only American Express Bank offers a couple of personal banking options, including a high-yield savings account and certificates of deposit (CDs). This in-depth review will help you decide if American Express Bank is right for you. Pros & Cons Company Overview Pros & Cons Pros Competitive rate on savings account No minimum deposit requirements No monthly fees Cons Average CD rates Company Overview Year Founded 1850 Official Website www.americanexpress.com Banking Products Offered Savings, CDs, credit cards Customer Support 24/7 Phone: 1-800-446-6307 American Express Open Account Table of Contents View All American Express Bank Review 2024 Pros Explained Cons Explained Best For Bank Offerings Customer Service How To Bank Methodology Pros Explained Competitive rate on savings account – Although it’s not high enough to compete with the best high-yield savings accounts, American Express Personal Savings accounts still earn a 4.25% annual percentage yield (APY). This is well above the current national average for savings accounts of 0.46%. No minimum deposit requirements – Anyone can open an account with American Express Bank. Neither savings accounts nor CDs have minimum deposit requirements. No monthly fees – There are no monthly maintenance fees charged on any American Express Bank accounts. Cons Explained Average CD rates – American Express Bank’s CD rates don’t compare with the best CD rates on the market. For more-competitive rates, you’ll have to look elsewhere. Who Is American Express Bank Best For? American Express Bank should appeal to individuals looking for a simple high-yield savings account. It’s an especially good fit for consumers who are looking to: Earn competitive rates on a high-yield savings accountSupplement accounts at another bankBank without worrying about minimum balances and monthly feesAccess their accounts online 24/7 What Does American Express Bank Offer? Savings accountCDsCredit cards Personal Savings Account Personal Savings is a high-yield savings account that’s also the only savings account offered by American Express Bank. Customers currently earn a 4.25% APY, which is not bad but also not as good as rates offered by other online banks. A plus for Personal Savings accounts is the lack of minimum opening and ongoing balance requirements. There is also no monthly maintenance fee. Funds in an American Express Personal Savings account are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor. You can also link external bank accounts, allowing you to transfer money in and out of the account as needed. You can set up recurring transfers into your Personal Savings account to build toward savings goals, such as an emergency fund or a vacation fund. American Express Bank Personal Savings Account Account Name Minimum Opening Deposit Monthly Fee APY Personal Savings  $0 $0 4.25% (As of May 10, 2024) CDs American Express Bank also offers CDs with terms ranging from 11 months to five years. One-year and two-year CDs offer 4.35% and 4.00% APYs respectively, but the best return is on the 11-month CD's 4.50% APY. Interest earned on CDs through American Express Bank is credited on a monthly basis. Customers have options on what happens to that interest: Do nothing and interest compounds until the CD reaches maturity (default option)Have it transferred automatically each month to your Amex savings accountHave it transferred automatically each month to another linked bank accountHave it mailed to you via monthly, quarterly, or annual checks CDs automatically renew at the maturity date if you don't do anything. Customers should receive correspondence from American Express Bank at least 10 days before the maturity date, so they can decide. American Express Bank CDs are subject to an early withdrawal penalty if you take out funds, other than interest before the account reaches maturity. The early withdrawal penalties are as follows: CD terms of less than one year – 90 days’ interest on the withdrawn amountCD terms of at least one year but under four years – 270 days’ interest on the withdrawn amountCD terms of at least four years but under five years – 365 days’ interest on the withdrawn amountCD terms of five years – 540 days’ interest on the withdrawn amount American Express Bank CD Rates Term  APY 11 months 4.50% 12 Months 4.35% 18 Months 3.25% 24 Months 4.00% 36 Months 3.00% 48 Months 3.00% 60 Months 3.00% (As of May 10, 2024) Credit Cards American Express offers a wide range of credit cards, although they aren’t directly tied to its banking operations. Credit cards include a variety of travel credit cards, cash-back cards, a balance transfer card, and a host of business credit cards. Here are some of the cards it offers. General Travel Rewards Cards American Express Gold Card American Express Green Card The Platinum Card Blue from American Express Amex EveryDay Preferred Credit Card Hilton Honors American Express Aspire Card Hilton Honors Card Hilton Honors American Express Surpass Card Delta SkyMiles Blue American Express Card Delta SkyMiles Gold American Express Card Delta SkyMiles Platinum American Express Card Delta SkyMiles Reserve American Express Card Marriott Bonvoy Brilliant American Express Card Cash-Back Credit Cards Blue Cash Everyday Card Blue Cash Preferred Card Cash Magnet Card Balance Transfer Credit Cards Amex EveryDay Credit Card Business Credit Cards Business Platinum Card Business Gold Card Blue Business Cash Card Blue Business Plus Credit Card Amazon Business Card Amazon Business Prime Card Delta SkyMiles Platinum Business Card Delta SkyMiles Gold Business Card Hilton Honors Business Card Marriott Bonvoy Business Card American Express Bank Customer Service American Express’ website features a thorough FAQ section, but if you need more personal service, there are two options. Customers can receive support through its customer service phone line (1-800-446-6307), which is available 24/7, or you can write to: American Express National Bank P.O. Box 30384 Salt Lake City, Utah 84130 As it’s an online bank, there is no in-person support available. American Express Bank doesn’t currently offer any chat support either. How to Bank With American Express Bank To open an account with American Express Bank, you can apply online at AmericanExpress.com. You must be at least 18 years old and a U.S. citizen or resident alien to be eligible for an account. You’ll be asked to provide personal information, including your name, address, date of birth, and Social Security number. After agreeing to terms and conditions, you have the option to fund your account and set up online account access. Verdict American Express Bank is ideal for customers who are only looking for a decent high-yield savings account, not full-service or in-person banking. It offers average CD rates for the most part, but customers looking for CDs with longer terms can still earn interest at a competitive rate. American Express Bank lacks many popular features available with other online banks. It’s almost unforgivable for an online bank not to offer mobile access at this point. The only ways to make deposits are by electronic transfer, direct deposit, or mailing a check. Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks—including products available, interest rates, fees, and accessibility—to ensure that our content helps users make the right decision for their savings and banking needs. Open Account 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. American Express. "High Yield Savings Account." Federal Deposit Insurance Corporation. "National Rates and Rate Caps." American Express. "CD Rates." American Express. "How does the interest on a CD compound, and can I choose to pay out the interest on a CD?" American Express. "What is a Maturity Date and what happens after that date?" American Express. "What if I want to withdraw my funds from my CD before the Maturity Date?" American Express. "Credit Cards." American Express. "Contact Us." American Express. "Consumer Deposit Account Agreement." Related Articles Regions Bank Review 2024 KeyBank Review 2024 American Express Business Banking Review for 2024 Barclays Bank Review BrioDirect Bank Review LendingClub Banking Review
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https://www.investopedia.com/articles/investing/112415/who-richest-person-ever.asp
Who Is the Richest Person Ever?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Some people are unfathomably rich. According to <em>Forbes, </em>as of March 2023, Elon Musk is the wealthiest man alive, with $180 billion to his name.<span class="ql-inline-citation" data-cite="24"></span> That's more than the combined gross domestic product of Myanmar, Laos, and Cambodia, which have around 76 million people between them.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Surely in our modern world, where technology enables the creation and consolidation of truly incomprehensible wealth, we are living among the richest individuals in history. As it turns out, we are not. The world's wealthiest individuals lived in earlier times, in eras in which pure wealth was harder to measure. </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>Jeff Bezos and Elon Musk are among the richest people in the world currently, but in terms of the wealthiest people of all time, they don't make the cut.</li><li>In history, there are wealthier people than the modern billionaires, particularly when you consider those whose wealth and spending could impact the overall health of the economy during the times in which they lived.</li><li>Mansa Musa, the 14th-century emperor of the Malian Empire, spent so extensively that it caused hyperinflation in Cairo and Medina</li><li>Emperor Atahualpa was so wealthy that gold and silver released into Europe following his death caused high inflation and an economic slowdown.</li></ul></div></div></div> <span class="heading-toc" id="toc-from-genghis-khan-to-jp-morgan"></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"> From Genghis Khan to J.P. Morgan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Estimating wealth in bygone eras is difficult because what it means to be wealthy varies widely from epoch to epoch. How do you value the landholdings of Persian emperors? Does multiplying the weight in ounces of Genghis Khan's hoard by $2,035 (the most recent price of gold per ounce as of December 2023) really tell you what his wealth was worth at the time? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> In economies where there was no such thing as a true currency, taxes were levied in grain, and literacy might as well have been rocket science, slapping dollar amounts on things is an exercise in wild speculation.<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"> But that doesn't make it any less fun. Take Marcus Licinius Crassus, who had an estimated net worth of 170 million sesterces.<span class="ql-inline-citation" data-cite="5"></span> The original <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valueinvesting.asp">value investor</a>, he bought whole swaths of Rome when they were on fire and only sent his army of enslaved builders and architects to put out the flames if the owners paid up. When Spartacus led a rebellion in 73 B.C., Crassus personally fielded two legions.<span class="ql-inline-citation" data-cite="6"></span> Legend has it that he died when molten gold was poured into his mouth, symbolizing his thirst for riches.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> We don't have to go back to antiquity to find people with truly unsettling wealth, however. John D. Rockefeller had anywhere from $300 billion to $400 billion, depending on the estimate.<span class="ql-inline-citation" data-cite="8"></span> J.P. Morgan was the U.S. lender of last resort before the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservesystem.asp">Federal Reserve</a> was established, stabilizing the economy through a massive loan to the government following the Panic of 1893.<span class="ql-inline-citation" data-cite="25"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> But rather than trying to measure wealth in absolute terms, maybe it's best to look at who, in their own time and place, was so rich that they personally defined the value of money. In all of history, there are two people who controlled so much wealth relative to everyone else that spending it (voluntarily or not) could send the economy of the known world into a tailspin.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_18-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_19-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Amazon's Jeff Bezos, Tesla's Elon Musk, and LVMH's Bernard Arnault are the modern world's wealthiest people.<span class="ql-inline-citation" data-cite="24"></span></p></div></div></div> <span class="heading-toc" id="toc-mansa-musa"></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"> Mansa Musa </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> In 1324, Mansa (meaning Emperor) Musa of the Malian Empire went on hajj, the Muslim pilgrimage to Mecca. His entourage consisted of around 60,000 people and a quantity of gold that sent ripples throughout the entire Mediterranean world. He showered the cities he visited with gold, giving it away to the poor and, according to one account, building a new mosque every Friday.<span class="ql-inline-citation" data-cite="12"></span> He spent especially lavishly in Cairo and Medina, and the sudden influx of money sent prices for everyday goods soaring. </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"> Realizing that he had personally caused a wave of hyperinflation that plagued an entire region, he personally embarked on a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/quantitative-easing.asp">quantitative easing</a> program, snapping up all of Cairo's gold on loan at a high rate of interest.<span class="ql-inline-citation" data-cite="13"></span> He was a one-man macroeconomic cycle. </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-atahualpa"></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"> Atahualpa </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> But what about the Americas? In 1532, a brutal war of succession between half-brothers Atahualpa and Huáscar was just coming to an end, and the Incan Empire was beginning the process of recovery.<span class="ql-inline-citation" data-cite="17"></span> When dealing with the Incan Empire, issues of economic context are especially hairy. It is the only complex, large-scale civilization ever to develop without any semblance of a market. There was no notion of money at all.<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_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Rather, the entire state was organized as a kind of family unit, with the Inca (the Emperor) controlling everything: food, clothing, luxury goods, houses, and people. As a man, you served the emperor as a farmer, laborer, craftsman, or soldier. In exchange, you were provided with everything you needed to survive.<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_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> When Spanish conquistadors ambushed Atahualpa at Cajamarca and took him prisoner, he was able to muster a ransom like no other, filling a large room with gold.<span class="ql-inline-citation" data-cite="17"></span> His power was so unquestioned that he could have whole temples stripped of gold, and he did.<span class="ql-inline-citation" data-cite="18"></span> There was nothing in the empire he did not, in theory, own. </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"> Though the figure is largely meaningless in context, the ransom he paid would be worth approximately $1.5 billion today.<span class="ql-inline-citation" data-cite="19"></span> The Spanish killed him anyway and gutted his empire, but the billions of dollars worth of gold and silver that flooded Europe after 1500 caused high inflation and a prolonged economic slump.<span class="ql-inline-citation" data-cite="17"></span> Much of the vast sums of gold that sank Europe's economy in the 16th century came from Atahualpa.<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_33-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> If you're blown away by the idea that fewer than 100 people control as much wealth as half the world today, imagine how concentrated money used to be. Even if Bill Gates took the most extravagant vacation he could fathom, he probably couldn't cause a regional currency crisis. If somebody were to kidnap any billionaire, would any ransom they could demand send a continent into recession? </p></div>
Some people are unfathomably rich. According to *Forbes,*as of March 2023, Elon Musk is the wealthiest man alive, with $180 billion to his name. That's more than the combined gross domestic product of Myanmar, Laos, and Cambodia, which have around 76 million people between them. Surely in our modern world, where technology enables the creation and consolidation of truly incomprehensible wealth, we are living among the richest individuals in history. As it turns out, we are not. The world's wealthiest individuals lived in earlier times, in eras in which pure wealth was harder to measure. ### Key Takeaways * Jeff Bezos and Elon Musk are among the richest people in the world currently, but in terms of the wealthiest people of all time, they don't make the cut. * In history, there are wealthier people than the modern billionaires, particularly when you consider those whose wealth and spending could impact the overall health of the economy during the times in which they lived. * Mansa Musa, the 14th-century emperor of the Malian Empire, spent so extensively that it caused hyperinflation in Cairo and Medina * Emperor Atahualpa was so wealthy that gold and silver released into Europe following his death caused high inflation and an economic slowdown. ## From Genghis Khan to J.P. Morgan Estimating wealth in bygone eras is difficult because what it means to be wealthy varies widely from epoch to epoch. How do you value the landholdings of Persian emperors? Does multiplying the weight in ounces of Genghis Khan's hoard by $2,035 (the most recent price of gold per ounce as of December 2023) really tell you what his wealth was worth at the time? In economies where there was no such thing as a true currency, taxes were levied in grain, and literacy might as well have been rocket science, slapping dollar amounts on things is an exercise in wild speculation. But that doesn't make it any less fun. Take Marcus Licinius Crassus, who had an estimated net worth of 170 million sesterces. The original [value investor](https://www.investopedia.com/terms/v/valueinvesting.asp), he bought whole swaths of Rome when they were on fire and only sent his army of enslaved builders and architects to put out the flames if the owners paid up. When Spartacus led a rebellion in 73 B.C., Crassus personally fielded two legions. Legend has it that he died when molten gold was poured into his mouth, symbolizing his thirst for riches. We don't have to go back to antiquity to find people with truly unsettling wealth, however. John D. Rockefeller had anywhere from $300 billion to $400 billion, depending on the estimate. J.P. Morgan was the U.S. lender of last resort before the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservesystem.asp) was established, stabilizing the economy through a massive loan to the government following the Panic of 1893. But rather than trying to measure wealth in absolute terms, maybe it's best to look at who, in their own time and place, was so rich that they personally defined the value of money. In all of history, there are two people who controlled so much wealth relative to everyone else that spending it (voluntarily or not) could send the economy of the known world into a tailspin.  ### Amazon's Jeff Bezos, Tesla's Elon Musk, and LVMH's Bernard Arnault are the modern world's wealthiest people. ## Mansa Musa In 1324, Mansa (meaning Emperor) Musa of the Malian Empire went on hajj, the Muslim pilgrimage to Mecca. His entourage consisted of around 60,000 people and a quantity of gold that sent ripples throughout the entire Mediterranean world. He showered the cities he visited with gold, giving it away to the poor and, according to one account, building a new mosque every Friday. He spent especially lavishly in Cairo and Medina, and the sudden influx of money sent prices for everyday goods soaring. Realizing that he had personally caused a wave of hyperinflation that plagued an entire region, he personally embarked on a [quantitative easing](https://www.investopedia.com/terms/q/quantitative-easing.asp) program, snapping up all of Cairo's gold on loan at a high rate of interest. He was a one-man macroeconomic cycle. ## Atahualpa But what about the Americas? In 1532, a brutal war of succession between half-brothers Atahualpa and Huáscar was just coming to an end, and the Incan Empire was beginning the process of recovery. When dealing with the Incan Empire, issues of economic context are especially hairy. It is the only complex, large-scale civilization ever to develop without any semblance of a market. There was no notion of money at all. Rather, the entire state was organized as a kind of family unit, with the Inca (the Emperor) controlling everything: food, clothing, luxury goods, houses, and people. As a man, you served the emperor as a farmer, laborer, craftsman, or soldier. In exchange, you were provided with everything you needed to survive. When Spanish conquistadors ambushed Atahualpa at Cajamarca and took him prisoner, he was able to muster a ransom like no other, filling a large room with gold. His power was so unquestioned that he could have whole temples stripped of gold, and he did. There was nothing in the empire he did not, in theory, own. Though the figure is largely meaningless in context, the ransom he paid would be worth approximately $1.5 billion today. The Spanish killed him anyway and gutted his empire, but the billions of dollars worth of gold and silver that flooded Europe after 1500 caused high inflation and a prolonged economic slump. Much of the vast sums of gold that sank Europe's economy in the 16th century came from Atahualpa. ## The Bottom Line If you're blown away by the idea that fewer than 100 people control as much wealth as half the world today, imagine how concentrated money used to be. Even if Bill Gates took the most extravagant vacation he could fathom, he probably couldn't cause a regional currency crisis. If somebody were to kidnap any billionaire, would any ransom they could demand send a continent into recession?
Some people are unfathomably rich. According to Forbes, as of March 2023, Elon Musk is the wealthiest man alive, with $180 billion to his name. That's more than the combined gross domestic product of Myanmar, Laos, and Cambodia, which have around 76 million people between them. Surely in our modern world, where technology enables the creation and consolidation of truly incomprehensible wealth, we are living among the richest individuals in history. As it turns out, we are not. The world's wealthiest individuals lived in earlier times, in eras in which pure wealth was harder to measure. Key Takeaways Jeff Bezos and Elon Musk are among the richest people in the world currently, but in terms of the wealthiest people of all time, they don't make the cut.In history, there are wealthier people than the modern billionaires, particularly when you consider those whose wealth and spending could impact the overall health of the economy during the times in which they lived.Mansa Musa, the 14th-century emperor of the Malian Empire, spent so extensively that it caused hyperinflation in Cairo and MedinaEmperor Atahualpa was so wealthy that gold and silver released into Europe following his death caused high inflation and an economic slowdown. From Genghis Khan to J.P. Morgan Estimating wealth in bygone eras is difficult because what it means to be wealthy varies widely from epoch to epoch. How do you value the landholdings of Persian emperors? Does multiplying the weight in ounces of Genghis Khan's hoard by $2,035 (the most recent price of gold per ounce as of December 2023) really tell you what his wealth was worth at the time? In economies where there was no such thing as a true currency, taxes were levied in grain, and literacy might as well have been rocket science, slapping dollar amounts on things is an exercise in wild speculation. But that doesn't make it any less fun. Take Marcus Licinius Crassus, who had an estimated net worth of 170 million sesterces. The original value investor, he bought whole swaths of Rome when they were on fire and only sent his army of enslaved builders and architects to put out the flames if the owners paid up. When Spartacus led a rebellion in 73 B.C., Crassus personally fielded two legions. Legend has it that he died when molten gold was poured into his mouth, symbolizing his thirst for riches. We don't have to go back to antiquity to find people with truly unsettling wealth, however. John D. Rockefeller had anywhere from $300 billion to $400 billion, depending on the estimate. J.P. Morgan was the U.S. lender of last resort before the Federal Reserve was established, stabilizing the economy through a massive loan to the government following the Panic of 1893. But rather than trying to measure wealth in absolute terms, maybe it's best to look at who, in their own time and place, was so rich that they personally defined the value of money. In all of history, there are two people who controlled so much wealth relative to everyone else that spending it (voluntarily or not) could send the economy of the known world into a tailspin.  Amazon's Jeff Bezos, Tesla's Elon Musk, and LVMH's Bernard Arnault are the modern world's wealthiest people. Mansa Musa In 1324, Mansa (meaning Emperor) Musa of the Malian Empire went on hajj, the Muslim pilgrimage to Mecca. His entourage consisted of around 60,000 people and a quantity of gold that sent ripples throughout the entire Mediterranean world. He showered the cities he visited with gold, giving it away to the poor and, according to one account, building a new mosque every Friday. He spent especially lavishly in Cairo and Medina, and the sudden influx of money sent prices for everyday goods soaring. Realizing that he had personally caused a wave of hyperinflation that plagued an entire region, he personally embarked on a quantitative easing program, snapping up all of Cairo's gold on loan at a high rate of interest. He was a one-man macroeconomic cycle. Atahualpa But what about the Americas? In 1532, a brutal war of succession between half-brothers Atahualpa and Huáscar was just coming to an end, and the Incan Empire was beginning the process of recovery. When dealing with the Incan Empire, issues of economic context are especially hairy. It is the only complex, large-scale civilization ever to develop without any semblance of a market. There was no notion of money at all. Rather, the entire state was organized as a kind of family unit, with the Inca (the Emperor) controlling everything: food, clothing, luxury goods, houses, and people. As a man, you served the emperor as a farmer, laborer, craftsman, or soldier. In exchange, you were provided with everything you needed to survive. When Spanish conquistadors ambushed Atahualpa at Cajamarca and took him prisoner, he was able to muster a ransom like no other, filling a large room with gold. His power was so unquestioned that he could have whole temples stripped of gold, and he did. There was nothing in the empire he did not, in theory, own. Though the figure is largely meaningless in context, the ransom he paid would be worth approximately $1.5 billion today. The Spanish killed him anyway and gutted his empire, but the billions of dollars worth of gold and silver that flooded Europe after 1500 caused high inflation and a prolonged economic slump. Much of the vast sums of gold that sank Europe's economy in the 16th century came from Atahualpa. The Bottom Line If you're blown away by the idea that fewer than 100 people control as much wealth as half the world today, imagine how concentrated money used to be. Even if Bill Gates took the most extravagant vacation he could fathom, he probably couldn't cause a regional currency crisis. If somebody were to kidnap any billionaire, would any ransom they could demand send a continent into recession?
[ [ "value investor", "https://www.investopedia.com/terms/v/valueinvesting.asp" ], [ "Federal Reserve", "https://www.investopedia.com/terms/f/federalreservesystem.asp" ], [ "quantitative easing", "https://www.investopedia.com/terms/q/quantitative-easing.asp" ] ]
https://www.investopedia.com/terms/f/financial-conduct-authority-uk-fca.asp
Financial Conduct Authority (FCA): The UK's Financial Regulator
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-financial-conduct-authority-fca"></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 Financial Conduct Authority (FCA)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> As the regulator of the financial services industry in the United Kingdom, the Financial Conduct Authority (FCA) is responsible for the functioning of the U.K.'s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-market.asp">financial markets</a>. The goal of the organization is to ensure honest and fair markets for individuals, businesses, and the economy as a whole. The Authority does this by protecting consumers, protecting the financial markets, and promoting competition. The FCA is an independent financial regulator and falls under the purview of the Treasury, which is responsible for the UK's financial system, and the Parliament. </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 Financial Conduct Authority (FCA) is responsible for the functioning of the U.K. financial markets.</li><li>The FCA aims to ensure honest and fair markets by protecting consumers, protecting the financial markets, and promoting competition.</li><li>The FCA is a public body under the purview of the U.K.'s Treasury and Parliament.</li><li>The FCA charges fees to the firms that it regulates.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-financial-conduct-authority-fca"></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 Financial Conduct Authority (FCA) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The Financial Conduct Authority (FCA) has three operational objectives in support of its strategic goal—to protect consumers, to protect and enhance the integrity of the U.K. financial system, and to promote healthy competition between financial services providers in the interests of consumers. </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 FCA was established on April 1, 2013, and assumed the responsibility for the conduct and relevant prudential regulation from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-services-authority-fsa.asp">Financial Services Authority (FSA)</a>.<span class="ql-inline-citation" data-cite="1"></span> The FCA’s statutory objectives were set up under the Financial Services and Markets Act 2000 and amended by the Financial Services Act 2012. The Act of 2012 made major changes to the way financial services firms are regulated in the United Kingdom, and it was introduced to ensure that the financial sector manages and contains risks more effectively following the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-crisis.asp">financial crisis</a> of 2008 to 2009.<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> <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"> FCA Powers </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The FCA has sweeping powers to enforce its mandate, including rule-making and investigative and enforcement powers. The FCA also has the power to raise fees, which is necessary since it is an independent body and does not receive any government funding. The FCA, therefore, charges fees to authorized firms that carry out activities regulated by the FCA and other bodies such as recognized <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchange.asp">investment exchanges</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-subheading__text"> The Functions of the FCA </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> According to the FCA's website, the authority regulates the conduct of around 50,000 businesses, supervises 48,000 firms, and sets specific standards for around 18,000 firms.<span class="ql-inline-citation" data-cite="1"></span> The goal is to ensure honest and fair markets for individuals, businesses of all sizes, and the economy as a whole. The Authority does this by protecting consumers, protecting the financial markets, and promoting competition. The FCA is controlled by the U.K.'s Treasury and Parliament. </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"> Financing the FCA </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The FCA is an independent public body that charges fees to the firms it regulates. Periodic fees charged to firms provide most of the funding required by the FCA to carry out its statutory duties. These fees are based on factors such as the type of regulated activities undertaken by a firm, the scale of those activities, and the regulatory costs incurred by the FCA.<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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_20-0"><span class="heading-toc" id="toc-does-my-business-in-the-uk-need-to-be-fca-authorized"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does My Business in the UK Need to Be FCA Authorized?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Firms and individuals providing regulated financial services<strong> </strong>and offering credit to consumers in the UK must be authorized by the FCA, as established under the Financial Services and Markets Act 2000. If you carry out specified activities relating to specified instruments without appropriate authorization you may be committing a criminal offense under the FSMA.<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_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_22-0"><span class="heading-toc" id="toc-who-is-the-chair-of-the-financial-conduct-authority"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Is the Chair of the Financial Conduct Authority?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Ashley Alder is the Chair of the FCA Board since February 2023. He was previously the CEO of the Securities and Futures Commission (SFC) in Hong Kong and Chair of the Board of the International Organization of Securities Commissions (IOSCO).<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_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_24-0"><span class="heading-toc" id="toc-what-is-the-fcas-warning-list"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the FCA's Warning List?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The FCA's warning list shows the firms that are suspected to be unauthorized and working without the FCA's permission. Consumers can search for unauthorized firms from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.fca.org.uk/consumers/warning-list-unauthorised-firms">FCA's website</a>.<br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The Financial Conduct Authority (FCA) regulates the financial services industry in the UK. Its role includes protecting consumers, keeping the industry stable, and promoting healthy competition between financial service providers. The FCA's role is defined by the Financial Services and Markets Act 2000 and it's accountable to the UK's Treasury and Parliament </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 FCA is an independent public body funded entirely by the fees paid by regulated firms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> The FCA uses criminal, civil, and regulatory enforcement powers to protect consumers and act against firms and individuals that are not authorized. </p></div>
## What Is the Financial Conduct Authority (FCA)? As the regulator of the financial services industry in the United Kingdom, the Financial Conduct Authority (FCA) is responsible for the functioning of the U.K.'s [financial markets](https://www.investopedia.com/terms/f/financial-market.asp). The goal of the organization is to ensure honest and fair markets for individuals, businesses, and the economy as a whole. The Authority does this by protecting consumers, protecting the financial markets, and promoting competition. The FCA is an independent financial regulator and falls under the purview of the Treasury, which is responsible for the UK's financial system, and the Parliament. ### Key Takeaways: * The Financial Conduct Authority (FCA) is responsible for the functioning of the U.K. financial markets. * The FCA aims to ensure honest and fair markets by protecting consumers, protecting the financial markets, and promoting competition. * The FCA is a public body under the purview of the U.K.'s Treasury and Parliament. * The FCA charges fees to the firms that it regulates. ## Understanding the Financial Conduct Authority (FCA) The Financial Conduct Authority (FCA) has three operational objectives in support of its strategic goal—to protect consumers, to protect and enhance the integrity of the U.K. financial system, and to promote healthy competition between financial services providers in the interests of consumers. The FCA was established on April 1, 2013, and assumed the responsibility for the conduct and relevant prudential regulation from the [Financial Services Authority (FSA)](https://www.investopedia.com/terms/f/financial-services-authority-fsa.asp). The FCA’s statutory objectives were set up under the Financial Services and Markets Act 2000 and amended by the Financial Services Act 2012. The Act of 2012 made major changes to the way financial services firms are regulated in the United Kingdom, and it was introduced to ensure that the financial sector manages and contains risks more effectively following the [financial crisis](https://www.investopedia.com/terms/f/financial-crisis.asp) of 2008 to 2009. ### FCA Powers The FCA has sweeping powers to enforce its mandate, including rule-making and investigative and enforcement powers. The FCA also has the power to raise fees, which is necessary since it is an independent body and does not receive any government funding. The FCA, therefore, charges fees to authorized firms that carry out activities regulated by the FCA and other bodies such as recognized [investment exchanges](https://www.investopedia.com/terms/e/exchange.asp). ### The Functions of the FCA According to the FCA's website, the authority regulates the conduct of around 50,000 businesses, supervises 48,000 firms, and sets specific standards for around 18,000 firms. The goal is to ensure honest and fair markets for individuals, businesses of all sizes, and the economy as a whole. The Authority does this by protecting consumers, protecting the financial markets, and promoting competition. The FCA is controlled by the U.K.'s Treasury and Parliament. ### Financing the FCA The FCA is an independent public body that charges fees to the firms it regulates. Periodic fees charged to firms provide most of the funding required by the FCA to carry out its statutory duties. These fees are based on factors such as the type of regulated activities undertaken by a firm, the scale of those activities, and the regulatory costs incurred by the FCA. ## Does My Business in the UK Need to Be FCA Authorized? Firms and individuals providing regulated financial servicesand offering credit to consumers in the UK must be authorized by the FCA, as established under the Financial Services and Markets Act 2000. If you carry out specified activities relating to specified instruments without appropriate authorization you may be committing a criminal offense under the FSMA. ## Who Is the Chair of the Financial Conduct Authority? Ashley Alder is the Chair of the FCA Board since February 2023. He was previously the CEO of the Securities and Futures Commission (SFC) in Hong Kong and Chair of the Board of the International Organization of Securities Commissions (IOSCO). ## What Is the FCA's Warning List? The FCA's warning list shows the firms that are suspected to be unauthorized and working without the FCA's permission. Consumers can search for unauthorized firms from the [FCA's website](https://www.fca.org.uk/consumers/warning-list-unauthorised-firms). ## The Bottom Line The Financial Conduct Authority (FCA) regulates the financial services industry in the UK. Its role includes protecting consumers, keeping the industry stable, and promoting healthy competition between financial service providers. The FCA's role is defined by the Financial Services and Markets Act 2000 and it's accountable to the UK's Treasury and Parliament The FCA is an independent public body funded entirely by the fees paid by regulated firms. The FCA uses criminal, civil, and regulatory enforcement powers to protect consumers and act against firms and individuals that are not authorized.
What Is the Financial Conduct Authority (FCA)? As the regulator of the financial services industry in the United Kingdom, the Financial Conduct Authority (FCA) is responsible for the functioning of the U.K.'s financial markets. The goal of the organization is to ensure honest and fair markets for individuals, businesses, and the economy as a whole. The Authority does this by protecting consumers, protecting the financial markets, and promoting competition. The FCA is an independent financial regulator and falls under the purview of the Treasury, which is responsible for the UK's financial system, and the Parliament. Key Takeaways: The Financial Conduct Authority (FCA) is responsible for the functioning of the U.K. financial markets.The FCA aims to ensure honest and fair markets by protecting consumers, protecting the financial markets, and promoting competition.The FCA is a public body under the purview of the U.K.'s Treasury and Parliament.The FCA charges fees to the firms that it regulates. Understanding the Financial Conduct Authority (FCA) The Financial Conduct Authority (FCA) has three operational objectives in support of its strategic goal—to protect consumers, to protect and enhance the integrity of the U.K. financial system, and to promote healthy competition between financial services providers in the interests of consumers. The FCA was established on April 1, 2013, and assumed the responsibility for the conduct and relevant prudential regulation from the Financial Services Authority (FSA). The FCA’s statutory objectives were set up under the Financial Services and Markets Act 2000 and amended by the Financial Services Act 2012. The Act of 2012 made major changes to the way financial services firms are regulated in the United Kingdom, and it was introduced to ensure that the financial sector manages and contains risks more effectively following the financial crisis of 2008 to 2009. FCA Powers The FCA has sweeping powers to enforce its mandate, including rule-making and investigative and enforcement powers. The FCA also has the power to raise fees, which is necessary since it is an independent body and does not receive any government funding. The FCA, therefore, charges fees to authorized firms that carry out activities regulated by the FCA and other bodies such as recognized investment exchanges. The Functions of the FCA According to the FCA's website, the authority regulates the conduct of around 50,000 businesses, supervises 48,000 firms, and sets specific standards for around 18,000 firms. The goal is to ensure honest and fair markets for individuals, businesses of all sizes, and the economy as a whole. The Authority does this by protecting consumers, protecting the financial markets, and promoting competition. The FCA is controlled by the U.K.'s Treasury and Parliament. Financing the FCA The FCA is an independent public body that charges fees to the firms it regulates. Periodic fees charged to firms provide most of the funding required by the FCA to carry out its statutory duties. These fees are based on factors such as the type of regulated activities undertaken by a firm, the scale of those activities, and the regulatory costs incurred by the FCA. Does My Business in the UK Need to Be FCA Authorized? Firms and individuals providing regulated financial services and offering credit to consumers in the UK must be authorized by the FCA, as established under the Financial Services and Markets Act 2000. If you carry out specified activities relating to specified instruments without appropriate authorization you may be committing a criminal offense under the FSMA. Who Is the Chair of the Financial Conduct Authority? Ashley Alder is the Chair of the FCA Board since February 2023. He was previously the CEO of the Securities and Futures Commission (SFC) in Hong Kong and Chair of the Board of the International Organization of Securities Commissions (IOSCO). What Is the FCA's Warning List? The FCA's warning list shows the firms that are suspected to be unauthorized and working without the FCA's permission. Consumers can search for unauthorized firms from the FCA's website. The Bottom Line The Financial Conduct Authority (FCA) regulates the financial services industry in the UK. Its role includes protecting consumers, keeping the industry stable, and promoting healthy competition between financial service providers. The FCA's role is defined by the Financial Services and Markets Act 2000 and it's accountable to the UK's Treasury and Parliament The FCA is an independent public body funded entirely by the fees paid by regulated firms. The FCA uses criminal, civil, and regulatory enforcement powers to protect consumers and act against firms and individuals that are not authorized.
[ [ "financial markets", "https://www.investopedia.com/terms/f/financial-market.asp" ], [ "Financial Services Authority (FSA)", "https://www.investopedia.com/terms/f/financial-services-authority-fsa.asp" ], [ "financial crisis", "https://www.investopedia.com/terms/f/financial-crisis.asp" ], [ "investment exchanges", "https://www.investopedia.com/terms/e/exchange.asp" ], [ "FCA's website", "https://www.fca.org.uk/consumers/warning-list-unauthorised-firms" ] ]
https://www.investopedia.com/long-term-impacts-of-the-covid-19-k-shaped-recovery-5200711
Long-Term Impacts of the COVID-19 K-Shaped Recovery
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 COVID-19 pandemic recovery has been fractured and uneven. Millions of Americans remain unemployed, while the wealthiest have grown their fortunes—reinforced by a strong stock market.  As these divergences expand, the term “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/k-shaped-recovery-5080086">K-shaped recovery</a>” has emerged. Specifically, it describes how different areas of the economy have recovered at varying speeds.<span class="ql-inline-citation" data-cite="26"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> As a “K” letter shape denotes, some sectors have lagged or declined, such as hospitality and leisure, while the opposite is true for tech. Perhaps most importantly, a K-shaped recovery appears to have structural effects on the economy. Inequality is rising, employment is stagnating for many, and technological adoption is accelerating. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_5-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:59.2%;"> <img alt="K-shaped recovery" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/j2PQabnsmhOS5qDY4SJcp3JAlyI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_K_Shaped_Recovery_Oct_2020-012-754c887c48a84c7c90395d3ed80c521f.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/j2PQabnsmhOS5qDY4SJcp3JAlyI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_K_Shaped_Recovery_Oct_2020-012-754c887c48a84c7c90395d3ed80c521f.jpg" data-srcset="https://www.investopedia.com/thmb/jKjhbRqr5relm4xRCvRW3oy8kzc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_K_Shaped_Recovery_Oct_2020-012-754c887c48a84c7c90395d3ed80c521f.jpg 750w" data-tracking-container="true" height="3422" id="mntl-sc-block-image_1-0" width="5777"/> <noscript> <img alt="K-shaped recovery" class="img--noscript universal-image__image" height="3422" sizes="750px" src="https://www.investopedia.com/thmb/j2PQabnsmhOS5qDY4SJcp3JAlyI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_K_Shaped_Recovery_Oct_2020-012-754c887c48a84c7c90395d3ed80c521f.jpg" srcset="https://www.investopedia.com/thmb/jKjhbRqr5relm4xRCvRW3oy8kzc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_K_Shaped_Recovery_Oct_2020-012-754c887c48a84c7c90395d3ed80c521f.jpg 750w" width="5777"/> </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>Sabrina Jiang / Investopedia</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Here’s how a COVID-19 K-shaped recovery has impacted the economy and its potential long-term implications for the future. </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 COVID-19 K-shaped recovery is defined by certain sectors recovering quickly while others continue to lag.<span class="ql-inline-citation" data-cite="26"></span></li><li>Long-term implications of a K-shaped recovery include long-term unemployment among people in the lowest income quintile, wealth inequality, a continuing and worsening racial wealth gap, and growing corporate monopolies.<span class="ql-inline-citation" data-cite="26"></span></li><li>A K-shaped recovery is affecting the nature of work—as innovation and tech adoption accelerate, more people are being managed by automation and algorithms.<span class="ql-inline-citation" data-cite="26"></span></li><li>As seen in previous recessions, persistent unemployment may result in a K-shaped recovery, especially for people in low-income quintiles.<span class="ql-inline-citation" data-cite="26"></span></li><li>Lower-wage establishments and workers suffered the brunt of the Covid-19-induced recession. The loss of employment was larger, and the road to employment and recovery was longer than establishments with higher wages.<span class="ql-inline-citation" data-cite="26"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-the-different-types-of-economic-recovery"></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 Different Types of Economic Recovery </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Several different shapes of recovery can follow a recession. For instance, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/v-shaped-recovery.asp">V-shaped recovery</a> is one where a sharp rise follows a steep decline. </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:79.0%;"> <img alt="V-shaped recovery" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/0lAHXbbKb6WTV5_uI1bTD9x1i5w=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_V-Shaped_Recovery_May_2020-012-517eaed792a6456cb1446b8fa70651a6.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/0lAHXbbKb6WTV5_uI1bTD9x1i5w=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_V-Shaped_Recovery_May_2020-012-517eaed792a6456cb1446b8fa70651a6.jpg" data-srcset="https://www.investopedia.com/thmb/5Yhk4b5quuvcQsTquMYd2G6l2Ms=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_V-Shaped_Recovery_May_2020-012-517eaed792a6456cb1446b8fa70651a6.jpg 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_2-0" width="5011"/> <noscript> <img alt="V-shaped recovery" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/0lAHXbbKb6WTV5_uI1bTD9x1i5w=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_V-Shaped_Recovery_May_2020-012-517eaed792a6456cb1446b8fa70651a6.jpg" srcset="https://www.investopedia.com/thmb/5Yhk4b5quuvcQsTquMYd2G6l2Ms=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_V-Shaped_Recovery_May_2020-012-517eaed792a6456cb1446b8fa70651a6.jpg 750w" width="5011"/> </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>Sabrina Jiang / Investopedia</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> In a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/u-shaped-recovery.asp">U-shaped recovery</a>, on the other hand, the economy lags over several quarters before bouncing back.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_16-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:75.3%;"> <img alt="U-shaped recovery" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/0_YezRLmbV3wFlhRi3tPzK1DY0o=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_U-Shaped_Recovery_May_2020-012-ffe65bd002f4429fb804db88f5be24b9.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/0_YezRLmbV3wFlhRi3tPzK1DY0o=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_U-Shaped_Recovery_May_2020-012-ffe65bd002f4429fb804db88f5be24b9.jpg" data-srcset="https://www.investopedia.com/thmb/SZEywe72kJud3SOFiIAG0McY9gA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_U-Shaped_Recovery_May_2020-012-ffe65bd002f4429fb804db88f5be24b9.jpg 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_3-0" width="5251"/> <noscript> <img alt="U-shaped recovery" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/0_YezRLmbV3wFlhRi3tPzK1DY0o=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_U-Shaped_Recovery_May_2020-012-ffe65bd002f4429fb804db88f5be24b9.jpg" srcset="https://www.investopedia.com/thmb/SZEywe72kJud3SOFiIAG0McY9gA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_U-Shaped_Recovery_May_2020-012-ffe65bd002f4429fb804db88f5be24b9.jpg 750w" width="5251"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_3-0"> <span class="figure-article-caption-owner"><p>Sabrina Jiang / Investopedia</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The worst offender is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/l-shaped-recession.asp">L-shaped recovery</a>, which is marked by an extended period of lackluster growth. In this case, recovering back to previous levels can take years. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lost-decade.asp">Lost Decade</a> in Japan is one example of an L-shaped recovery.<span class="ql-inline-citation" data-cite="25"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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:69.3%;"> <img alt="L-shaped recovery" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/RIgMYCCSX90xgLubgKUT3rFnhaQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_L-Shaped_Recovery_May_2020-012-252fa1cd540648049d8434869ea3c858.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/RIgMYCCSX90xgLubgKUT3rFnhaQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_L-Shaped_Recovery_May_2020-012-252fa1cd540648049d8434869ea3c858.jpg" data-srcset="https://www.investopedia.com/thmb/0CgUhaoCtRelKn3EG8O_SgYo-vA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_L-Shaped_Recovery_May_2020-012-252fa1cd540648049d8434869ea3c858.jpg 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_4-0" width="5709"/> <noscript> <img alt="L-shaped recovery" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/RIgMYCCSX90xgLubgKUT3rFnhaQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_L-Shaped_Recovery_May_2020-012-252fa1cd540648049d8434869ea3c858.jpg" srcset="https://www.investopedia.com/thmb/0CgUhaoCtRelKn3EG8O_SgYo-vA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_L-Shaped_Recovery_May_2020-012-252fa1cd540648049d8434869ea3c858.jpg 750w" width="5709"/> </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"><p>Sabrina Jiang / Investopedia</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> A K-shaped recovery occurs when some segments of the economy, such as large corporations, experience a V-shaped recovery while others, such as the service sector, experience an L-shaped recovery. </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-long-term-unemployment"></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"> Long-Term Unemployment </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The K-shaped recovery<strong> </strong>resulting from COVID-19 has been particularly hard on low-income workers, who are more likely to be employed in the economic sectors that were hit the hardest. Employment rates among people earning less than $27,000 annually are 22.6% lower than pre-pandemic levels as of July 1, 2021. By contrast, people earning more than $60,000 annually have seen employment levels increase by 9.7% during this time frame. At the height of the COVID-19 recession, employment rates among low-income workers declined 37.6%. For those earning more than $60,000, the drop was just 13.4%.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> According to a U.S. <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> study, industries including leisure and hospitality, education and health, and information were among the hardest hit in employment loss for low-income workers.<span class="ql-inline-citation" data-cite="26"></span> Many of these sectors pay below the national average.<span class="ql-inline-citation" data-cite="22"></span><span class="ql-inline-citation" data-cite="20"></span><span class="ql-inline-citation" data-cite="21"></span> By comparison, areas that proved resilient were technology and government-based jobs.<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_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Additionally, among the lowest-wage employees who were unable to work due to the pandemic, only 36% had access to health insurance through employer-sponsored benefits. The leisure and hospitality sector, for instance, covers hotels, restaurants, arts venues, and recreation, among others.<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_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> In addition to the K-shaped recovery by industry, there also seems to have been a K-shaped recovery by income. The recovery negatively impacted not only certain sectors but also the lowest-paid employees within<strong> </strong>all sectors.<strong> </strong>The rate of recovery for low-wage workers overall<strong> </strong>was significantly slower than for high-wage workers and presented fewer employment opportunities.<span class="ql-inline-citation" data-cite="26"></span><br/> </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 is likely because many low-income jobs found in distressed sectors couldn’t be performed remotely. In fact, 74% of low-wage establishments could not offer remote work to their employees, while high-wage establishments offered it at a rate of four times more.<span class="ql-inline-citation" data-cite="26"></span> Just as sectors such as tech and government were more likely to cover health insurance, they were also more likely able to offer remote work opportunities. </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 economic issues hit people of color, women, and undocumented immigrants the hardest.<span class="ql-inline-citation" data-cite="28"></span> A 2020 study by the National Bureau of Economic Research showed that from February to April 2020, there was a 41% drop in<strong> </strong>the number of<strong> </strong>Black business owners, a 32% drop in Latinx business owners, and a 26% drop in Asian business owners; White business owners suffered the lowest drop, at 17%.<span class="ql-inline-citation" data-cite="29"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Research shows that recessions can cause significant earnings displacement over a lifetime for lower-income workers.<span class="ql-inline-citation" data-cite="3"></span> Even during the subsequent expansions, these losses in hours and earnings were not recovered among the lowest income quintile across the last 52 years.<span class="ql-inline-citation" data-cite="4"></span> For these reasons, the unemployment picture may have persistent effects.<span class="ql-inline-citation" data-cite="26"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-increasing-wealth-inequality"></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"> Increasing Wealth Inequality </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> As the recovery continues, it’s impossible to overlook the growing wealth divide. Throughout the pandemic, U.S. billionaires have grown their wealth by $1.8 trillion as of August 2021.<span class="ql-inline-citation" data-cite="5"></span> According to French economist Gabriel Zucman, wealth inequality today has surpassed levels seen in the Gilded Age year of 1913.<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_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Wealth inequality has been supported by soaring stock market gains. Following March 2020 lows, the S&amp;P 500 recovered in record time, and it subsequently gained 95% in the 18 months that followed. In 2021, the wealthiest 10% of Americans owned 89% of stocks and mutual funds.<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_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Compounding this effect is federal stimulus, which has injected trillions of capital into the economy. Included in this plan is the purchase of $120 billion in Treasury bonds and mortgage-backed securities monthly to boost lending and stimulate the economy. These actions have spurred investor confidence and stock market gains.<span class="ql-inline-citation" data-cite="27"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Thanks in part to the low-interest-rate environment, the housing market has also thrived, further benefiting the wealthiest. In 2020, 842,000 existing-home sales took place—the highest since 2006.<span class="ql-inline-citation" data-cite="18"></span> According to the Federal Reserve (Fed), the top 10% of the wealthiest own 45% of U.S. real estate.<span class="ql-inline-citation" data-cite="17"></span> While this is good news for people currently owning real estate, it offers a different picture for those struggling to break into the housing market. </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"> Meantime, the pandemic worsened housing instability for renters, particularly renters of color.<span class="ql-inline-citation" data-cite="30"></span> Eviction moratoriums offered temporary relief but did not solve the structural inequities. Adding to the difficulty of keeping up with rent: People of color experienced disproportionate levels of unemployment. As an April 2020 Pew study reported, roughly 61% of Hispanic respondents said that someone in their household had lost a job, as had 44% of Black adults and 38% of White adults.<span class="ql-inline-citation" data-cite="31"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-growing-corporate-monopolies"></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"> Growing Corporate Monopolies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> A direct consequence of the pandemic was a shift toward remote work. This not only accelerated technological adoption but also boosted the demand for tech-related products and services.  </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"> One prime example of this is Zoom (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=zoom">ZOOM</a>), which saw explosive growth as videoconferencing became more critical during periods of social distancing. The broader result: the growing concentration of big tech monopolies, which possessed considerable <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/05/economicmoat.asp">moats</a> even before the pandemic.  </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"> To put it in perspective, according to reporting, the market cap of 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>), Amazon (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn">AMZN</a>), Microsoft (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft">MSFT</a>), Alphabet (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=googl">GOOGL</a>), and Meta, formerly Facebook, (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>) reached nearly 25% of the S&amp;P 500 in 2021.<span class="ql-inline-citation" data-cite="27"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Technology companies and large corporations also benefited from large government stimulus. For instance, the Fed extended $750 billion in credit to large corporate employers to help them retain employees.<span class="ql-inline-citation" data-cite="12"></span> While <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/smallandmidsizeenterprises.asp">small- and medium-sized enterprises (SMEs)</a> had government stimulus available to them, their growth wasn’t as pronounced.<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_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> This is especially problematic as SMEs are responsible for 44% of economic activity and create two out of three new jobs in America.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="11"></span> As a lifeblood for innovation, SMEs play a key role in driving competition within an economy.<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_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Given the growing presence of corporate monopolies (only accentuated by the K-shaped recovery), this has many implications for the future. Automation will likely increase, further creating systematic inequality.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Importantly, it will likely shape the nature of work. Where traditional work models enabled upward mobility, the current gig economy—in many ways, powered by algorithms—does not offer the same advancement opportunities. This can be seen in companies like Uber or Doordash, where interactions are managed algorithmically for efficiency, with relatively few human managers directly managing employees, leaving no chance for the gig workers to advance further in their roles. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_63-0"><span class="heading-toc" id="toc-what-is-a-k-shaped-economic-recovery-and-what-are-its-implications"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a K-Shaped Economic Recovery, and What Are Its Implications?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A K-shaped recovery is an economic recovery following a recession where only certain sectors, industries, or areas of the economy recover while others persistently lag. Among the implications of a K-shaped recovery are wealth inequality, greater corporate monopolies, a continuing racial wealth gap, and long-term unemployment for low-income workers.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_65-0"><span class="heading-toc" id="toc-what-is-an-example-of-a-k-shaped-recovery"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is an Example of a K-Shaped Recovery?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One example of a K-shaped recovery is when certain sectors, such as technology or financial services, recover after a recession while others, such as hospitality and leisure, show sluggish growth. Each growth pattern resembles the diverging slopes of a letter “K.”</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-is-a-k-shaped-recovery-bad"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a K-Shaped Recovery Bad?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It depends on how one looks at it. For the wealthiest and a select number of sectors, a K-shaped recovery has proven beneficial so far. However, low-income workers, and sectors such as leisure, hospitality, and other services, have faced considerable challenges with lasting implications.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_69-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> A K-shaped recovery is reinforcing structural trends that were emerging long before COVID-19 unfolded. But perhaps most troubling is the fact that low-income unemployment and wealth inequality could last for many years.<span class="ql-inline-citation" data-cite="8"></span> This will only exacerbate the nation’s long-standing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-racial-wealth-gap-5105010">racial wealth gap</a>. </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"> A shift in government spending could help with these effects. Trillions in proposed federal budget initiatives that focus on creating jobs and childcare spending could lessen the burden for American families.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> While the implications of the K-shaped recovery still remain uncertain, important political and social actions may also help shape the economy’s direction.<br/> </p></div>
The COVID-19 pandemic recovery has been fractured and uneven. Millions of Americans remain unemployed, while the wealthiest have grown their fortunes—reinforced by a strong stock market.  As these divergences expand, the term “[K-shaped recovery](https://www.investopedia.com/k-shaped-recovery-5080086)” has emerged. Specifically, it describes how different areas of the economy have recovered at varying speeds. As a “K” letter shape denotes, some sectors have lagged or declined, such as hospitality and leisure, while the opposite is true for tech. Perhaps most importantly, a K-shaped recovery appears to have structural effects on the economy. Inequality is rising, employment is stagnating for many, and technological adoption is accelerating. ![K-shaped recovery]() ![K-shaped recovery](https://www.investopedia.com/thmb/j2PQabnsmhOS5qDY4SJcp3JAlyI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_K_Shaped_Recovery_Oct_2020-012-754c887c48a84c7c90395d3ed80c521f.jpg) Sabrina Jiang / Investopedia Here’s how a COVID-19 K-shaped recovery has impacted the economy and its potential long-term implications for the future. ### Key Takeaways * The COVID-19 K-shaped recovery is defined by certain sectors recovering quickly while others continue to lag. * Long-term implications of a K-shaped recovery include long-term unemployment among people in the lowest income quintile, wealth inequality, a continuing and worsening racial wealth gap, and growing corporate monopolies. * A K-shaped recovery is affecting the nature of work—as innovation and tech adoption accelerate, more people are being managed by automation and algorithms. * As seen in previous recessions, persistent unemployment may result in a K-shaped recovery, especially for people in low-income quintiles. * Lower-wage establishments and workers suffered the brunt of the Covid-19-induced recession. The loss of employment was larger, and the road to employment and recovery was longer than establishments with higher wages. ## The Different Types of Economic Recovery Several different shapes of recovery can follow a recession. For instance, a [V-shaped recovery](https://www.investopedia.com/terms/v/v-shaped-recovery.asp) is one where a sharp rise follows a steep decline. ![V-shaped recovery]() ![V-shaped recovery](https://www.investopedia.com/thmb/0lAHXbbKb6WTV5_uI1bTD9x1i5w=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_V-Shaped_Recovery_May_2020-012-517eaed792a6456cb1446b8fa70651a6.jpg) Sabrina Jiang / Investopedia In a [U-shaped recovery](https://www.investopedia.com/terms/u/u-shaped-recovery.asp), on the other hand, the economy lags over several quarters before bouncing back.  ![U-shaped recovery]() ![U-shaped recovery](https://www.investopedia.com/thmb/0_YezRLmbV3wFlhRi3tPzK1DY0o=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_U-Shaped_Recovery_May_2020-012-ffe65bd002f4429fb804db88f5be24b9.jpg) Sabrina Jiang / Investopedia The worst offender is the [L-shaped recovery](https://www.investopedia.com/terms/l/l-shaped-recession.asp), which is marked by an extended period of lackluster growth. In this case, recovering back to previous levels can take years. The [Lost Decade](https://www.investopedia.com/terms/l/lost-decade.asp) in Japan is one example of an L-shaped recovery. ![L-shaped recovery]() ![L-shaped recovery](https://www.investopedia.com/thmb/RIgMYCCSX90xgLubgKUT3rFnhaQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_L-Shaped_Recovery_May_2020-012-252fa1cd540648049d8434869ea3c858.jpg) Sabrina Jiang / Investopedia A K-shaped recovery occurs when some segments of the economy, such as large corporations, experience a V-shaped recovery while others, such as the service sector, experience an L-shaped recovery. ## Long-Term Unemployment The K-shaped recoveryresulting from COVID-19 has been particularly hard on low-income workers, who are more likely to be employed in the economic sectors that were hit the hardest. Employment rates among people earning less than $27,000 annually are 22.6% lower than pre-pandemic levels as of July 1, 2021. By contrast, people earning more than $60,000 annually have seen employment levels increase by 9.7% during this time frame. At the height of the COVID-19 recession, employment rates among low-income workers declined 37.6%. For those earning more than $60,000, the drop was just 13.4%. According to a U.S. [Bureau of Labor Statistics](https://www.investopedia.com/terms/b/bls.asp) study, industries including leisure and hospitality, education and health, and information were among the hardest hit in employment loss for low-income workers. Many of these sectors pay below the national average. By comparison, areas that proved resilient were technology and government-based jobs. Additionally, among the lowest-wage employees who were unable to work due to the pandemic, only 36% had access to health insurance through employer-sponsored benefits. The leisure and hospitality sector, for instance, covers hotels, restaurants, arts venues, and recreation, among others. In addition to the K-shaped recovery by industry, there also seems to have been a K-shaped recovery by income. The recovery negatively impacted not only certain sectors but also the lowest-paid employees withinall sectors.The rate of recovery for low-wage workers overallwas significantly slower than for high-wage workers and presented fewer employment opportunities. This is likely because many low-income jobs found in distressed sectors couldn’t be performed remotely. In fact, 74% of low-wage establishments could not offer remote work to their employees, while high-wage establishments offered it at a rate of four times more. Just as sectors such as tech and government were more likely to cover health insurance, they were also more likely able to offer remote work opportunities. The economic issues hit people of color, women, and undocumented immigrants the hardest. A 2020 study by the National Bureau of Economic Research showed that from February to April 2020, there was a 41% drop inthe number ofBlack business owners, a 32% drop in Latinx business owners, and a 26% drop in Asian business owners; White business owners suffered the lowest drop, at 17%. Research shows that recessions can cause significant earnings displacement over a lifetime for lower-income workers. Even during the subsequent expansions, these losses in hours and earnings were not recovered among the lowest income quintile across the last 52 years. For these reasons, the unemployment picture may have persistent effects. ## Increasing Wealth Inequality As the recovery continues, it’s impossible to overlook the growing wealth divide. Throughout the pandemic, U.S. billionaires have grown their wealth by $1.8 trillion as of August 2021. According to French economist Gabriel Zucman, wealth inequality today has surpassed levels seen in the Gilded Age year of 1913.  Wealth inequality has been supported by soaring stock market gains. Following March 2020 lows, the S&P 500 recovered in record time, and it subsequently gained 95% in the 18 months that followed. In 2021, the wealthiest 10% of Americans owned 89% of stocks and mutual funds. Compounding this effect is federal stimulus, which has injected trillions of capital into the economy. Included in this plan is the purchase of $120 billion in Treasury bonds and mortgage-backed securities monthly to boost lending and stimulate the economy. These actions have spurred investor confidence and stock market gains. Thanks in part to the low-interest-rate environment, the housing market has also thrived, further benefiting the wealthiest. In 2020, 842,000 existing-home sales took place—the highest since 2006. According to the Federal Reserve (Fed), the top 10% of the wealthiest own 45% of U.S. real estate. While this is good news for people currently owning real estate, it offers a different picture for those struggling to break into the housing market. Meantime, the pandemic worsened housing instability for renters, particularly renters of color. Eviction moratoriums offered temporary relief but did not solve the structural inequities. Adding to the difficulty of keeping up with rent: People of color experienced disproportionate levels of unemployment. As an April 2020 Pew study reported, roughly 61% of Hispanic respondents said that someone in their household had lost a job, as had 44% of Black adults and 38% of White adults. ## Growing Corporate Monopolies A direct consequence of the pandemic was a shift toward remote work. This not only accelerated technological adoption but also boosted the demand for tech-related products and services.  One prime example of this is Zoom ([ZOOM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=zoom)), which saw explosive growth as videoconferencing became more critical during periods of social distancing. The broader result: the growing concentration of big tech monopolies, which possessed considerable [moats](https://www.investopedia.com/ask/answers/05/economicmoat.asp) even before the pandemic.  To put it in perspective, according to reporting, the market cap of Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl)), Amazon ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn)), Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft)), Alphabet ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=googl)), and Meta, formerly Facebook, ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)) reached nearly 25% of the S&P 500 in 2021. Technology companies and large corporations also benefited from large government stimulus. For instance, the Fed extended $750 billion in credit to large corporate employers to help them retain employees. While [small- and medium-sized enterprises (SMEs)](https://www.investopedia.com/terms/s/smallandmidsizeenterprises.asp) had government stimulus available to them, their growth wasn’t as pronounced. This is especially problematic as SMEs are responsible for 44% of economic activity and create two out of three new jobs in America. As a lifeblood for innovation, SMEs play a key role in driving competition within an economy. Given the growing presence of corporate monopolies (only accentuated by the K-shaped recovery), this has many implications for the future. Automation will likely increase, further creating systematic inequality. Importantly, it will likely shape the nature of work. Where traditional work models enabled upward mobility, the current gig economy—in many ways, powered by algorithms—does not offer the same advancement opportunities. This can be seen in companies like Uber or Doordash, where interactions are managed algorithmically for efficiency, with relatively few human managers directly managing employees, leaving no chance for the gig workers to advance further in their roles. ## What Is a K-Shaped Economic Recovery, and What Are Its Implications? A K-shaped recovery is an economic recovery following a recession where only certain sectors, industries, or areas of the economy recover while others persistently lag. Among the implications of a K-shaped recovery are wealth inequality, greater corporate monopolies, a continuing racial wealth gap, and long-term unemployment for low-income workers. ## What Is an Example of a K-Shaped Recovery? One example of a K-shaped recovery is when certain sectors, such as technology or financial services, recover after a recession while others, such as hospitality and leisure, show sluggish growth. Each growth pattern resembles the diverging slopes of a letter “K.” ## Is a K-Shaped Recovery Bad? It depends on how one looks at it. For the wealthiest and a select number of sectors, a K-shaped recovery has proven beneficial so far. However, low-income workers, and sectors such as leisure, hospitality, and other services, have faced considerable challenges with lasting implications. ## The Bottom Line A K-shaped recovery is reinforcing structural trends that were emerging long before COVID-19 unfolded. But perhaps most troubling is the fact that low-income unemployment and wealth inequality could last for many years. This will only exacerbate the nation’s long-standing [racial wealth gap](https://www.investopedia.com/the-racial-wealth-gap-5105010). A shift in government spending could help with these effects. Trillions in proposed federal budget initiatives that focus on creating jobs and childcare spending could lessen the burden for American families. While the implications of the K-shaped recovery still remain uncertain, important political and social actions may also help shape the economy’s direction.
The COVID-19 pandemic recovery has been fractured and uneven. Millions of Americans remain unemployed, while the wealthiest have grown their fortunes—reinforced by a strong stock market.  As these divergences expand, the term “K-shaped recovery” has emerged. Specifically, it describes how different areas of the economy have recovered at varying speeds. As a “K” letter shape denotes, some sectors have lagged or declined, such as hospitality and leisure, while the opposite is true for tech. Perhaps most importantly, a K-shaped recovery appears to have structural effects on the economy. Inequality is rising, employment is stagnating for many, and technological adoption is accelerating. Sabrina Jiang / Investopedia Here’s how a COVID-19 K-shaped recovery has impacted the economy and its potential long-term implications for the future. Key Takeaways The COVID-19 K-shaped recovery is defined by certain sectors recovering quickly while others continue to lag.Long-term implications of a K-shaped recovery include long-term unemployment among people in the lowest income quintile, wealth inequality, a continuing and worsening racial wealth gap, and growing corporate monopolies.A K-shaped recovery is affecting the nature of work—as innovation and tech adoption accelerate, more people are being managed by automation and algorithms.As seen in previous recessions, persistent unemployment may result in a K-shaped recovery, especially for people in low-income quintiles.Lower-wage establishments and workers suffered the brunt of the Covid-19-induced recession. The loss of employment was larger, and the road to employment and recovery was longer than establishments with higher wages. The Different Types of Economic Recovery Several different shapes of recovery can follow a recession. For instance, a V-shaped recovery is one where a sharp rise follows a steep decline. Sabrina Jiang / Investopedia In a U-shaped recovery, on the other hand, the economy lags over several quarters before bouncing back.  Sabrina Jiang / Investopedia The worst offender is the L-shaped recovery, which is marked by an extended period of lackluster growth. In this case, recovering back to previous levels can take years. The Lost Decade in Japan is one example of an L-shaped recovery. Sabrina Jiang / Investopedia A K-shaped recovery occurs when some segments of the economy, such as large corporations, experience a V-shaped recovery while others, such as the service sector, experience an L-shaped recovery. Long-Term Unemployment The K-shaped recovery resulting from COVID-19 has been particularly hard on low-income workers, who are more likely to be employed in the economic sectors that were hit the hardest. Employment rates among people earning less than $27,000 annually are 22.6% lower than pre-pandemic levels as of July 1, 2021. By contrast, people earning more than $60,000 annually have seen employment levels increase by 9.7% during this time frame. At the height of the COVID-19 recession, employment rates among low-income workers declined 37.6%. For those earning more than $60,000, the drop was just 13.4%. According to a U.S. Bureau of Labor Statistics study, industries including leisure and hospitality, education and health, and information were among the hardest hit in employment loss for low-income workers. Many of these sectors pay below the national average. By comparison, areas that proved resilient were technology and government-based jobs. Additionally, among the lowest-wage employees who were unable to work due to the pandemic, only 36% had access to health insurance through employer-sponsored benefits. The leisure and hospitality sector, for instance, covers hotels, restaurants, arts venues, and recreation, among others. In addition to the K-shaped recovery by industry, there also seems to have been a K-shaped recovery by income. The recovery negatively impacted not only certain sectors but also the lowest-paid employees within all sectors. The rate of recovery for low-wage workers overall was significantly slower than for high-wage workers and presented fewer employment opportunities. This is likely because many low-income jobs found in distressed sectors couldn’t be performed remotely. In fact, 74% of low-wage establishments could not offer remote work to their employees, while high-wage establishments offered it at a rate of four times more. Just as sectors such as tech and government were more likely to cover health insurance, they were also more likely able to offer remote work opportunities. The economic issues hit people of color, women, and undocumented immigrants the hardest. A 2020 study by the National Bureau of Economic Research showed that from February to April 2020, there was a 41% drop in the number of Black business owners, a 32% drop in Latinx business owners, and a 26% drop in Asian business owners; White business owners suffered the lowest drop, at 17%. Research shows that recessions can cause significant earnings displacement over a lifetime for lower-income workers. Even during the subsequent expansions, these losses in hours and earnings were not recovered among the lowest income quintile across the last 52 years. For these reasons, the unemployment picture may have persistent effects. Increasing Wealth Inequality As the recovery continues, it’s impossible to overlook the growing wealth divide. Throughout the pandemic, U.S. billionaires have grown their wealth by $1.8 trillion as of August 2021. According to French economist Gabriel Zucman, wealth inequality today has surpassed levels seen in the Gilded Age year of 1913.  Wealth inequality has been supported by soaring stock market gains. Following March 2020 lows, the S&P 500 recovered in record time, and it subsequently gained 95% in the 18 months that followed. In 2021, the wealthiest 10% of Americans owned 89% of stocks and mutual funds. Compounding this effect is federal stimulus, which has injected trillions of capital into the economy. Included in this plan is the purchase of $120 billion in Treasury bonds and mortgage-backed securities monthly to boost lending and stimulate the economy. These actions have spurred investor confidence and stock market gains. Thanks in part to the low-interest-rate environment, the housing market has also thrived, further benefiting the wealthiest. In 2020, 842,000 existing-home sales took place—the highest since 2006. According to the Federal Reserve (Fed), the top 10% of the wealthiest own 45% of U.S. real estate. While this is good news for people currently owning real estate, it offers a different picture for those struggling to break into the housing market. Meantime, the pandemic worsened housing instability for renters, particularly renters of color. Eviction moratoriums offered temporary relief but did not solve the structural inequities. Adding to the difficulty of keeping up with rent: People of color experienced disproportionate levels of unemployment. As an April 2020 Pew study reported, roughly 61% of Hispanic respondents said that someone in their household had lost a job, as had 44% of Black adults and 38% of White adults. Growing Corporate Monopolies A direct consequence of the pandemic was a shift toward remote work. This not only accelerated technological adoption but also boosted the demand for tech-related products and services.  One prime example of this is Zoom (ZOOM), which saw explosive growth as videoconferencing became more critical during periods of social distancing. The broader result: the growing concentration of big tech monopolies, which possessed considerable moats even before the pandemic.  To put it in perspective, according to reporting, the market cap of Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOGL), and Meta, formerly Facebook, (META) reached nearly 25% of the S&P 500 in 2021. Technology companies and large corporations also benefited from large government stimulus. For instance, the Fed extended $750 billion in credit to large corporate employers to help them retain employees. While small- and medium-sized enterprises (SMEs) had government stimulus available to them, their growth wasn’t as pronounced. This is especially problematic as SMEs are responsible for 44% of economic activity and create two out of three new jobs in America. As a lifeblood for innovation, SMEs play a key role in driving competition within an economy. Given the growing presence of corporate monopolies (only accentuated by the K-shaped recovery), this has many implications for the future. Automation will likely increase, further creating systematic inequality. Importantly, it will likely shape the nature of work. Where traditional work models enabled upward mobility, the current gig economy—in many ways, powered by algorithms—does not offer the same advancement opportunities. This can be seen in companies like Uber or Doordash, where interactions are managed algorithmically for efficiency, with relatively few human managers directly managing employees, leaving no chance for the gig workers to advance further in their roles. What Is a K-Shaped Economic Recovery, and What Are Its Implications? A K-shaped recovery is an economic recovery following a recession where only certain sectors, industries, or areas of the economy recover while others persistently lag. Among the implications of a K-shaped recovery are wealth inequality, greater corporate monopolies, a continuing racial wealth gap, and long-term unemployment for low-income workers. What Is an Example of a K-Shaped Recovery? One example of a K-shaped recovery is when certain sectors, such as technology or financial services, recover after a recession while others, such as hospitality and leisure, show sluggish growth. Each growth pattern resembles the diverging slopes of a letter “K.” Is a K-Shaped Recovery Bad? It depends on how one looks at it. For the wealthiest and a select number of sectors, a K-shaped recovery has proven beneficial so far. However, low-income workers, and sectors such as leisure, hospitality, and other services, have faced considerable challenges with lasting implications. The Bottom Line A K-shaped recovery is reinforcing structural trends that were emerging long before COVID-19 unfolded. But perhaps most troubling is the fact that low-income unemployment and wealth inequality could last for many years. This will only exacerbate the nation’s long-standing racial wealth gap. A shift in government spending could help with these effects. Trillions in proposed federal budget initiatives that focus on creating jobs and childcare spending could lessen the burden for American families. While the implications of the K-shaped recovery still remain uncertain, important political and social actions may also help shape the economy’s direction.
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https://www.investopedia.com/top-s-and-p-500-etfs-for-q3-2023-7565725
Top S&P 500 ETFs for Q3 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"> The S&amp;P 500 Index has steadily increased since March 2023, recovering from losses late last year. It is now at its highest point since early 2022.<span class="ql-inline-citation" data-cite="9"></span> For investors confident the market will continue its winning streak, we look at four exchange-traded funds (ETFs) that offer exposure to one of the U.S. stock market's most closely followed benchmarks. </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"> iShares Core S&amp;P 500 ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=IVV">IVV</a>), Vanguard S&amp;P 500 ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO">VOO</a>), and SPDR Portfolio S&amp;P 500 (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPLG">SPLG</a>) are tailored for investors seeking the lowest expense ratios. The SPDR S&amp;P 500 ETF (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY">SPY</a>) is best for investors and active traders who want the most liquidity. Because these funds all track the S&amp;P 500, and therefore tend to provide very similar performance, <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp">expense ratios</a> and liquidity become primary considerations for potential investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&amp;P 500 Index</a> broke into bull market territory in early June after falling 25% from record highs reached in December 2021.<span class="ql-inline-citation" data-cite="9"></span></li> <li>iShares Core S&amp;P 500 ETF, Vanguard S&amp;P 500 ETF, SPDR Portfolio S&amp;P 500, and SPDR S&amp;P 500 ETF give investors exposure to the index.</li> <li>When selecting an S&amp;P 500 ETF, investors should consider the fees they'll pay and the liquidity of each fund.</li> <li>Apple Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL">AAPL</a>) is the largest company in the S&amp;P 500, and thus the top holding of each of these funds.</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"> Below we take a closer look at four S&amp;P 500 ETFs. We have excluded <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leveraged-etf.asp">leveraged ETFs</a>, which provide outsized returns but come with extra <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketrisk.asp">risk</a>, as well as other funds providing varied exposure to the S&amp;P 500 Index, such as the Invesco S&amp;P 500 Equal Weight ETF (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=RSP">RSP</a>), which aren't included because they don't track the S&amp;P exactly. All data below is as of July 26. </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-sp-500-etf-with-the-lowest-fees-ishares-core-sp-500-etf-ivv-tie"></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=IVV" rel="nocaes">S&amp;P 500 ETF With the Lowest Fees: iShares Core S&amp;P 500 ETF (IVV) (Tie)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <li>Expense Ratio: 0.03%</li><li>Performance Over 1 Year: 17.1%</li><li>Annual Dividend Yield: 1.45%</li><li>30-Day Average Daily Volume: 4,008,487</li><li>Assets Under Management: $350.1 billion</li><li>Inception Date: May 15, 2000</li><li>Issuer: BlackRock<span class="ql-inline-citation" data-cite="5"></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_11-0"></div> <span class="heading-toc" id="toc-sp-500-etf-with-the-lowest-fees-vanguard-sp-500-etf-voo-tie"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO" rel="nocaes">S&amp;P 500 ETF With the Lowest Fees: Vanguard S&amp;P 500 ETF (VOO) (Tie)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> <li>Expense Ratio: 0.03%</li><li>Performance Over 1 Year: 17.1%</li><li>Annual Dividend Yield: 1.49%</li><li>3-Month Average Daily Volume: 3,741,302</li><li>Assets Under Management: $334.7 billion</li><li>Inception Date: Sept. 7, 2010</li><li>Issuer: Vanguard<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="2"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-sp-500-etf-with-the-lowest-fees-spdr-portfolio-sp-500-etf-splg-tie"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPLG" rel="nocaes">S&amp;P 500 ETF With the Lowest Fees: SPDR Portfolio S&amp;P 500 ETF (SPLG) (Tie)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <li>Expense Ratio: 0.03%</li><li>Performance Over 1 Year: 17.1%</li><li>Annual Dividend Yield: 1.47%</li><li>3-Month Average Daily Volume: 3,149,160</li><li>Assets Under Management: $19.5 billion</li><li>Inception Date: Nov. 8, 2005</li><li>Issuer: State Street Global Advisors<span class="ql-inline-citation" data-cite="7"></span><span class="ql-inline-citation" data-cite="3"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-most-liquid-sp-500-etf-spdr-sp-500-etf-spy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY" rel="nocaes">Most Liquid S&amp;P 500 ETF: SPDR S&amp;P 500 ETF (SPY)</a> </h2> <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/terms/l/liquidity.asp">Liquidity</a> indicates how easy it is to buy or sell an ETF, with higher liquidity generally translating to lower trading costs. While trading costs aren't a concern for investors holding ETFs long-term, active traders favor highly liquid funds to minimize costs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <li>Expense Ratio: 0.09%</li><li>Performance Over 1 Year: 17.0%</li><li>Annual Dividend Yield: 1.44%</li><li>3-Month Average Daily Volume: 78,743,056</li><li>Assets Under Management: $427.8 billion</li><li>Inception Date: Jan. 22, 1993</li><li>Issuer: State Street Global Advisors<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="4"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <span class="heading-toc" id="toc-why-expense-ratios-matter"></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"> Why Expense Ratios Matter </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Because these ETFs all follow the performance of the S&amp;P 500 index, one of the most important determinants of long-term returns is how much a fund charges in fees. An ETF's fees are measured by its expense ratio, which is the percentage of an investor's assets that are kept by the fund manager to maintain the fund. </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 fund's expense ratio can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/092613/pay-attention-your-funds-expense-ratio.asp">significantly affect a long-term investor's total returns</a>. An investor who puts $10,000 in a fund that returns 10% every year will pay $336 in fees to a fund with a 0.5% expense ratio. The same investor would pay $1,682 in fees if they put the same money in a fund with a 2.5% expense ratio.<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"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer">warranty and liability disclaimer</a> for more info.</em> </p> <div 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"> <em>As of the date this article was written, the author owns SPY.</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>
The S&P 500 Index has steadily increased since March 2023, recovering from losses late last year. It is now at its highest point since early 2022. For investors confident the market will continue its winning streak, we look at four exchange-traded funds (ETFs) that offer exposure to one of the U.S. stock market's most closely followed benchmarks. iShares Core S&P 500 ETF ([IVV](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IVV)), Vanguard S&P 500 ETF ([VOO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO)), and SPDR Portfolio S&P 500 ([SPLG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPLG)) are tailored for investors seeking the lowest expense ratios. The SPDR S&P 500 ETF ([SPY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY)) is best for investors and active traders who want the most liquidity. Because these funds all track the S&P 500, and therefore tend to provide very similar performance, [expense ratios](https://www.investopedia.com/terms/e/expenseratio.asp) and liquidity become primary considerations for potential investors. ### Key Takeaways * The [S&P 500 Index](https://www.investopedia.com/terms/s/sp500.asp) broke into bull market territory in early June after falling 25% from record highs reached in December 2021. * iShares Core S&P 500 ETF, Vanguard S&P 500 ETF, SPDR Portfolio S&P 500, and SPDR S&P 500 ETF give investors exposure to the index. * When selecting an S&P 500 ETF, investors should consider the fees they'll pay and the liquidity of each fund. * Apple Inc. ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) is the largest company in the S&P 500, and thus the top holding of each of these funds. Below we take a closer look at four S&P 500 ETFs. We have excluded [leveraged ETFs](https://www.investopedia.com/terms/l/leveraged-etf.asp), which provide outsized returns but come with extra [risk](https://www.investopedia.com/terms/m/marketrisk.asp), as well as other funds providing varied exposure to the S&P 500 Index, such as the Invesco S&P 500 Equal Weight ETF ([RSP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=RSP)), which aren't included because they don't track the S&P exactly. All data below is as of July 26. ## [S&P 500 ETF With the Lowest Fees: iShares Core S&P 500 ETF (IVV) (Tie)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IVV) * Expense Ratio: 0.03% * Performance Over 1 Year: 17.1% * Annual Dividend Yield: 1.45% * 30-Day Average Daily Volume: 4,008,487 * Assets Under Management: $350.1 billion * Inception Date: May 15, 2000 * Issuer: BlackRock ## [S&P 500 ETF With the Lowest Fees: Vanguard S&P 500 ETF (VOO) (Tie)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO) * Expense Ratio: 0.03% * Performance Over 1 Year: 17.1% * Annual Dividend Yield: 1.49% * 3-Month Average Daily Volume: 3,741,302 * Assets Under Management: $334.7 billion * Inception Date: Sept. 7, 2010 * Issuer: Vanguard ## [S&P 500 ETF With the Lowest Fees: SPDR Portfolio S&P 500 ETF (SPLG) (Tie)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPLG) * Expense Ratio: 0.03% * Performance Over 1 Year: 17.1% * Annual Dividend Yield: 1.47% * 3-Month Average Daily Volume: 3,149,160 * Assets Under Management: $19.5 billion * Inception Date: Nov. 8, 2005 * Issuer: State Street Global Advisors ## [Most Liquid S&P 500 ETF: SPDR S&P 500 ETF (SPY)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY) [Liquidity](https://www.investopedia.com/terms/l/liquidity.asp) indicates how easy it is to buy or sell an ETF, with higher liquidity generally translating to lower trading costs. While trading costs aren't a concern for investors holding ETFs long-term, active traders favor highly liquid funds to minimize costs. * Expense Ratio: 0.09% * Performance Over 1 Year: 17.0% * Annual Dividend Yield: 1.44% * 3-Month Average Daily Volume: 78,743,056 * Assets Under Management: $427.8 billion * Inception Date: Jan. 22, 1993 * Issuer: State Street Global Advisors ## Why Expense Ratios Matter Because these ETFs all follow the performance of the S&P 500 index, one of the most important determinants of long-term returns is how much a fund charges in fees. An ETF's fees are measured by its expense ratio, which is the percentage of an investor's assets that are kept by the fund manager to maintain the fund. A fund's expense ratio can [significantly affect a long-term investor's total returns](https://www.investopedia.com/articles/personal-finance/092613/pay-attention-your-funds-expense-ratio.asp). An investor who puts $10,000 in a fund that returns 10% every year will pay $336 in fees to a fund with a 0.5% expense ratio. The same investor would pay $1,682 in fees if they put the same money in a fund with a 2.5% expense ratio. *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 owns SPY.* Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
The S&P 500 Index has steadily increased since March 2023, recovering from losses late last year. It is now at its highest point since early 2022. For investors confident the market will continue its winning streak, we look at four exchange-traded funds (ETFs) that offer exposure to one of the U.S. stock market's most closely followed benchmarks. iShares Core S&P 500 ETF (IVV), Vanguard S&P 500 ETF (VOO), and SPDR Portfolio S&P 500 (SPLG) are tailored for investors seeking the lowest expense ratios. The SPDR S&P 500 ETF (SPY) is best for investors and active traders who want the most liquidity. Because these funds all track the S&P 500, and therefore tend to provide very similar performance, expense ratios and liquidity become primary considerations for potential investors. Key Takeaways The S&P 500 Index broke into bull market territory in early June after falling 25% from record highs reached in December 2021. iShares Core S&P 500 ETF, Vanguard S&P 500 ETF, SPDR Portfolio S&P 500, and SPDR S&P 500 ETF give investors exposure to the index. When selecting an S&P 500 ETF, investors should consider the fees they'll pay and the liquidity of each fund. Apple Inc. (AAPL) is the largest company in the S&P 500, and thus the top holding of each of these funds. Below we take a closer look at four S&P 500 ETFs. We have excluded leveraged ETFs, which provide outsized returns but come with extra risk, as well as other funds providing varied exposure to the S&P 500 Index, such as the Invesco S&P 500 Equal Weight ETF (RSP), which aren't included because they don't track the S&P exactly. All data below is as of July 26. S&P 500 ETF With the Lowest Fees: iShares Core S&P 500 ETF (IVV) (Tie) Expense Ratio: 0.03%Performance Over 1 Year: 17.1%Annual Dividend Yield: 1.45%30-Day Average Daily Volume: 4,008,487Assets Under Management: $350.1 billionInception Date: May 15, 2000Issuer: BlackRock S&P 500 ETF With the Lowest Fees: Vanguard S&P 500 ETF (VOO) (Tie) Expense Ratio: 0.03%Performance Over 1 Year: 17.1%Annual Dividend Yield: 1.49%3-Month Average Daily Volume: 3,741,302Assets Under Management: $334.7 billionInception Date: Sept. 7, 2010Issuer: Vanguard S&P 500 ETF With the Lowest Fees: SPDR Portfolio S&P 500 ETF (SPLG) (Tie) Expense Ratio: 0.03%Performance Over 1 Year: 17.1%Annual Dividend Yield: 1.47%3-Month Average Daily Volume: 3,149,160Assets Under Management: $19.5 billionInception Date: Nov. 8, 2005Issuer: State Street Global Advisors Most Liquid S&P 500 ETF: SPDR S&P 500 ETF (SPY) Liquidity indicates how easy it is to buy or sell an ETF, with higher liquidity generally translating to lower trading costs. While trading costs aren't a concern for investors holding ETFs long-term, active traders favor highly liquid funds to minimize costs. Expense Ratio: 0.09%Performance Over 1 Year: 17.0%Annual Dividend Yield: 1.44%3-Month Average Daily Volume: 78,743,056Assets Under Management: $427.8 billionInception Date: Jan. 22, 1993Issuer: State Street Global Advisors Why Expense Ratios Matter Because these ETFs all follow the performance of the S&P 500 index, one of the most important determinants of long-term returns is how much a fund charges in fees. An ETF's fees are measured by its expense ratio, which is the percentage of an investor's assets that are kept by the fund manager to maintain the fund. A fund's expense ratio can significantly affect a long-term investor's total returns. An investor who puts $10,000 in a fund that returns 10% every year will pay $336 in fees to a fund with a 0.5% expense ratio. The same investor would pay $1,682 in fees if they put the same money in a fund with a 2.5% expense ratio. 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 owns SPY. Do you have a news tip for Investopedia reporters? Please email us at [email protected]
[ [ "IVV", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=IVV" ], [ "VOO", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO" ], [ "SPLG", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPLG" ], [ "SPY", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY" ], [ "expense ratios", "https://www.investopedia.com/terms/e/expenseratio.asp" ], [ "S&P 500 Index", "https://www.investopedia.com/terms/s/sp500.asp" ], [ "AAPL", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL" ], [ "leveraged ETFs", "https://www.investopedia.com/terms/l/leveraged-etf.asp" ], [ "risk", "https://www.investopedia.com/terms/m/marketrisk.asp" ], [ "RSP", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=RSP" ], [ "S&P 500 ETF With the Lowest Fees: iShares Core S&P 500 ETF (IVV) (Tie)", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=IVV" ], [ "S&P 500 ETF With the Lowest Fees: Vanguard S&P 500 ETF (VOO) (Tie)", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO" ], [ "S&P 500 ETF With the Lowest Fees: SPDR Portfolio S&P 500 ETF (SPLG) (Tie)", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPLG" ], [ "Most Liquid S&P 500 ETF: SPDR S&P 500 ETF (SPY)", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY" ], [ "Liquidity", "https://www.investopedia.com/terms/l/liquidity.asp" ], [ "significantly affect a long-term investor's total returns", "https://www.investopedia.com/articles/personal-finance/092613/pay-attention-your-funds-expense-ratio.asp" ], [ "warranty and liability disclaimer", "https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/mortgage-rates-drop-for-almost-every-loan-type-8629259
Mortgage Rates Drop for Almost Every Loan Type
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Rates on 30-year mortgages fell a tenth of a percentage point Tuesday to 7.20%—their cheapest level since March. Virtually all other new purchase and refi <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">mortgage rates</a> also fell, with only a few loan types seeing rates hold steady. Tuesday's drop in the FHA 30-year average takes it down to a 2-month low.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_3-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:76.1%;"> <img alt="Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 10, 2024" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/kCcSu9aJYLG2xrFnBxgXzIVnsMg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-10-a6d738b7a42840b08c73a2cec8ae96d6.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/kCcSu9aJYLG2xrFnBxgXzIVnsMg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-10-a6d738b7a42840b08c73a2cec8ae96d6.png" data-srcset="https://www.investopedia.com/thmb/0OqNyHzJUyU5QJPS77jIvqaw8cs=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-10-a6d738b7a42840b08c73a2cec8ae96d6.png 750w" data-tracking-container="true" height="1888" id="mntl-sc-block-image_1-0" width="2480"/> <noscript> <img alt="Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 10, 2024" class="img--noscript universal-image__image" height="1888" sizes="750px" src="https://www.investopedia.com/thmb/kCcSu9aJYLG2xrFnBxgXzIVnsMg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-10-a6d738b7a42840b08c73a2cec8ae96d6.png" srcset="https://www.investopedia.com/thmb/0OqNyHzJUyU5QJPS77jIvqaw8cs=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-10-a6d738b7a42840b08c73a2cec8ae96d6.png 750w" width="2480"/> </noscript> </div> </div> </figure> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_4-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Mortgage Rates</th> </tr> <tr> <th><b>Loan Type</b></th> <th><b>New Purchase</b></th> <th><b>Refinance</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.20%</td> <td>7.44%</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>6.86%</td> <td>7.37%</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>6.95%</td> <td>6.95%</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.66%</td> <td>6.84%</td> </tr> <tr> <td>5/6 ARM</td> <td>7.82%</td> <td>7.90%</td> </tr> </tbody> </table> <figcaption>National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Rates vary widely across lenders, so it's always smart to shop around for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">your best mortgage option</a> and compare rates regularly no matter the type of home loan you seek. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--credible-rate-table--mortgage" id="mntl-sc-block_8-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div id="credible-block"></div> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_11-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/mortgage-rates-5094943" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Compare the Best Mortgage Rates Today - May 21, 2024</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-todays-mortgage-rate-averages-new-purchase"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Today's Mortgage Rate Averages: New Purchase </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Rates on 30-year new purchase mortgages gave up 10 basis points Tuesday, lowering the flagship average to 7.20%. That's the lowest average we've so far this 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"> Rates on 30-year loans are still mildly elevated compared to the start of February, when the 30-year average dipped down to high-6% territory. But the average is considerably cheaper than October's historic 23-year peak of 8.45%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_18-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/8kJ5k/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="30-Year Mortgage Rates Since June 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> New purchase 15-year mortgages meanwhile subtracted 7 basis points, dropping the average to 6.66%. The previous day's average of 6.73% was its highest level in three weeks. Rates on 15-year loans are still much more affordable than last fall's 7.59% average—a peak since 2000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Jumbo 30-year loans meanwhile reversed the 12 basis points they gained Monday, dropping Tuesday's jumbo 30-year average back to 6.95%. The recent 7.07% peak was the most expensive mark since mid-November. Daily historical jumbo rates are not available before 2009, but it's estimated the 7.52% peak reached last fall was the most expensive jumbo 30-year average in 20-plus years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Aside from two averages that marched in place Tuesday, rates moved lower for every other new purchase mortgage type as well. Especially notable was the rate movement for FHA 30-year loans, whose average plummeted 38 basis points to register their lowest mark since Feb. 1. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_26-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates - New Purchase</th> </tr> <tr> <th>Loan Type</th> <th><b>New Purchase Rates</b></th> <th><b>Daily Change</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.20%</td> <td>-0.10</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>6.86%</td> <td>-0.38</td> </tr> <tr> <td>VA 30-Year Fixed</td> <td>6.70%</td> <td>-0.11</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>6.95%</td> <td>-0.12</td> </tr> <tr> <td>20-Year Fixed</td> <td>7.03%</td> <td>-0.07</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.66%</td> <td>-0.07</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>6.83%</td> <td>-0.05</td> </tr> <tr> <td>Jumbo 15-Year Fixed</td> <td>6.91%</td> <td>No Change</td> </tr> <tr> <td>10-Year Fixed</td> <td>6.46%</td> <td>-0.12</td> </tr> <tr> <td>10/6 ARM</td> <td>7.73%</td> <td>-0.01</td> </tr> <tr> <td>7/6 ARM</td> <td>7.69%</td> <td>-0.01</td> </tr> <tr> <td>Jumbo 7/6 ARM</td> <td>6.70%</td> <td>No Change</td> </tr> <tr> <td>5/6 ARM</td> <td>7.82%</td> <td>-0.02</td> </tr> <tr> <td>Jumbo 5/6 ARM</td> <td>6.68%</td> <td>-0.12</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_28-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/ZOMOx/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="90-Day Ranges of Best Mortgage Rates"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-the-weekly-freddie-mac-average"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> The Weekly Freddie Mac Average </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates. Last week's reading inched up 3 basis points to 6.82%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its highest level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a <em>weekly</em> average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountpoints.asp">discount points</a>, while Investopedia’s averages only include zero-point loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-todays-mortgage-rate-averages-refinancing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> Today's Mortgage Rate Averages: Refinancing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Refinancing rates were also largely down Tuesday. In line with its new purchase sibling, the 30-year refi average dropped a tenth of a percentage point. That keeps the spread between 30-year new purchase and refi rates at a narrow 24 basis points. The VA 30-year refi average meanwhile sank 29 basis points. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Tuesday's 15-year refi average fell 6 basis points, while jumbo 30-year refi rates gave up the 13 points they climbed the previous day. Except for three steady refi averages, all other refi loan types saw rate drops Tuesday. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_40-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates - Refinance</th> </tr> <tr> <th>Loan Type</th> <th><b>Refinance Rates</b></th> <th>Daily Change</th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.44%</td> <td>-0.10</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.37%</td> <td>-0.07</td> </tr> <tr> <td>VA 30-Year Fixed</td> <td>7.24%</td> <td>-0.29</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>6.95%</td> <td>-0.13</td> </tr> <tr> <td>20-Year Fixed</td> <td>7.35%</td> <td>-0.05</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.84%</td> <td>-0.06</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>6.98%</td> <td>-0.05</td> </tr> <tr> <td>Jumbo 15-Year Fixed</td> <td>6.91%</td> <td>No Change</td> </tr> <tr> <td>10-Year Fixed</td> <td>6.74%</td> <td>-0.06</td> </tr> <tr> <td>10/6 ARM</td> <td>7.85%</td> <td>No Change</td> </tr> <tr> <td>7/6 ARM</td> <td>7.87%</td> <td>-0.01</td> </tr> <tr> <td>Jumbo 7/6 ARM</td> <td>6.80%</td> <td>No Change</td> </tr> <tr> <td>5/6 ARM</td> <td>7.90%</td> <td>-0.01</td> </tr> <tr> <td>Jumbo 5/6 ARM</td> <td>6.68%</td> <td>-0.12</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Calculate monthly payments for different loan scenarios with our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-calculator-5084794">Mortgage Calculator</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_44-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_45-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or may be based on a hypothetical borrower with an ultra-high credit score or for a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it can vary from the averages you see here.</p></div></div></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--mortgage-loan-calculator" id="mntl-sc-block_46-0"><div class="comp mortgage-loan-calculator mntl-block" data-defer="load" id="mortgage-loan-calculator_1-0"></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-mortgage-rates-by-state"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-heading__text"> Mortgage Rates by State </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> The states with the cheapest 30-year new purchase rates Tuesday were Mississippi, Vermont, Hawaii, Louisiana, New York, and Rhode Island, while the states with the highest average rates were Minnesota, Arizona, Alabama, Idaho, Maryland, Oregon, and Washington. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_53-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/aCQfs/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Mortgage Rates by State"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <span class="heading-toc" id="toc-what-causes-mortgage-rates-to-rise-or-fall"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_55-0"> <span class="mntl-sc-block-heading__text"> What Causes Mortgage Rates to Rise or Fall? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> <li>The level and direction of the bond market, especially 10-year Treasury yields</li> <li>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve's</a> current monetary policy, especially as it relates to bond buying and funding government-backed mortgages</li> <li>Competition between <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-mortgage-lenders-5076852">mortgage lenders and across loan types</a></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/060115/how-do-open-market-operations-omos-affect-bond-prices.asp">bond-buying policy</a> is a major influencer of mortgage rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Between that time and July 2023, the Fed aggressively raised the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> The Fed has been maintaining the federal funds rate at its current level since July, with a fifth consecutive rate hold announced on March 20.<span class="ql-inline-citation" data-cite="5"></span> Although inflation has come down considerably, it is still above the Fed's target level of 2%. Until the central bank feels confident inflation is falling sufficiently and reliably, it has said it is hesitant to start cutting rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> Still, Fed committee members do collectively expect to reduce rates in 2024. The March 20 meeting included the latest installment of the Fed's "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dot-plot-4581755">dot plot</a>" forecast, which showed that the median expectation among the 19 Fed members is for three rate decreases—totaling 0.75 percentage points—by year's end. The dot plot also shows similar expected rate cuts in 2025 and 2026.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> The Fed will hold six more meetings this year, with the next scheduled for April 30 to May 1.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <span class="heading-toc" id="toc-how-we-track-mortgage-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_76-0"> <span class="mntl-sc-block-heading__text"> How We Track Mortgage Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loantovalue.asp">loan-to-value ratio (LTV)</a> of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760. </p></div>
Rates on 30-year mortgages fell a tenth of a percentage point Tuesday to 7.20%—their cheapest level since March. Virtually all other new purchase and refi [mortgage rates](https://www.investopedia.com/mortgage-rates-5094943) also fell, with only a few loan types seeing rates hold steady. Tuesday's drop in the FHA 30-year average takes it down to a 2-month low. ![Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 10, 2024]() ![Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 10, 2024](https://www.investopedia.com/thmb/kCcSu9aJYLG2xrFnBxgXzIVnsMg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-10-a6d738b7a42840b08c73a2cec8ae96d6.png) | National Averages of Lenders' Best Mortgage Rates | | | | --- | --- | --- | | **Loan Type** | **New Purchase** | **Refinance** | | 30-Year Fixed | 7.20% | 7.44% | | FHA 30-Year Fixed | 6.86% | 7.37% | | Jumbo 30-Year Fixed | 6.95% | 6.95% | | 15-Year Fixed | 6.66% | 6.84% | | 5/6 ARM | 7.82% | 7.90% | National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points. Rates vary widely across lenders, so it's always smart to shop around for [your best mortgage option](https://www.investopedia.com/mortgage-rates-5094943) and compare rates regularly no matter the type of home loan you seek. [Compare the Best Mortgage Rates Today - May 21, 2024](https://www.investopedia.com/mortgage-rates-5094943) ## Today's Mortgage Rate Averages: New Purchase Rates on 30-year new purchase mortgages gave up 10 basis points Tuesday, lowering the flagship average to 7.20%. That's the lowest average we've so far this month. Rates on 30-year loans are still mildly elevated compared to the start of February, when the 30-year average dipped down to high-6% territory. But the average is considerably cheaper than October's historic 23-year peak of 8.45%. New purchase 15-year mortgages meanwhile subtracted 7 basis points, dropping the average to 6.66%. The previous day's average of 6.73% was its highest level in three weeks. Rates on 15-year loans are still much more affordable than last fall's 7.59% average—a peak since 2000. Jumbo 30-year loans meanwhile reversed the 12 basis points they gained Monday, dropping Tuesday's jumbo 30-year average back to 6.95%. The recent 7.07% peak was the most expensive mark since mid-November. Daily historical jumbo rates are not available before 2009, but it's estimated the 7.52% peak reached last fall was the most expensive jumbo 30-year average in 20-plus years. Aside from two averages that marched in place Tuesday, rates moved lower for every other new purchase mortgage type as well. Especially notable was the rate movement for FHA 30-year loans, whose average plummeted 38 basis points to register their lowest mark since Feb. 1. | National Averages of Lenders' Best Rates - New Purchase | | | | --- | --- | --- | | Loan Type | **New Purchase Rates** | **Daily Change** | | 30-Year Fixed | 7.20% | -0.10 | | FHA 30-Year Fixed | 6.86% | -0.38 | | VA 30-Year Fixed | 6.70% | -0.11 | | Jumbo 30-Year Fixed | 6.95% | -0.12 | | 20-Year Fixed | 7.03% | -0.07 | | 15-Year Fixed | 6.66% | -0.07 | | FHA 15-Year Fixed | 6.83% | -0.05 | | Jumbo 15-Year Fixed | 6.91% | No Change | | 10-Year Fixed | 6.46% | -0.12 | | 10/6 ARM | 7.73% | -0.01 | | 7/6 ARM | 7.69% | -0.01 | | Jumbo 7/6 ARM | 6.70% | No Change | | 5/6 ARM | 7.82% | -0.02 | | Jumbo 5/6 ARM | 6.68% | -0.12 | ## The Weekly Freddie Mac Average Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates. Last week's reading inched up 3 basis points to 6.82%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its highest level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January. Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a *weekly* average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with [discount points](https://www.investopedia.com/terms/d/discountpoints.asp), while Investopedia’s averages only include zero-point loans. ## Today's Mortgage Rate Averages: Refinancing Refinancing rates were also largely down Tuesday. In line with its new purchase sibling, the 30-year refi average dropped a tenth of a percentage point. That keeps the spread between 30-year new purchase and refi rates at a narrow 24 basis points. The VA 30-year refi average meanwhile sank 29 basis points. Tuesday's 15-year refi average fell 6 basis points, while jumbo 30-year refi rates gave up the 13 points they climbed the previous day. Except for three steady refi averages, all other refi loan types saw rate drops Tuesday. | National Averages of Lenders' Best Rates - Refinance | | | | --- | --- | --- | | Loan Type | **Refinance Rates** | Daily Change | | 30-Year Fixed | 7.44% | -0.10 | | FHA 30-Year Fixed | 7.37% | -0.07 | | VA 30-Year Fixed | 7.24% | -0.29 | | Jumbo 30-Year Fixed | 6.95% | -0.13 | | 20-Year Fixed | 7.35% | -0.05 | | 15-Year Fixed | 6.84% | -0.06 | | FHA 15-Year Fixed | 6.98% | -0.05 | | Jumbo 15-Year Fixed | 6.91% | No Change | | 10-Year Fixed | 6.74% | -0.06 | | 10/6 ARM | 7.85% | No Change | | 7/6 ARM | 7.87% | -0.01 | | Jumbo 7/6 ARM | 6.80% | No Change | | 5/6 ARM | 7.90% | -0.01 | | Jumbo 5/6 ARM | 6.68% | -0.12 | Calculate monthly payments for different loan scenarios with our [Mortgage Calculator](https://www.investopedia.com/mortgage-calculator-5084794). ### The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or may be based on a hypothetical borrower with an ultra-high credit score or for a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it can vary from the averages you see here. ## Mortgage Rates by State The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. The states with the cheapest 30-year new purchase rates Tuesday were Mississippi, Vermont, Hawaii, Louisiana, New York, and Rhode Island, while the states with the highest average rates were Minnesota, Arizona, Alabama, Idaho, Maryland, Oregon, and Washington. ## What Causes Mortgage Rates to Rise or Fall? Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: * The level and direction of the bond market, especially 10-year Treasury yields * The [Federal Reserve's](https://www.investopedia.com/terms/f/federalreservebank.asp) current monetary policy, especially as it relates to bond buying and funding government-backed mortgages * Competition between [mortgage lenders and across loan types](https://www.investopedia.com/best-mortgage-lenders-5076852) Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This [bond-buying policy](https://www.investopedia.com/ask/answers/060115/how-do-open-market-operations-omos-affect-bond-prices.asp) is a major influencer of mortgage rates. But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022. Between that time and July 2023, the Fed aggressively raised the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. The Fed has been maintaining the federal funds rate at its current level since July, with a fifth consecutive rate hold announced on March 20. Although inflation has come down considerably, it is still above the Fed's target level of 2%. Until the central bank feels confident inflation is falling sufficiently and reliably, it has said it is hesitant to start cutting rates. Still, Fed committee members do collectively expect to reduce rates in 2024. The March 20 meeting included the latest installment of the Fed's "[dot plot](https://www.investopedia.com/dot-plot-4581755)" forecast, which showed that the median expectation among the 19 Fed members is for three rate decreases—totaling 0.75 percentage points—by year's end. The dot plot also shows similar expected rate cuts in 2025 and 2026. The Fed will hold six more meetings this year, with the next scheduled for April 30 to May 1. ## How We Track Mortgage Rates The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a [loan-to-value ratio (LTV)](https://www.investopedia.com/terms/l/loantovalue.asp) of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760.
Rates on 30-year mortgages fell a tenth of a percentage point Tuesday to 7.20%—their cheapest level since March. Virtually all other new purchase and refi mortgage rates also fell, with only a few loan types seeing rates hold steady. Tuesday's drop in the FHA 30-year average takes it down to a 2-month low. National Averages of Lenders' Best Mortgage Rates Loan Type New Purchase Refinance 30-Year Fixed 7.20% 7.44% FHA 30-Year Fixed 6.86% 7.37% Jumbo 30-Year Fixed 6.95% 6.95% 15-Year Fixed 6.66% 6.84% 5/6 ARM 7.82% 7.90% National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points. Rates vary widely across lenders, so it's always smart to shop around for your best mortgage option and compare rates regularly no matter the type of home loan you seek. Compare the Best Mortgage Rates Today - May 21, 2024 Today's Mortgage Rate Averages: New Purchase Rates on 30-year new purchase mortgages gave up 10 basis points Tuesday, lowering the flagship average to 7.20%. That's the lowest average we've so far this month. Rates on 30-year loans are still mildly elevated compared to the start of February, when the 30-year average dipped down to high-6% territory. But the average is considerably cheaper than October's historic 23-year peak of 8.45%. New purchase 15-year mortgages meanwhile subtracted 7 basis points, dropping the average to 6.66%. The previous day's average of 6.73% was its highest level in three weeks. Rates on 15-year loans are still much more affordable than last fall's 7.59% average—a peak since 2000. Jumbo 30-year loans meanwhile reversed the 12 basis points they gained Monday, dropping Tuesday's jumbo 30-year average back to 6.95%. The recent 7.07% peak was the most expensive mark since mid-November. Daily historical jumbo rates are not available before 2009, but it's estimated the 7.52% peak reached last fall was the most expensive jumbo 30-year average in 20-plus years. Aside from two averages that marched in place Tuesday, rates moved lower for every other new purchase mortgage type as well. Especially notable was the rate movement for FHA 30-year loans, whose average plummeted 38 basis points to register their lowest mark since Feb. 1. National Averages of Lenders' Best Rates - New Purchase Loan Type New Purchase Rates Daily Change 30-Year Fixed 7.20% -0.10 FHA 30-Year Fixed 6.86% -0.38 VA 30-Year Fixed 6.70% -0.11 Jumbo 30-Year Fixed 6.95% -0.12 20-Year Fixed 7.03% -0.07 15-Year Fixed 6.66% -0.07 FHA 15-Year Fixed 6.83% -0.05 Jumbo 15-Year Fixed 6.91% No Change 10-Year Fixed 6.46% -0.12 10/6 ARM 7.73% -0.01 7/6 ARM 7.69% -0.01 Jumbo 7/6 ARM 6.70% No Change 5/6 ARM 7.82% -0.02 Jumbo 5/6 ARM 6.68% -0.12 The Weekly Freddie Mac Average Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates. Last week's reading inched up 3 basis points to 6.82%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its highest level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January. Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a weekly average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with discount points, while Investopedia’s averages only include zero-point loans. Today's Mortgage Rate Averages: Refinancing Refinancing rates were also largely down Tuesday. In line with its new purchase sibling, the 30-year refi average dropped a tenth of a percentage point. That keeps the spread between 30-year new purchase and refi rates at a narrow 24 basis points. The VA 30-year refi average meanwhile sank 29 basis points. Tuesday's 15-year refi average fell 6 basis points, while jumbo 30-year refi rates gave up the 13 points they climbed the previous day. Except for three steady refi averages, all other refi loan types saw rate drops Tuesday. National Averages of Lenders' Best Rates - Refinance Loan Type Refinance Rates Daily Change 30-Year Fixed 7.44% -0.10 FHA 30-Year Fixed 7.37% -0.07 VA 30-Year Fixed 7.24% -0.29 Jumbo 30-Year Fixed 6.95% -0.13 20-Year Fixed 7.35% -0.05 15-Year Fixed 6.84% -0.06 FHA 15-Year Fixed 6.98% -0.05 Jumbo 15-Year Fixed 6.91% No Change 10-Year Fixed 6.74% -0.06 10/6 ARM 7.85% No Change 7/6 ARM 7.87% -0.01 Jumbo 7/6 ARM 6.80% No Change 5/6 ARM 7.90% -0.01 Jumbo 5/6 ARM 6.68% -0.12 Calculate monthly payments for different loan scenarios with our Mortgage Calculator. The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or may be based on a hypothetical borrower with an ultra-high credit score or for a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it can vary from the averages you see here. Mortgage Rates by State The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. The states with the cheapest 30-year new purchase rates Tuesday were Mississippi, Vermont, Hawaii, Louisiana, New York, and Rhode Island, while the states with the highest average rates were Minnesota, Arizona, Alabama, Idaho, Maryland, Oregon, and Washington. What Causes Mortgage Rates to Rise or Fall? Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: The level and direction of the bond market, especially 10-year Treasury yields The Federal Reserve's current monetary policy, especially as it relates to bond buying and funding government-backed mortgages Competition between mortgage lenders and across loan types Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This bond-buying policy is a major influencer of mortgage rates. But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022. Between that time and July 2023, the Fed aggressively raised the federal funds rate to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. The Fed has been maintaining the federal funds rate at its current level since July, with a fifth consecutive rate hold announced on March 20. Although inflation has come down considerably, it is still above the Fed's target level of 2%. Until the central bank feels confident inflation is falling sufficiently and reliably, it has said it is hesitant to start cutting rates. Still, Fed committee members do collectively expect to reduce rates in 2024. The March 20 meeting included the latest installment of the Fed's "dot plot" forecast, which showed that the median expectation among the 19 Fed members is for three rate decreases—totaling 0.75 percentage points—by year's end. The dot plot also shows similar expected rate cuts in 2025 and 2026. The Fed will hold six more meetings this year, with the next scheduled for April 30 to May 1. How We Track Mortgage Rates The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a loan-to-value ratio (LTV) of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760.
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https://www.investopedia.com/terms/d/decline.asp
Decline: What It Is, How It Works, Example
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-decline"></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 Decline? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A decline is a situation in which a security's price decreases in value over a given trading day and subsequently closes at a lower value than its opening price. It can also be used in reference to other metrics, such as revenues and expenses, used to measure performance of the given security. </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 decline can happen for several reasons, including a reduction in the firm's intrinsic value or as a result of changing market sentiment. </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>Decline refers to a drop in a given security's price over the course of a given trading day. </li><li>A decline can occur due to various reasons, such as a reduction in a firm's intrinsic value or the security's price dropping below its support level. </li><li>Analysts use decline in value as an indicator of performance. </li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-declines"></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 Declines </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> In addition to decline, investors and analysts use other synonymous terms, such as reduction, decrease, downturn, downswing, downtrend, devaluation, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/depreciation.asp">depreciation</a>, diminution, ebb, drop, and slump to describe negative growth or a negative growth trend. </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 decline is generally in share price, revenues, expenses, earnings, earnings per share, assets, liabilities, shareholder's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equity</a>, and cash flow, and is calculated using the growth rate formula, which is the product of the final value less the starting value divided by the starting value multiplied by 100. If positive, there's an increase in growth. If negative, there's a decline in growth.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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 with-title" id="mntl-sc-block-callout-heading_2-0">22%</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The largest single-day decline in the history of the U.S. stock market occurred on Oct. 19, 1987, later dubbed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blackmonday.asp">Black Monday</a>. On that day, the Dow Jones Industrial Average fell 22%.</p></div></div></div> <span class="heading-toc" id="toc-how-declines-are-used"></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 Declines Are Used </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> In general, analysts look at a decline as being indicative of poor performance. However, a decline in some financial statement line items can be a sign of strength. </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, a decline in expenses may signal improved business efficiency. A decline in debts may be indicative of increased cash flows or improved earnings. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> A decline in taxes carries different interpretations depending on the studied target. For some, it is a sign of improved management, but for others, it is a sign of poor corporate responsibility. </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"> However, most agree that a decline in earnings is unfavorable. Just as with any measurement, the interpretation can vary. Alone, a decline does not give the full picture of an organization's health and operational efficiency. Used with other measurements, it is a useful tool for analysis. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-example-of-decline"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Example of Decline </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> If a company has sales totaling $100,000 in year 1 and sales totaling $150,000 in year 2, the growth rate is 50% (($150,000 - $100,000) / $100,000 x 100). </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 this example, it is evident that sales increased, which would equate to increased growth. If sales decreased in year 2 by $50,000, the growth rate would be -50%, indicating a decline in growth (($50,000 - $100,000) / $100,000 x 100). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_29-0"><span class="heading-toc" id="toc-what-causes-the-stock-market-to-decline"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Causes the Stock Market to Decline?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Stock market downturns can be the result of any number of factors, such as falling consumption, rising prices, or reduced investments in the economy. Stock market declines can also be the result of monetary tightening, which can have the effect of raising interest rates.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-what-is-a-structural-decline-in-finance"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Structural Decline in Finance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A structural decline is a downward shift in prices or productivity due to a change in the underlying fundamentals of the market, such as technological shifts in productivity or long-term changes in the cost of essential inputs.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-what-is-a-cyclical-decline-in-finance"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Cyclical Decline in Finance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A cyclical decline is an economic downturn that naturally follows after a period of economic expansion. Falling returns, rising labor and borrowing costs, and decreased consumption may all be contributing factors to a cyclical decline.</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"> In economics, a decline refers to any period of downturn, ranging from a company's falling stock price to a country's falling GDP. Financial analysts and economists closely watch economic figures and attempt to predict when declines will happen.<br/> </p></div>
## What Is a Decline? A decline is a situation in which a security's price decreases in value over a given trading day and subsequently closes at a lower value than its opening price. It can also be used in reference to other metrics, such as revenues and expenses, used to measure performance of the given security. A decline can happen for several reasons, including a reduction in the firm's intrinsic value or as a result of changing market sentiment. ### Key Takeaways * Decline refers to a drop in a given security's price over the course of a given trading day. * A decline can occur due to various reasons, such as a reduction in a firm's intrinsic value or the security's price dropping below its support level. * Analysts use decline in value as an indicator of performance. ## Understanding Declines In addition to decline, investors and analysts use other synonymous terms, such as reduction, decrease, downturn, downswing, downtrend, devaluation, [depreciation](https://www.investopedia.com/terms/d/depreciation.asp), diminution, ebb, drop, and slump to describe negative growth or a negative growth trend. A decline is generally in share price, revenues, expenses, earnings, earnings per share, assets, liabilities, shareholder's [equity](https://www.investopedia.com/terms/e/equity.asp), and cash flow, and is calculated using the growth rate formula, which is the product of the final value less the starting value divided by the starting value multiplied by 100. If positive, there's an increase in growth. If negative, there's a decline in growth. ### 22% The largest single-day decline in the history of the U.S. stock market occurred on Oct. 19, 1987, later dubbed [Black Monday](https://www.investopedia.com/terms/b/blackmonday.asp). On that day, the Dow Jones Industrial Average fell 22%. ## How Declines Are Used In general, analysts look at a decline as being indicative of poor performance. However, a decline in some financial statement line items can be a sign of strength. For example, a decline in expenses may signal improved business efficiency. A decline in debts may be indicative of increased cash flows or improved earnings. A decline in taxes carries different interpretations depending on the studied target. For some, it is a sign of improved management, but for others, it is a sign of poor corporate responsibility. However, most agree that a decline in earnings is unfavorable. Just as with any measurement, the interpretation can vary. Alone, a decline does not give the full picture of an organization's health and operational efficiency. Used with other measurements, it is a useful tool for analysis. ## Example of Decline If a company has sales totaling $100,000 in year 1 and sales totaling $150,000 in year 2, the growth rate is 50% (($150,000 - $100,000) / $100,000 x 100). In this example, it is evident that sales increased, which would equate to increased growth. If sales decreased in year 2 by $50,000, the growth rate would be -50%, indicating a decline in growth (($50,000 - $100,000) / $100,000 x 100). ## What Causes the Stock Market to Decline? Stock market downturns can be the result of any number of factors, such as falling consumption, rising prices, or reduced investments in the economy. Stock market declines can also be the result of monetary tightening, which can have the effect of raising interest rates. ## What Is a Structural Decline in Finance? A structural decline is a downward shift in prices or productivity due to a change in the underlying fundamentals of the market, such as technological shifts in productivity or long-term changes in the cost of essential inputs. ## What Is a Cyclical Decline in Finance? A cyclical decline is an economic downturn that naturally follows after a period of economic expansion. Falling returns, rising labor and borrowing costs, and decreased consumption may all be contributing factors to a cyclical decline. ## The Bottom Line In economics, a decline refers to any period of downturn, ranging from a company's falling stock price to a country's falling GDP. Financial analysts and economists closely watch economic figures and attempt to predict when declines will happen.
What Is a Decline? A decline is a situation in which a security's price decreases in value over a given trading day and subsequently closes at a lower value than its opening price. It can also be used in reference to other metrics, such as revenues and expenses, used to measure performance of the given security. A decline can happen for several reasons, including a reduction in the firm's intrinsic value or as a result of changing market sentiment. Key Takeaways Decline refers to a drop in a given security's price over the course of a given trading day. A decline can occur due to various reasons, such as a reduction in a firm's intrinsic value or the security's price dropping below its support level. Analysts use decline in value as an indicator of performance. Understanding Declines In addition to decline, investors and analysts use other synonymous terms, such as reduction, decrease, downturn, downswing, downtrend, devaluation, depreciation, diminution, ebb, drop, and slump to describe negative growth or a negative growth trend. A decline is generally in share price, revenues, expenses, earnings, earnings per share, assets, liabilities, shareholder's equity, and cash flow, and is calculated using the growth rate formula, which is the product of the final value less the starting value divided by the starting value multiplied by 100. If positive, there's an increase in growth. If negative, there's a decline in growth. 22% The largest single-day decline in the history of the U.S. stock market occurred on Oct. 19, 1987, later dubbed Black Monday. On that day, the Dow Jones Industrial Average fell 22%. How Declines Are Used In general, analysts look at a decline as being indicative of poor performance. However, a decline in some financial statement line items can be a sign of strength. For example, a decline in expenses may signal improved business efficiency. A decline in debts may be indicative of increased cash flows or improved earnings. A decline in taxes carries different interpretations depending on the studied target. For some, it is a sign of improved management, but for others, it is a sign of poor corporate responsibility. However, most agree that a decline in earnings is unfavorable. Just as with any measurement, the interpretation can vary. Alone, a decline does not give the full picture of an organization's health and operational efficiency. Used with other measurements, it is a useful tool for analysis. Example of Decline If a company has sales totaling $100,000 in year 1 and sales totaling $150,000 in year 2, the growth rate is 50% (($150,000 - $100,000) / $100,000 x 100). In this example, it is evident that sales increased, which would equate to increased growth. If sales decreased in year 2 by $50,000, the growth rate would be -50%, indicating a decline in growth (($50,000 - $100,000) / $100,000 x 100). What Causes the Stock Market to Decline? Stock market downturns can be the result of any number of factors, such as falling consumption, rising prices, or reduced investments in the economy. Stock market declines can also be the result of monetary tightening, which can have the effect of raising interest rates. What Is a Structural Decline in Finance? A structural decline is a downward shift in prices or productivity due to a change in the underlying fundamentals of the market, such as technological shifts in productivity or long-term changes in the cost of essential inputs. What Is a Cyclical Decline in Finance? A cyclical decline is an economic downturn that naturally follows after a period of economic expansion. Falling returns, rising labor and borrowing costs, and decreased consumption may all be contributing factors to a cyclical decline. The Bottom Line In economics, a decline refers to any period of downturn, ranging from a company's falling stock price to a country's falling GDP. Financial analysts and economists closely watch economic figures and attempt to predict when declines will happen.
[ [ "depreciation", "https://www.investopedia.com/terms/d/depreciation.asp" ], [ "equity", "https://www.investopedia.com/terms/e/equity.asp" ], [ "Black Monday", "https://www.investopedia.com/terms/b/blackmonday.asp" ] ]
https://www.investopedia.com/credit-card-losses-climb-fastest-since-great-recession-2008-7973694
Credit Card Losses Climb at the Fastest Rate Since the Great Recession of 2008
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 consumers in the U.S. take out more loans and credit card debt reaches record levels, credit card losses for issuers have climbed in an “unusual rise” that could continue for at least another year, according to Goldman Sachs analysts.<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">Ke yTakeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Credit card losses are at 3.63% after rising from a low in September 2021. </li><li>The loss cycle is expected to continue into late 2024 or early 2025, with rates rising to nearly 5%, Goldman Sachs said. </li><li>The acceleration in credit card losses is notable as it is not typically seen outside of an economic downturn, analysts reported. </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"> At 3.63%, credit card losses are up 1.5 percentage points from a low reached in September 2021, and have grown since the first quarter of 2022 at the fastest pace in close to three decades, outside of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp">Global Financial Crisis</a>, according to Goldman Sachs. </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"> “It is unusual for losses to rise outside of an economic downturn,” Goldman Sachs analyst Ryan Nash said in a note Friday. </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"> Three of the past five credit card loss cycles were during <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/08/past-recessions.asp">recessions</a>, including the early 1990s, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dotcom-bubble.asp">the early 2000s</a>, and the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/great-recession.asp#:~:text=The%20Great%20Recession%20lasted%20from,increased%20risk%20to%20the%20lender.">2008 Great Recession</a>. The other two were in the mid-90s and 2015 to 2019.  </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 cycle resembles the characteristics of what was experienced in the late 1990s and somewhat similar to the ‘15 to ‘19 cycle where losses increase following a period of strong loan growth and has seen similar pace of normalization thus far this cycle," Nash noted. </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"> Loans have grown 22% year-over-year, up from an annual rate of -13% a year ago, and credit card debt reached a record high, with Americans owing more than $1 trillion in the second quarter of 2023, according to Federal Reserve data.<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"> Goldman Sachs expects credit card losses could rise to 4.93% and peak in late 2024 or early 2025 for most issuers. Relative to expectations, Goldman Sachs said it anticipates the highest losses at Capital One (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="http://cof/" rel="nofollow">COF</a>) and Discover (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DFS">DFS</a>), but projected losses for Synchrony (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SYF">SYF</a>) and American Express (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AXP">AXP</a>) to increase into 2025. <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>
As consumers in the U.S. take out more loans and credit card debt reaches record levels, credit card losses for issuers have climbed in an “unusual rise” that could continue for at least another year, according to Goldman Sachs analysts. ### Ke yTakeaways * Credit card losses are at 3.63% after rising from a low in September 2021. * The loss cycle is expected to continue into late 2024 or early 2025, with rates rising to nearly 5%, Goldman Sachs said. * The acceleration in credit card losses is notable as it is not typically seen outside of an economic downturn, analysts reported. At 3.63%, credit card losses are up 1.5 percentage points from a low reached in September 2021, and have grown since the first quarter of 2022 at the fastest pace in close to three decades, outside of the [Global Financial Crisis](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp), according to Goldman Sachs. “It is unusual for losses to rise outside of an economic downturn,” Goldman Sachs analyst Ryan Nash said in a note Friday. Three of the past five credit card loss cycles were during [recessions](https://www.investopedia.com/articles/economics/08/past-recessions.asp), including the early 1990s, [the early 2000s](https://www.investopedia.com/terms/d/dotcom-bubble.asp), and the [2008 Great Recession](https://www.investopedia.com/terms/g/great-recession.asp#:~:text=The%20Great%20Recession%20lasted%20from,increased%20risk%20to%20the%20lender.). The other two were in the mid-90s and 2015 to 2019.  “This cycle resembles the characteristics of what was experienced in the late 1990s and somewhat similar to the ‘15 to ‘19 cycle where losses increase following a period of strong loan growth and has seen similar pace of normalization thus far this cycle," Nash noted. Loans have grown 22% year-over-year, up from an annual rate of -13% a year ago, and credit card debt reached a record high, with Americans owing more than $1 trillion in the second quarter of 2023, according to Federal Reserve data. Goldman Sachs expects credit card losses could rise to 4.93% and peak in late 2024 or early 2025 for most issuers. Relative to expectations, Goldman Sachs said it anticipates the highest losses at Capital One ([COF](http://cof/)) and Discover ([DFS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DFS)), but projected losses for Synchrony ([SYF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SYF)) and American Express ([AXP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AXP)) to increase into 2025.  Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
As consumers in the U.S. take out more loans and credit card debt reaches record levels, credit card losses for issuers have climbed in an “unusual rise” that could continue for at least another year, according to Goldman Sachs analysts. Ke yTakeaways Credit card losses are at 3.63% after rising from a low in September 2021. The loss cycle is expected to continue into late 2024 or early 2025, with rates rising to nearly 5%, Goldman Sachs said. The acceleration in credit card losses is notable as it is not typically seen outside of an economic downturn, analysts reported.  At 3.63%, credit card losses are up 1.5 percentage points from a low reached in September 2021, and have grown since the first quarter of 2022 at the fastest pace in close to three decades, outside of the Global Financial Crisis, according to Goldman Sachs. “It is unusual for losses to rise outside of an economic downturn,” Goldman Sachs analyst Ryan Nash said in a note Friday. Three of the past five credit card loss cycles were during recessions, including the early 1990s, the early 2000s, and the 2008 Great Recession. The other two were in the mid-90s and 2015 to 2019.  “This cycle resembles the characteristics of what was experienced in the late 1990s and somewhat similar to the ‘15 to ‘19 cycle where losses increase following a period of strong loan growth and has seen similar pace of normalization thus far this cycle," Nash noted. Loans have grown 22% year-over-year, up from an annual rate of -13% a year ago, and credit card debt reached a record high, with Americans owing more than $1 trillion in the second quarter of 2023, according to Federal Reserve data. Goldman Sachs expects credit card losses could rise to 4.93% and peak in late 2024 or early 2025 for most issuers. Relative to expectations, Goldman Sachs said it anticipates the highest losses at Capital One (COF) and Discover (DFS), but projected losses for Synchrony (SYF) and American Express (AXP) to increase into 2025.  Do you have a news tip for Investopedia reporters? Please email us at [email protected]
[ [ "Global Financial Crisis", "https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp" ], [ "recessions", "https://www.investopedia.com/articles/economics/08/past-recessions.asp" ], [ "the early 2000s", "https://www.investopedia.com/terms/d/dotcom-bubble.asp" ], [ "2008 Great Recession", "https://www.investopedia.com/terms/g/great-recession.asp#:~:text=The%20Great%20Recession%20lasted%20from,increased%20risk%20to%20the%20lender." ], [ "COF", "http://cof/" ], [ "DFS", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=DFS" ], [ "SYF", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=SYF" ], [ "AXP", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=AXP" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/top-cds-today-april-19-2024-new-1-year-cd-rate-takes-the-national-lead-8636386
Top CDs Today, April 19, 2024 - New 1-Year CD Rate Takes the National Lead
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_1-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:76.1%;"> <img alt="Top nationally available rate in every CD term, ranging from 4.70% to 5.60%, current as of April 19, 2024. " class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/z1Tb9uL6bvVk8FpDH3F0UWdN7Qs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-19-a70ad023ae41478f8f381833faaa959e.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/z1Tb9uL6bvVk8FpDH3F0UWdN7Qs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-19-a70ad023ae41478f8f381833faaa959e.png" data-srcset="https://www.investopedia.com/thmb/U1jftzrcRq8rOKlBE034UYMypK0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-19-a70ad023ae41478f8f381833faaa959e.png 750w" data-tracking-container="true" height="1888" id="mntl-sc-block-image_1-0" width="2480"/> <noscript> <img alt="Top nationally available rate in every CD term, ranging from 4.70% to 5.60%, current as of April 19, 2024. " class="img--noscript universal-image__image" height="1888" sizes="750px" src="https://www.investopedia.com/thmb/z1Tb9uL6bvVk8FpDH3F0UWdN7Qs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-19-a70ad023ae41478f8f381833faaa959e.png" srcset="https://www.investopedia.com/thmb/U1jftzrcRq8rOKlBE034UYMypK0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-19-a70ad023ae41478f8f381833faaa959e.png 750w" width="2480"/> </noscript> </div> </div> </figure> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_2-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_3-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>The nation-leading CD rate rose today, from 5.55% to now 5.60%. The new offer is from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.northernbankdirect.com/cds" rel="nofollow">Northern Bank Direct</a>, available for a 12-month term.</li> <li>The runner-up is now 5.55% APY, offered for a shorter 6-month term by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.newtekbank.com/certificate-of-deposit/" rel="nofollow">Newtek Bank</a>.</li> <li>Interested in holding onto one of today's historically high rates for a longer term? You can lock in rates of 5.30% or better on terms up to 2 years, or rates of 4.70% to 5.00% on certificates of 3 to 5 years.</li> <li>The <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> have been gradually easing lower for months, in anticipation of future Fed rate cuts—something that's been expected to occur this year.</li> <li>But the most recent inflation report suggests it might be a while before the central bank feels comfortable lowering rates.</li> </ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_6-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <span class="heading-toc" id="toc-lock-in-530-to-560-apy-for-3-to-23-months"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Lock In 5.30% to 5.60% APY for 3 to 23 Months </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The top rate you can earn with a nationally available CD climbed today to 5.60% APY, stretching the amount of time you can earn the leading rate. Northern Bank Direct is now offering the top rate for a 12-month term. </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"> Previously, the leading rate was 5.55% APY. You can still earn that from runner-up Newtek Bank, but you'll only be able to guarantee it for six months. There are also two additional CDs in the 6-month term paying 5.50% APY. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> For a slightly longer duration, you can earn up to 5.40%—thanks to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348">leading 18-month rate</a> bumping up twice over the past week. In total, 13 CDs are paying 5.40% APY or better, with terms of 3 to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">15 months</a>. For a slightly longer term, though, you might like <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.credithuman.com/investments-planning/certificates-iras/share-certificate" rel="nofollow">Credit Human's</a> offer of 5.30% on a take-your-pick term of 18-23 months.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_15-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/8eHem/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Ranges of the Top 15 CD rates by term"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-longer-terms-will-lock-your-rate-to-2027or-beyond"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Longer Terms Will Lock Your Rate to 2027—Or Beyond </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Choosing a CD term longer than two years is also a smart option, since it's possible U.S. interest rates could enter a declining period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-2-year-cd-rates-4801682">top 3-year CD</a> paying 5.00%, guaranteeing that return until 2027. Or you can opt to guarantee rates in the mid-to-high 4% range for as far as 4 or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473">5 years</a> down the road. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_20-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Terms</b></td> <td><b>Yesterday's Top National Rate</b></td> <td><b>Today's Top National Rate</b></td> <td><b>Day's Change </b>(percentage points)</td> <td><b>Top Rate Provider</b></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-month-cd-rates-5272288" rel="noopener noreferrer">3 months</a></td> <td>5.42% APY</td> <td>5.42% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.totaldirectbank.com/personal/cds" rel="sponsored nofollow">TotalDirectBank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267" rel="noopener noreferrer">6 months</a></td> <td>5.55% APY</td> <td>5.55% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.newtekbank.com/certificate-of-deposit/" rel="noopener noreferrer nofollow">Newtek Bank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650" rel="noopener noreferrer">1 year</a></td> <td>5.40% APY</td> <td>5.60% APY</td> <td>+ 0.20</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.northernbankdirect.com/cds" rel="nofollow">Northern Bank Direct</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348" rel="noopener noreferrer">18 months</a></td> <td>5.40% APY</td> <td>5.40% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.northernbankdirect.com/cds" rel="nofollow">Northern Bank Direct</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&amp;lender=XCEL%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">2 years</a></td> <td>5.30% APY</td> <td>5.30% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credithuman.com/investments-planning/certificates-iras/share-certificate" rel="noopener noreferrer nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-year-cd-rates-4782938" rel="noopener noreferrer">3 years</a></td> <td>5.00% APY</td> <td>5.00% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.dollarsavingsdirect.com/securebanking/cdInfo.do" rel="noopener noreferrer sponsored nofollow">DollarSavingsDirect</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473" rel="noopener noreferrer">4 years</a></td> <td>4.70% APY</td> <td>4.70% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credithuman.com/investments-planning/certificates-iras/share-certificate" rel="noopener noreferrer nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&amp;lender=Lafayette%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">5 years</a></td> <td>4.70% APY</td> <td>4.70% APY</td> <td>No change</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.credithuman.com/investments-planning/certificates-iras/share-certificate" rel="noopener noreferrer nofollow">Credit Human</a></td> </tr> </tbody> </table> <figcaption>To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-tip" 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>Today's high CD rates are a perfect antidote to stubborn inflation, with rates available in every CD term that far out-earn the current inflation rate of 3.5%. By putting money into one of these top-paying CDs today, you can stay<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-beat-todays-stubborn-inflation-with-a-top-paying-cd-8610878"> 1 to 2 percentage points ahead of inflation</a>.</p></div></div></div> <span class="heading-toc" id="toc-cd-rates-are-still-near-record-highs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> CD Rates Are Still Near Record Highs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">Certificate of deposit (CD) rates</a> have inched lower since they climbed to a historic high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid at least 5.50% APY was 30. Today that count sits at four. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Also keep in mind that snagging the absolute <em>highest</em> APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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/jG7nJ/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Today's CD rates vs. Fall peak vs. Jan 2022"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <span class="heading-toc" id="toc-jumbo-deposits-can-provide-more-cd-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-heading__text"> Jumbo Deposits Can Provide More CD Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> The top two jumbo CDs let you earn more than you can with a standard CD. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while My eBanc offers 5.49% APY for 6 months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Beware that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766">the best jumbo CD rates</a> don't <em>always</em> pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in seven of the eight terms below, so it's always wise to shop both certificate types before making a final decision. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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="width: 92px;"></colgroup> <colgroup span="1" style="width: 138px;"></colgroup> <colgroup span="1" style="width: 159px;"></colgroup> <colgroup span="1" style="width: 140px;"></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Term</b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-bank-cd-rates-4801462" rel="noopener noreferrer">Today's Top National Bank Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214" rel="noopener noreferrer">Today's Top National Credit Union Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766" rel="noopener noreferrer">Today's Top National Jumbo Rate</a></b></td> </tr> <tr> <td>3 months</td> <td>5.42% APY*</td> <td>5.30% APY</td> <td>5.20% APY</td> </tr> <tr> <td>6 months</td> <td>5.55% APY*</td> <td>5.50% APY</td> <td>5.49% APY</td> </tr> <tr> <td>1 year</td> <td>5.60% APY*</td> <td>5.40% APY</td> <td>5.50% APY</td> </tr> <tr> <td>18 months</td> <td>5.40% APY</td> <td>5.30% APY</td> <td>5.41% APY*</td> </tr> <tr> <td>2 years</td> <td>4.90% APY</td> <td>5.30% APY*</td> <td>4.96% APY</td> </tr> <tr> <td>3 years</td> <td>5.00% APY*</td> <td>5.00% APY*</td> <td>4.97% APY</td> </tr> <tr> <td>4 years</td> <td>4.55% APY</td> <td>4.70% APY*</td> <td>4.48% APY</td> </tr> <tr> <td>5 years</td> <td>4.55% APY</td> <td>4.70% APY*</td> <td>4.37% APY</td> </tr> </tbody> </table> <figcaption>*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-where-are-cd-rates-headed-in-2024"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> Where Are CD Rates Headed in 2024? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> To combat decades-high inflation, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve</a> aggressively hiked the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">money market account</a>. Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_45-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/AnHb2/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Top CD Rates Since December 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723">maintain the fed fund rate at its current level</a>, the fifth meeting in a row it's done so.<span class="ql-inline-citation" data-cite="32"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> That's because <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke last week about how the first rate cut could still be a ways off. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks.<span class="ql-inline-citation" data-cite="43"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Unfortunately for those anxious for rate cuts, last week's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-heated-up-in-march-8629363">release of new inflation data</a> did not help the outlook. The March Consumer Price Index came in at 3.5%, which is 0.3 percentage points higher than February and 0.4 higher than January.<span class="ql-inline-citation" data-cite="44"></span> In fact, it's the highest inflation reading since September, moving in the wrong direction to trigger Fed rate decreases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year.<span class="ql-inline-citation" data-cite="41"></span> But confidence in that prediction is waning as new data comes to light. According to the CME Group's FedWatch Tool, less than 20% of traders currently predict we'll see three cuts by the end of 2024.<span class="ql-inline-citation" data-cite="39"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Still, it's a reasonable prediction that the Fed will find it appropriate to lower its benchmark rate sometime this year, if not three times. But Fed moves several months into the future are unpredictable, and until more data comes in, it's impossible to say if any 2024 rate cuts will come to fruition. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> As a result, CD rates could continue their current plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears that could be months away. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1.<span class="ql-inline-citation" data-cite="42"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_64-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Best High-Yield Savings Accounts for May 2024—Up to 5.55%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_66-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-cd-rates-4770214" id="mntl-sc-block-featuredlink__link_2-0" rel="nocaes"><span class="link__wrapper">Best CD Rates for May 2024: Up to 5.51%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_68-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-money-market-accounts-5096917" id="mntl-sc-block-featuredlink__link_3-0" rel="nocaes"><span class="link__wrapper">Best Money Market Account Rates for May 2024—Up to 5.35%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_70-0"><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_71-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher.</p></div></div></div> <span class="heading-toc" id="toc-how-we-find-the-best-cd-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_72-0"> <span class="mntl-sc-block-heading__text"> How We Find the Best CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">FDIC</a> for banks, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua-insured-institution.asp">NCUA</a> for credit unions), and the CD's minimum initial deposit must not exceed $25,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816">read our full methodology</a>.<br/> </p></div>
![Top nationally available rate in every CD term, ranging from 4.70% to 5.60%, current as of April 19, 2024. ]() ![Top nationally available rate in every CD term, ranging from 4.70% to 5.60%, current as of April 19, 2024. ](https://www.investopedia.com/thmb/z1Tb9uL6bvVk8FpDH3F0UWdN7Qs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-19-a70ad023ae41478f8f381833faaa959e.png) ### Key Takeaways * The nation-leading CD rate rose today, from 5.55% to now 5.60%. The new offer is from [Northern Bank Direct](https://www.northernbankdirect.com/cds), available for a 12-month term. * The runner-up is now 5.55% APY, offered for a shorter 6-month term by [Newtek Bank](https://www.newtekbank.com/certificate-of-deposit/). * Interested in holding onto one of today's historically high rates for a longer term? You can lock in rates of 5.30% or better on terms up to 2 years, or rates of 4.70% to 5.00% on certificates of 3 to 5 years. * The [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) have been gradually easing lower for months, in anticipation of future Fed rate cuts—something that's been expected to occur this year. * But the most recent inflation report suggests it might be a while before the central bank feels comfortable lowering rates. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. ## Lock In 5.30% to 5.60% APY for 3 to 23 Months The top rate you can earn with a nationally available CD climbed today to 5.60% APY, stretching the amount of time you can earn the leading rate. Northern Bank Direct is now offering the top rate for a 12-month term. Previously, the leading rate was 5.55% APY. You can still earn that from runner-up Newtek Bank, but you'll only be able to guarantee it for six months. There are also two additional CDs in the 6-month term paying 5.50% APY. For a slightly longer duration, you can earn up to 5.40%—thanks to the [leading 18-month rate](https://www.investopedia.com/best-18-month-cd-rates-5272348) bumping up twice over the past week. In total, 13 CDs are paying 5.40% APY or better, with terms of 3 to [15 months](https://www.investopedia.com/best-1-year-cd-rates-4796650). For a slightly longer term, though, you might like [Credit Human's](https://www.credithuman.com/investments-planning/certificates-iras/share-certificate) offer of 5.30% on a take-your-pick term of 18-23 months. ## Longer Terms Will Lock Your Rate to 2027—Or Beyond Choosing a CD term longer than two years is also a smart option, since it's possible U.S. interest rates could enter a declining period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a [top 3-year CD](https://www.investopedia.com/best-2-year-cd-rates-4801682) paying 5.00%, guaranteeing that return until 2027. Or you can opt to guarantee rates in the mid-to-high 4% range for as far as 4 or [5 years](https://www.investopedia.com/best-5-year-cd-rates-4801473) down the road. | **CD Terms** | **Yesterday's Top National Rate** | **Today's Top National Rate** | **Day's Change** (percentage points) | **Top Rate Provider** | | --- | --- | --- | --- | --- | | [3 months](https://www.investopedia.com/best-3-month-cd-rates-5272288) | 5.42% APY | 5.42% APY | No change | [TotalDirectBank](https://www.totaldirectbank.com/personal/cds) | | [6 months](https://www.investopedia.com/best-6-month-cd-rates-4783267) | 5.55% APY | 5.55% APY | No change | [Newtek Bank](https://www.newtekbank.com/certificate-of-deposit/) | | [1 year](https://www.investopedia.com/best-1-year-cd-rates-4796650) | 5.40% APY | 5.60% APY | + 0.20 | [Northern Bank Direct](https://www.northernbankdirect.com/cds) | | [18 months](https://www.investopedia.com/best-18-month-cd-rates-5272348) | 5.40% APY | 5.40% APY | No change | [Northern Bank Direct](https://www.northernbankdirect.com/cds) | | [2 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&lender=XCEL%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 5.30% APY | 5.30% APY | No change | [Credit Human](https://www.credithuman.com/investments-planning/certificates-iras/share-certificate) | | [3 years](https://www.investopedia.com/best-3-year-cd-rates-4782938) | 5.00% APY | 5.00% APY | No change | [DollarSavingsDirect](https://www.dollarsavingsdirect.com/securebanking/cdInfo.do) | | [4 years](https://www.investopedia.com/best-5-year-cd-rates-4801473) | 4.70% APY | 4.70% APY | No change | [Credit Human](https://www.credithuman.com/investments-planning/certificates-iras/share-certificate) | | [5 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&lender=Lafayette%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.70% APY | 4.70% APY | No change | [Credit Human](https://www.credithuman.com/investments-planning/certificates-iras/share-certificate) | To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. ### Today's high CD rates are a perfect antidote to stubborn inflation, with rates available in every CD term that far out-earn the current inflation rate of 3.5%. By putting money into one of these top-paying CDs today, you can stay [1 to 2 percentage points ahead of inflation](https://www.investopedia.com/how-to-beat-todays-stubborn-inflation-with-a-top-paying-cd-8610878). ## CD Rates Are Still Near Record Highs [Certificate of deposit (CD) rates](https://www.investopedia.com/terms/c/certificateofdeposit.asp) have inched lower since they climbed to a historic high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid at least 5.50% APY was 30. Today that count sits at four. But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute *highest* APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move. ## Jumbo Deposits Can Provide More CD Options The top two jumbo CDs let you earn more than you can with a standard CD. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while My eBanc offers 5.49% APY for 6 months. Beware that [the best jumbo CD rates](https://www.investopedia.com/best-jumbo-cd-rates-4797766) don't *always* pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in seven of the eight terms below, so it's always wise to shop both certificate types before making a final decision. | **CD Term** | **[Today's Top National Bank Rate](https://www.investopedia.com/best-bank-cd-rates-4801462)** | **[Today's Top National Credit Union Rate](https://www.investopedia.com/best-cd-rates-4770214)** | **[Today's Top National Jumbo Rate](https://www.investopedia.com/best-jumbo-cd-rates-4797766)** | | --- | --- | --- | --- | | 3 months | 5.42% APY\* | 5.30% APY | 5.20% APY | | 6 months | 5.55% APY\* | 5.50% APY | 5.49% APY | | 1 year | 5.60% APY\* | 5.40% APY | 5.50% APY | | 18 months | 5.40% APY | 5.30% APY | 5.41% APY\* | | 2 years | 4.90% APY | 5.30% APY\* | 4.96% APY | | 3 years | 5.00% APY\* | 5.00% APY\* | 4.97% APY | | 4 years | 4.55% APY | 4.70% APY\* | 4.48% APY | | 5 years | 4.55% APY | 4.70% APY\* | 4.37% APY | \*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. ## Where Are CD Rates Headed in 2024? To combat decades-high inflation, the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) aggressively hiked the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a [high-yield savings](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) or [money market account](https://www.investopedia.com/best-money-market-accounts-5096917). Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would [maintain the fed fund rate at its current level](https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723), the fifth meeting in a row it's done so. That's because [inflation](https://www.investopedia.com/terms/i/inflation.asp) has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke last week about how the first rate cut could still be a ways off. "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks. Unfortunately for those anxious for rate cuts, last week's [release of new inflation data](https://www.investopedia.com/inflation-heated-up-in-march-8629363) did not help the outlook. The March Consumer Price Index came in at 3.5%, which is 0.3 percentage points higher than February and 0.4 higher than January. In fact, it's the highest inflation reading since September, moving in the wrong direction to trigger Fed rate decreases. At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year. But confidence in that prediction is waning as new data comes to light. According to the CME Group's FedWatch Tool, less than 20% of traders currently predict we'll see three cuts by the end of 2024. Still, it's a reasonable prediction that the Fed will find it appropriate to lower its benchmark rate sometime this year, if not three times. But Fed moves several months into the future are unpredictable, and until more data comes in, it's impossible to say if any 2024 rate cuts will come to fruition. As a result, CD rates could continue their current plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears that could be months away. The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1. [Best High-Yield Savings Accounts for May 2024—Up to 5.55%](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) [Best CD Rates for May 2024: Up to 5.51%](https://www.investopedia.com/best-cd-rates-4770214) [Best Money Market Account Rates for May 2024—Up to 5.35%](https://www.investopedia.com/best-money-market-accounts-5096917) ### Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. ## How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured ([FDIC](https://www.investopedia.com/terms/f/fdic-insured-account.asp) for banks, [NCUA](https://www.investopedia.com/terms/n/ncua-insured-institution.asp) for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, [read our full methodology](https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816).
Key Takeaways The nation-leading CD rate rose today, from 5.55% to now 5.60%. The new offer is from Northern Bank Direct, available for a 12-month term. The runner-up is now 5.55% APY, offered for a shorter 6-month term by Newtek Bank. Interested in holding onto one of today's historically high rates for a longer term? You can lock in rates of 5.30% or better on terms up to 2 years, or rates of 4.70% to 5.00% on certificates of 3 to 5 years. The best CD rates have been gradually easing lower for months, in anticipation of future Fed rate cuts—something that's been expected to occur this year. But the most recent inflation report suggests it might be a while before the central bank feels comfortable lowering rates. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. Lock In 5.30% to 5.60% APY for 3 to 23 Months The top rate you can earn with a nationally available CD climbed today to 5.60% APY, stretching the amount of time you can earn the leading rate. Northern Bank Direct is now offering the top rate for a 12-month term. Previously, the leading rate was 5.55% APY. You can still earn that from runner-up Newtek Bank, but you'll only be able to guarantee it for six months. There are also two additional CDs in the 6-month term paying 5.50% APY. For a slightly longer duration, you can earn up to 5.40%—thanks to the leading 18-month rate bumping up twice over the past week. In total, 13 CDs are paying 5.40% APY or better, with terms of 3 to 15 months. For a slightly longer term, though, you might like Credit Human's offer of 5.30% on a take-your-pick term of 18-23 months. Longer Terms Will Lock Your Rate to 2027—Or Beyond Choosing a CD term longer than two years is also a smart option, since it's possible U.S. interest rates could enter a declining period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a top 3-year CD paying 5.00%, guaranteeing that return until 2027. Or you can opt to guarantee rates in the mid-to-high 4% range for as far as 4 or 5 years down the road. CD Terms Yesterday's Top National Rate Today's Top National Rate Day's Change (percentage points) Top Rate Provider 3 months 5.42% APY 5.42% APY No change TotalDirectBank 6 months 5.55% APY 5.55% APY No change Newtek Bank 1 year 5.40% APY 5.60% APY + 0.20 Northern Bank Direct 18 months 5.40% APY 5.40% APY No change Northern Bank Direct 2 years 5.30% APY 5.30% APY No change Credit Human 3 years 5.00% APY 5.00% APY No change DollarSavingsDirect 4 years 4.70% APY 4.70% APY No change Credit Human 5 years 4.70% APY 4.70% APY No change Credit Human To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. Today's high CD rates are a perfect antidote to stubborn inflation, with rates available in every CD term that far out-earn the current inflation rate of 3.5%. By putting money into one of these top-paying CDs today, you can stay 1 to 2 percentage points ahead of inflation. CD Rates Are Still Near Record Highs Certificate of deposit (CD) rates have inched lower since they climbed to a historic high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid at least 5.50% APY was 30. Today that count sits at four. But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute highest APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move. Jumbo Deposits Can Provide More CD Options The top two jumbo CDs let you earn more than you can with a standard CD. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while My eBanc offers 5.49% APY for 6 months. Beware that the best jumbo CD rates don't always pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in seven of the eight terms below, so it's always wise to shop both certificate types before making a final decision. CD Term Today's Top National Bank Rate Today's Top National Credit Union Rate Today's Top National Jumbo Rate 3 months 5.42% APY* 5.30% APY 5.20% APY 6 months 5.55% APY* 5.50% APY 5.49% APY 1 year 5.60% APY* 5.40% APY 5.50% APY 18 months 5.40% APY 5.30% APY 5.41% APY* 2 years 4.90% APY 5.30% APY* 4.96% APY 3 years 5.00% APY* 5.00% APY* 4.97% APY 4 years 4.55% APY 4.70% APY* 4.48% APY 5 years 4.55% APY 4.70% APY* 4.37% APY *Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. Where Are CD Rates Headed in 2024? To combat decades-high inflation, the Federal Reserve aggressively hiked the federal funds rate between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a high-yield savings or money market account. Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would maintain the fed fund rate at its current level, the fifth meeting in a row it's done so. That's because inflation has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke last week about how the first rate cut could still be a ways off. "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks. Unfortunately for those anxious for rate cuts, last week's release of new inflation data did not help the outlook. The March Consumer Price Index came in at 3.5%, which is 0.3 percentage points higher than February and 0.4 higher than January. In fact, it's the highest inflation reading since September, moving in the wrong direction to trigger Fed rate decreases. At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year. But confidence in that prediction is waning as new data comes to light. According to the CME Group's FedWatch Tool, less than 20% of traders currently predict we'll see three cuts by the end of 2024. Still, it's a reasonable prediction that the Fed will find it appropriate to lower its benchmark rate sometime this year, if not three times. But Fed moves several months into the future are unpredictable, and until more data comes in, it's impossible to say if any 2024 rate cuts will come to fruition. As a result, CD rates could continue their current plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears that could be months away. The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1. Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best CD Rates for May 2024: Up to 5.51% Best Money Market Account Rates for May 2024—Up to 5.35% Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.
[ [ "Top nationally available rate in every CD term, ranging from 4.70% to 5.60%, current as of April 19, 2024. ", "https://www.investopedia.com/thmb/z1Tb9uL6bvVk8FpDH3F0UWdN7Qs=/1500x0/filters:no_upscale(" ], [ "Northern Bank Direct", "https://www.northernbankdirect.com/cds" ], [ "Newtek Bank", "https://www.newtekbank.com/certificate-of-deposit/" ], [ "best CD rates", "https://www.investopedia.com/best-cd-rates-4770214" ], [ "leading 18-month rate", "https://www.investopedia.com/best-18-month-cd-rates-5272348" ], [ "15 months", "https://www.investopedia.com/best-1-year-cd-rates-4796650" ], [ "Credit Human's", "https://www.credithuman.com/investments-planning/certificates-iras/share-certificate" ], [ "top 3-year CD", "https://www.investopedia.com/best-2-year-cd-rates-4801682" ], [ "5 years", "https://www.investopedia.com/best-5-year-cd-rates-4801473" ], [ "3 months", "https://www.investopedia.com/best-3-month-cd-rates-5272288" ], [ "TotalDirectBank", "https://www.totaldirectbank.com/personal/cds" ], [ "6 months", "https://www.investopedia.com/best-6-month-cd-rates-4783267" ], [ "Newtek Bank", "https://www.newtekbank.com/certificate-of-deposit/" ], [ "1 year", "https://www.investopedia.com/best-1-year-cd-rates-4796650" ], [ "Northern Bank Direct", "https://www.northernbankdirect.com/cds" ], [ "18 months", "https://www.investopedia.com/best-18-month-cd-rates-5272348" ], [ "Northern Bank Direct", "https://www.northernbankdirect.com/cds" ], [ "2 years", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&lender=XCEL%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "Credit Human", "https://www.credithuman.com/investments-planning/certificates-iras/share-certificate" ], [ "3 years", "https://www.investopedia.com/best-3-year-cd-rates-4782938" ], [ "DollarSavingsDirect", "https://www.dollarsavingsdirect.com/securebanking/cdInfo.do" ], [ "4 years", "https://www.investopedia.com/best-5-year-cd-rates-4801473" ], [ "Credit Human", "https://www.credithuman.com/investments-planning/certificates-iras/share-certificate" ], [ "5 years", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&lender=Lafayette%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "Credit Human", "https://www.credithuman.com/investments-planning/certificates-iras/share-certificate" ], [ "1 to 2 percentage points ahead of inflation", "https://www.investopedia.com/how-to-beat-todays-stubborn-inflation-with-a-top-paying-cd-8610878" ], [ "Certificate of deposit (CD) rates", "https://www.investopedia.com/terms/c/certificateofdeposit.asp" ], [ "the best jumbo CD rates", "https://www.investopedia.com/best-jumbo-cd-rates-4797766" ], [ "Today's Top National Bank Rate", "https://www.investopedia.com/best-bank-cd-rates-4801462" ], [ "Today's Top National Credit Union Rate", "https://www.investopedia.com/best-cd-rates-4770214" ], [ "Today's Top National Jumbo Rate", "https://www.investopedia.com/best-jumbo-cd-rates-4797766" ], [ "Federal Reserve", "https://www.investopedia.com/terms/f/federalreservebank.asp" ], [ "federal funds rate", "https://www.investopedia.com/terms/f/federalfundsrate.asp" ], [ "high-yield savings", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "money market account", "https://www.investopedia.com/best-money-market-accounts-5096917" ], [ "maintain the fed fund rate at its current level", "https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723" ], [ "inflation", "https://www.investopedia.com/terms/i/inflation.asp" ], [ "release of new inflation data", "https://www.investopedia.com/inflation-heated-up-in-march-8629363" ], [ "Best High-Yield Savings Accounts for May 2024—Up to 5.55%", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "Best CD Rates for May 2024: Up to 5.51%", "https://www.investopedia.com/best-cd-rates-4770214" ], [ "Best Money Market Account Rates for May 2024—Up to 5.35%", "https://www.investopedia.com/best-money-market-accounts-5096917" ], [ "FDIC", "https://www.investopedia.com/terms/f/fdic-insured-account.asp" ], [ "NCUA", "https://www.investopedia.com/terms/n/ncua-insured-institution.asp" ], [ "read our full methodology", "https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816" ] ]
https://www.investopedia.com/financial-edge/0611/-6-ways-to-cut-the-cost-of-your-car-loan.aspx
6 Ways to Cut the Cost of Your Car 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"> Buying a car can be a costly endeavor. Not only are cars big-ticket items, the associated costs with owning a car add up as well: insurance, gas, and maintenance. Unfortunately, our cars aren't concerned with our economic troubles. When they break down for the last time, and we are forced to buy a new one, finding the best deal on financing becomes necessary. </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>Ensuring your credit history and score are in the best condition possible will help you get a better interest rate on an auto loan.</li><li>Be careful with small loans as they may have higher rates.</li><li>Refinancing your auto loan is always an option if rates drop—this can save you a significant amount of money.</li><li>Make sure to shop around for loans to see who is offering the best deal; don't settle for the loan the dealership is offering.</li><li>New cars lose a large amount of their value as soon as they're driven off the lot. Think about purchasing a used car.</li></ul></div></div></div> <span class="heading-toc" id="toc-1-tighten-up-your-credit"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> 1. Tighten Up Your Credit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The terms of your loan are based on 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>. If you have excellent credit, you'll receive the lowest possible interest rate. If you don't, you'll have to pay more—generally, the lower your score is based on credit scales available, the more your interest payment will be. If you have problems with your credit and you don't need to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0512/how-inflation-has-affected-the-price-of-cars.aspx">purchase a car</a> right now, consider waiting until your score increases. Just a small increase in your credit score can save you a lot of money over the life of your loan. If you pay off, pay down, or consolidate your existing credit card balances and other debts you can raise your credit score. </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-2-use-caution-with-small-loans"></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"> 2. Use Caution With Small Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Small loans are paid off much more quickly than larger loans. Because of this, smaller loans often have much higher interest rates than loans of higher amounts. This allows the bank to make a more acceptable (for them) amount of money off the loan. </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"> Of course, some car purchases are emergencies, and the only option may be the fast one. Set your loan limit at amount you can afford monthly payments on reliably. </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're certain you'll need to take out a loan, consider utilizing an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/car-loan-calculator-5084761">auto loan calculator</a> to determine what kind of interest rate you'll be able to afford. Then, compare financing options and lenders. Don't forget to check credit unions or reputable online lenders for reasonable interest rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-3-refinance"></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"> 3. Refinance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Anybody who owns a home knows that when <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage-rate.asp">mortgage rates</a> drop significantly, refinancing their home makes a lot of sense. What many consumers don't know is that they can also <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/refinance.asp">refinance</a> their car. Not only does it <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-lower-your-car-payment-4685810">lower</a> the monthly payment, but it also reduces the amount of interest you're paying which allows you to pay off your car sooner. Cars depreciate rapidly, making it imperative that you pay off your loan quickly. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_18-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_19-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Before stepping foot in the dealership, do all the research you can on the model you're interested in, such as average costs, what add-ons can be included, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">financing rates</a>, and your cut-off price, to be ahead of the salespeople.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> How much money does it save? Let's assume you received a 60-month loan for $16,500 at a 21% interest rate because you had less than optimum credit. This loan would cost you $446 each month, and you would pay approximately $10,300 in interest over the life of the loan. </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"> After the first year, you'd have $14,415 left on the loan. If you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-refinance-loans-5069118">were to refinance</a> that amount with the same lender and got a 7% interest rate, that payment would drop to $345 per month, and you would only pay just over $2,153 in interest. What could you do with an extra $101 per month? Hint: add it to your existing car payment to get it paid off faster. </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-4-dont-stop-at-the-dealership"></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"> 4. Don't Stop at the Dealership </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Just as your car dealer is an intermediary when selling you a car, they are also a one when they want to set you up with a loan or a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lease.asp">lease</a>. Intermediaries always get paid for their trouble, and you are probably paying. </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"> Before going to a dealership, get loan and rate quotes from several sources. You might even be able to get a pre-approval at a decent rate. Of course, you should get a financing quote from the dealer, but it should be one of your last options because they generally won't be able to match the rates from your bank or credit union. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> You can get an auto loan from many different banks or lenders, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/capital-one-auto-loans-review-7968929">Capital One</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/navy-federal-auto-loan-review-7973189">Navy Federal</a>, NASA Federal, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/first-tech-fcu-auto-loans-review-7965780">First Tech Federal Credit Union</a>, and more. You can check with your current bank, too. So if you have a Bank of America account already, you may find that <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/bank-of-america-auto-loan-review-8357865">Bank of America also has auto loans</a>. </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-5-lease-it"></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"> 5. Lease It </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Leasing a car is considered by some to be a bad idea, mainly because you're paying a monthly payment and, in the end, you will not own it. Is leasing as bad as people say? If you want a new car every few years and don't want to pay the repair costs of owning a car for an extended period, leasing may be right for you.  </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"> Under a lease, payments are generally lower, but in most states, you pay <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/salestax.asp">sales tax</a> on your monthly payment instead of on the car's total value. Depending on sales and property taxes in your area, the amount you pay for a lease might be less or more—but it's worth investigating. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_36-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_37-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Since a lease is designed to charge you for your use of the car instead of its purchase, you don't incur the full depreciation cost on the vehicle. If you're evaluating total costs, a lease might reduce the overall loss you incur when you sell a vehicle.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Leasing is not suitable for anybody who wants to own the car once all payments are made, but if it works out to be cheaper for you not to own a car, leasing may be a good choice. </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-6-buy-a-cheaper-car"></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"> 6. Buy a Cheaper Car </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> It seems like an obvious piece of advice, doesn't it? Sadly, it isn't as obvious as most would think. The facts are clear: in America, people have a habit of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0312/what-happens-when-you-buy-too-much-car.aspx">purchasing</a> items they can’t afford. </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"> They rely too much on credit—an attitude that can become a financial disaster if a life-changing event occurs. What's worse, people in the U.S. have been conditioned to believe that it's ok to be in debt for most, if not all, of their adult lives. </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"> Do you have to purchase a new car or a pre-owned model from a few years ago to meet your practical needs for a car? Do you need a luxury car to go back and forth to work, grocery shop, take the kids to practice, or drive to Grandma and Grandpa's house? It may seem like obvious advice, but it's worth considering that less might be more. </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-can-i-lower-my-car-payments-without-refinancing"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Lower My Car Payments Without Refinancing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, you can lower your car payments without refinancing. This is known as a loan modification, which can be done if you're experiencing financial difficulties. You must apply for a loan modification and prove you're experiencing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dealing-with-upside-down-car-loan-7484134">financial hardship</a>. If approved, the lender may lower your interest rate for a certain period or extend the length of your loan so that your total loan is spread out over a longer period while reducing your payments.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_49-0"><span class="heading-toc" id="toc-how-can-i-pay-off-my-car-loan-early"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Pay Off My Car Loan Early?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you have the means, paying off your car loan early is fairly straightforward. The best way to do so is to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/pay-off-car-loan-faster-7483249">increase your monthly payment</a> above your required amount. For example, if your monthly payment is $300 and you can afford to pay $500, you'll be able to pay off your loan early. However, check with your lender to see if there are any pre-payment penalties on your loan.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-is-refinancing-my-car-loan-worth-it"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Refinancing My Car Loan Worth It?</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/best-time-to-refinance-car-loan-7373577">Refinancing your car loan</a> may be worth it. If the interest rates have decreased or your credit score has significantly improved, you may qualify for a lower interest rate, which will reduce your monthly costs and the overall cost of the car. Keep in mind that if you are almost finished paying off your car loan, it may not be worth it to refinance as there will be costs associated with refinancing. If the costs plus the amount you'd save combined don't put you in a better financial position than completing your current loan, it may not be worth refinancing.</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"> There are numerous ways to save money on your car payments. The final word of advice is not to rush the process of buying a car. From the beginning, weighing all of your options carefully can help you make the right choice for your financial circumstances. </p></div>
Buying a car can be a costly endeavor. Not only are cars big-ticket items, the associated costs with owning a car add up as well: insurance, gas, and maintenance. Unfortunately, our cars aren't concerned with our economic troubles. When they break down for the last time, and we are forced to buy a new one, finding the best deal on financing becomes necessary. ### Key Takeaways * Ensuring your credit history and score are in the best condition possible will help you get a better interest rate on an auto loan. * Be careful with small loans as they may have higher rates. * Refinancing your auto loan is always an option if rates drop—this can save you a significant amount of money. * Make sure to shop around for loans to see who is offering the best deal; don't settle for the loan the dealership is offering. * New cars lose a large amount of their value as soon as they're driven off the lot. Think about purchasing a used car. ## 1. Tighten Up Your Credit The terms of your loan are based on your [credit score](https://www.investopedia.com/terms/c/credit_score.asp). If you have excellent credit, you'll receive the lowest possible interest rate. If you don't, you'll have to pay more—generally, the lower your score is based on credit scales available, the more your interest payment will be. If you have problems with your credit and you don't need to [purchase a car](https://www.investopedia.com/financial-edge/0512/how-inflation-has-affected-the-price-of-cars.aspx) right now, consider waiting until your score increases. Just a small increase in your credit score can save you a lot of money over the life of your loan. If you pay off, pay down, or consolidate your existing credit card balances and other debts you can raise your credit score. ## 2. Use Caution With Small Loans Small loans are paid off much more quickly than larger loans. Because of this, smaller loans often have much higher interest rates than loans of higher amounts. This allows the bank to make a more acceptable (for them) amount of money off the loan. Of course, some car purchases are emergencies, and the only option may be the fast one. Set your loan limit at amount you can afford monthly payments on reliably. If you're certain you'll need to take out a loan, consider utilizing an [auto loan calculator](https://www.investopedia.com/car-loan-calculator-5084761) to determine what kind of interest rate you'll be able to afford. Then, compare financing options and lenders. Don't forget to check credit unions or reputable online lenders for reasonable interest rates. ## 3. Refinance Anybody who owns a home knows that when [mortgage rates](https://www.investopedia.com/terms/m/mortgage-rate.asp) drop significantly, refinancing their home makes a lot of sense. What many consumers don't know is that they can also [refinance](https://www.investopedia.com/terms/r/refinance.asp) their car. Not only does it [lower](https://www.investopedia.com/how-to-lower-your-car-payment-4685810) the monthly payment, but it also reduces the amount of interest you're paying which allows you to pay off your car sooner. Cars depreciate rapidly, making it imperative that you pay off your loan quickly. ### Before stepping foot in the dealership, do all the research you can on the model you're interested in, such as average costs, what add-ons can be included, [financing rates](https://www.investopedia.com/best-auto-loan-rates-4846394), and your cut-off price, to be ahead of the salespeople. How much money does it save? Let's assume you received a 60-month loan for $16,500 at a 21% interest rate because you had less than optimum credit. This loan would cost you $446 each month, and you would pay approximately $10,300 in interest over the life of the loan. After the first year, you'd have $14,415 left on the loan. If you [were to refinance](https://www.investopedia.com/best-auto-refinance-loans-5069118) that amount with the same lender and got a 7% interest rate, that payment would drop to $345 per month, and you would only pay just over $2,153 in interest. What could you do with an extra $101 per month? Hint: add it to your existing car payment to get it paid off faster. ## 4. Don't Stop at the Dealership Just as your car dealer is an intermediary when selling you a car, they are also a one when they want to set you up with a loan or a [lease](https://www.investopedia.com/terms/l/lease.asp). Intermediaries always get paid for their trouble, and you are probably paying. Before going to a dealership, get loan and rate quotes from several sources. You might even be able to get a pre-approval at a decent rate. Of course, you should get a financing quote from the dealer, but it should be one of your last options because they generally won't be able to match the rates from your bank or credit union. You can get an auto loan from many different banks or lenders, such as [Capital One](https://www.investopedia.com/capital-one-auto-loans-review-7968929), [Navy Federal](https://www.investopedia.com/navy-federal-auto-loan-review-7973189), NASA Federal, [First Tech Federal Credit Union](https://www.investopedia.com/first-tech-fcu-auto-loans-review-7965780), and more. You can check with your current bank, too. So if you have a Bank of America account already, you may find that [Bank of America also has auto loans](https://www.investopedia.com/bank-of-america-auto-loan-review-8357865). ## 5. Lease It Leasing a car is considered by some to be a bad idea, mainly because you're paying a monthly payment and, in the end, you will not own it. Is leasing as bad as people say? If you want a new car every few years and don't want to pay the repair costs of owning a car for an extended period, leasing may be right for you.  Under a lease, payments are generally lower, but in most states, you pay [sales tax](https://www.investopedia.com/terms/s/salestax.asp) on your monthly payment instead of on the car's total value. Depending on sales and property taxes in your area, the amount you pay for a lease might be less or more—but it's worth investigating. ### Since a lease is designed to charge you for your use of the car instead of its purchase, you don't incur the full depreciation cost on the vehicle. If you're evaluating total costs, a lease might reduce the overall loss you incur when you sell a vehicle. Leasing is not suitable for anybody who wants to own the car once all payments are made, but if it works out to be cheaper for you not to own a car, leasing may be a good choice. ## 6. Buy a Cheaper Car It seems like an obvious piece of advice, doesn't it? Sadly, it isn't as obvious as most would think. The facts are clear: in America, people have a habit of [purchasing](https://www.investopedia.com/financial-edge/0312/what-happens-when-you-buy-too-much-car.aspx) items they can’t afford. They rely too much on credit—an attitude that can become a financial disaster if a life-changing event occurs. What's worse, people in the U.S. have been conditioned to believe that it's ok to be in debt for most, if not all, of their adult lives. Do you have to purchase a new car or a pre-owned model from a few years ago to meet your practical needs for a car? Do you need a luxury car to go back and forth to work, grocery shop, take the kids to practice, or drive to Grandma and Grandpa's house? It may seem like obvious advice, but it's worth considering that less might be more. ## Can I Lower My Car Payments Without Refinancing? Yes, you can lower your car payments without refinancing. This is known as a loan modification, which can be done if you're experiencing financial difficulties. You must apply for a loan modification and prove you're experiencing [financial hardship](https://www.investopedia.com/dealing-with-upside-down-car-loan-7484134). If approved, the lender may lower your interest rate for a certain period or extend the length of your loan so that your total loan is spread out over a longer period while reducing your payments. ## How Can I Pay Off My Car Loan Early? If you have the means, paying off your car loan early is fairly straightforward. The best way to do so is to [increase your monthly payment](https://www.investopedia.com/pay-off-car-loan-faster-7483249) above your required amount. For example, if your monthly payment is $300 and you can afford to pay $500, you'll be able to pay off your loan early. However, check with your lender to see if there are any pre-payment penalties on your loan. ## Is Refinancing My Car Loan Worth It? [Refinancing your car loan](https://www.investopedia.com/best-time-to-refinance-car-loan-7373577) may be worth it. If the interest rates have decreased or your credit score has significantly improved, you may qualify for a lower interest rate, which will reduce your monthly costs and the overall cost of the car. Keep in mind that if you are almost finished paying off your car loan, it may not be worth it to refinance as there will be costs associated with refinancing. If the costs plus the amount you'd save combined don't put you in a better financial position than completing your current loan, it may not be worth refinancing. ## The Bottom Line There are numerous ways to save money on your car payments. The final word of advice is not to rush the process of buying a car. From the beginning, weighing all of your options carefully can help you make the right choice for your financial circumstances.
Buying a car can be a costly endeavor. Not only are cars big-ticket items, the associated costs with owning a car add up as well: insurance, gas, and maintenance. Unfortunately, our cars aren't concerned with our economic troubles. When they break down for the last time, and we are forced to buy a new one, finding the best deal on financing becomes necessary. Key Takeaways Ensuring your credit history and score are in the best condition possible will help you get a better interest rate on an auto loan.Be careful with small loans as they may have higher rates.Refinancing your auto loan is always an option if rates drop—this can save you a significant amount of money.Make sure to shop around for loans to see who is offering the best deal; don't settle for the loan the dealership is offering.New cars lose a large amount of their value as soon as they're driven off the lot. Think about purchasing a used car. 1. Tighten Up Your Credit The terms of your loan are based on your credit score. If you have excellent credit, you'll receive the lowest possible interest rate. If you don't, you'll have to pay more—generally, the lower your score is based on credit scales available, the more your interest payment will be. If you have problems with your credit and you don't need to purchase a car right now, consider waiting until your score increases. Just a small increase in your credit score can save you a lot of money over the life of your loan. If you pay off, pay down, or consolidate your existing credit card balances and other debts you can raise your credit score. 2. Use Caution With Small Loans Small loans are paid off much more quickly than larger loans. Because of this, smaller loans often have much higher interest rates than loans of higher amounts. This allows the bank to make a more acceptable (for them) amount of money off the loan. Of course, some car purchases are emergencies, and the only option may be the fast one. Set your loan limit at amount you can afford monthly payments on reliably. If you're certain you'll need to take out a loan, consider utilizing an auto loan calculator to determine what kind of interest rate you'll be able to afford. Then, compare financing options and lenders. Don't forget to check credit unions or reputable online lenders for reasonable interest rates. 3. Refinance Anybody who owns a home knows that when mortgage rates drop significantly, refinancing their home makes a lot of sense. What many consumers don't know is that they can also refinance their car. Not only does it lower the monthly payment, but it also reduces the amount of interest you're paying which allows you to pay off your car sooner. Cars depreciate rapidly, making it imperative that you pay off your loan quickly. Before stepping foot in the dealership, do all the research you can on the model you're interested in, such as average costs, what add-ons can be included, financing rates, and your cut-off price, to be ahead of the salespeople. How much money does it save? Let's assume you received a 60-month loan for $16,500 at a 21% interest rate because you had less than optimum credit. This loan would cost you $446 each month, and you would pay approximately $10,300 in interest over the life of the loan. After the first year, you'd have $14,415 left on the loan. If you were to refinance that amount with the same lender and got a 7% interest rate, that payment would drop to $345 per month, and you would only pay just over $2,153 in interest. What could you do with an extra $101 per month? Hint: add it to your existing car payment to get it paid off faster. 4. Don't Stop at the Dealership Just as your car dealer is an intermediary when selling you a car, they are also a one when they want to set you up with a loan or a lease. Intermediaries always get paid for their trouble, and you are probably paying. Before going to a dealership, get loan and rate quotes from several sources. You might even be able to get a pre-approval at a decent rate. Of course, you should get a financing quote from the dealer, but it should be one of your last options because they generally won't be able to match the rates from your bank or credit union. You can get an auto loan from many different banks or lenders, such as Capital One, Navy Federal, NASA Federal, First Tech Federal Credit Union, and more. You can check with your current bank, too. So if you have a Bank of America account already, you may find that Bank of America also has auto loans. 5. Lease It Leasing a car is considered by some to be a bad idea, mainly because you're paying a monthly payment and, in the end, you will not own it. Is leasing as bad as people say? If you want a new car every few years and don't want to pay the repair costs of owning a car for an extended period, leasing may be right for you.  Under a lease, payments are generally lower, but in most states, you pay sales tax on your monthly payment instead of on the car's total value. Depending on sales and property taxes in your area, the amount you pay for a lease might be less or more—but it's worth investigating. Since a lease is designed to charge you for your use of the car instead of its purchase, you don't incur the full depreciation cost on the vehicle. If you're evaluating total costs, a lease might reduce the overall loss you incur when you sell a vehicle. Leasing is not suitable for anybody who wants to own the car once all payments are made, but if it works out to be cheaper for you not to own a car, leasing may be a good choice. 6. Buy a Cheaper Car It seems like an obvious piece of advice, doesn't it? Sadly, it isn't as obvious as most would think. The facts are clear: in America, people have a habit of purchasing items they can’t afford. They rely too much on credit—an attitude that can become a financial disaster if a life-changing event occurs. What's worse, people in the U.S. have been conditioned to believe that it's ok to be in debt for most, if not all, of their adult lives. Do you have to purchase a new car or a pre-owned model from a few years ago to meet your practical needs for a car? Do you need a luxury car to go back and forth to work, grocery shop, take the kids to practice, or drive to Grandma and Grandpa's house? It may seem like obvious advice, but it's worth considering that less might be more. Can I Lower My Car Payments Without Refinancing? Yes, you can lower your car payments without refinancing. This is known as a loan modification, which can be done if you're experiencing financial difficulties. You must apply for a loan modification and prove you're experiencing financial hardship. If approved, the lender may lower your interest rate for a certain period or extend the length of your loan so that your total loan is spread out over a longer period while reducing your payments. How Can I Pay Off My Car Loan Early? If you have the means, paying off your car loan early is fairly straightforward. The best way to do so is to increase your monthly payment above your required amount. For example, if your monthly payment is $300 and you can afford to pay $500, you'll be able to pay off your loan early. However, check with your lender to see if there are any pre-payment penalties on your loan. Is Refinancing My Car Loan Worth It? Refinancing your car loan may be worth it. If the interest rates have decreased or your credit score has significantly improved, you may qualify for a lower interest rate, which will reduce your monthly costs and the overall cost of the car. Keep in mind that if you are almost finished paying off your car loan, it may not be worth it to refinance as there will be costs associated with refinancing. If the costs plus the amount you'd save combined don't put you in a better financial position than completing your current loan, it may not be worth refinancing. The Bottom Line There are numerous ways to save money on your car payments. The final word of advice is not to rush the process of buying a car. From the beginning, weighing all of your options carefully can help you make the right choice for your financial circumstances.
[ [ "credit score", "https://www.investopedia.com/terms/c/credit_score.asp" ], [ "purchase a car", "https://www.investopedia.com/financial-edge/0512/how-inflation-has-affected-the-price-of-cars.aspx" ], [ "auto loan calculator", "https://www.investopedia.com/car-loan-calculator-5084761" ], [ "mortgage rates", "https://www.investopedia.com/terms/m/mortgage-rate.asp" ], [ "refinance", "https://www.investopedia.com/terms/r/refinance.asp" ], [ "lower", "https://www.investopedia.com/how-to-lower-your-car-payment-4685810" ], [ "financing rates", "https://www.investopedia.com/best-auto-loan-rates-4846394" ], [ "were to refinance", "https://www.investopedia.com/best-auto-refinance-loans-5069118" ], [ "lease", "https://www.investopedia.com/terms/l/lease.asp" ], [ "Capital One", "https://www.investopedia.com/capital-one-auto-loans-review-7968929" ], [ "Navy Federal", "https://www.investopedia.com/navy-federal-auto-loan-review-7973189" ], [ "First Tech Federal Credit Union", "https://www.investopedia.com/first-tech-fcu-auto-loans-review-7965780" ], [ "Bank of America also has auto loans", "https://www.investopedia.com/bank-of-america-auto-loan-review-8357865" ], [ "sales tax", "https://www.investopedia.com/terms/s/salestax.asp" ], [ "purchasing", "https://www.investopedia.com/financial-edge/0312/what-happens-when-you-buy-too-much-car.aspx" ], [ "financial hardship", "https://www.investopedia.com/dealing-with-upside-down-car-loan-7484134" ], [ "increase your monthly payment", "https://www.investopedia.com/pay-off-car-loan-faster-7483249" ], [ "Refinancing your car loan", "https://www.investopedia.com/best-time-to-refinance-car-loan-7373577" ] ]
https://www.investopedia.com/top-cds-today-april-15-2024-leading-18-month-rate-rises-again-8633609
Top CDs Today, April 15, 2024 - Leading 18-Month Rate Rises Again
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_1-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:76.1%;"> <img alt="Bar graph showing the top nationally available rate in each CD term, ranging from 4.70% to 5.55% - Rates as of April 15, 2024" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/0trbQxjum7TuJCi-LLuTWCRCUf8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-15-4d0e5adc9fa24ccfbd424835c05ad82f.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/0trbQxjum7TuJCi-LLuTWCRCUf8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-15-4d0e5adc9fa24ccfbd424835c05ad82f.png" data-srcset="https://www.investopedia.com/thmb/eoiBOE86ot6iyRFXRvRafNPRdls=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-15-4d0e5adc9fa24ccfbd424835c05ad82f.png 750w" data-tracking-container="true" height="1888" id="mntl-sc-block-image_1-0" width="2480"/> <noscript> <img alt="Bar graph showing the top nationally available rate in each CD term, ranging from 4.70% to 5.55% - Rates as of April 15, 2024" class="img--noscript universal-image__image" height="1888" sizes="750px" src="https://www.investopedia.com/thmb/0trbQxjum7TuJCi-LLuTWCRCUf8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-15-4d0e5adc9fa24ccfbd424835c05ad82f.png" srcset="https://www.investopedia.com/thmb/eoiBOE86ot6iyRFXRvRafNPRdls=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-15-4d0e5adc9fa24ccfbd424835c05ad82f.png 750w" width="2480"/> </noscript> </div> </div> </figure> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_2-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_3-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>For the second business day in a row, the leading nationally available CD rate in the 18-month term climbed: You can now earn 5.40% APY from <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://northernbankdirect.com/cds-all-rates&amp;lender=Northern%20Bank%20Direct&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Northern Bank Direct</a> on a 15-month term.</li> <li>The overall leading CD rate remains 5.55% APY, offered for 6 months by <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Newtek Bank</a>.</li> <li>Anyone interested in locking their rate for a longer term can score 5% or more for up to 3 years.</li> <li>The <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> have been gradually easing lower for months, in anticipation of future Fed rate cuts—something that's been expected to occur this year.</li> <li>But last week's inflation data suggests it might be a while before the central bank feels comfortable lowering rates.</li> </ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_6-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <span class="heading-toc" id="toc-lock-in-530-to-555-apy-for-3-to-23-months"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Lock In 5.30% to 5.55% APY for 3 to 23 Months </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> After climbing from 5.25% to 5.30% Friday, the top nationally available rate in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348">18-month CD term</a> rose again today. Bumping the top rate to 5.40% APY is Northern Bank Direct, whose offer is available for a 15-month term. </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 highest CD yields of all continue to be offered on short-term certificates. Presiding at the top of our rankings is Newtek Bank, which is paying the nation-leading rate of 5.55%, available for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267">6-month term</a>. The runner-up rate is 5.50%, available from two different institutions, with terms of 5 or 7 months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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 to those three tip-top rates, nine more CDs are paying 5.40% APY or better, with terms of 3 to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">12 months</a>. For a slightly longer term, though, you might like <a class="pseudoStyle" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human's</a> offer of 5.30% on a take-your-pick term of 12-23 months.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_15-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/thQmY/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Ranges of the Top 15 CD rates by term"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-longer-terms-will-lock-your-rate-to-2027or-beyond"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Longer Terms Will Lock Your Rate to 2027—Or Beyond </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Choosing a CD term longer than two years is also a smart option, since it's possible U.S. interest rates could enter a declining rate period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-2-year-cd-rates-4801682">top 3-year CD</a> paying 5.00%, guaranteeing that return until 2027. Or you can opt to guarantee rates in the mid-to-high 4% range for as far as 4 or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473">5 years</a> down the road. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_20-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 101px;"></colgroup> <colgroup span="1" style="width: 112px;"></colgroup> <colgroup span="1" style="width: 111px;"></colgroup> <colgroup span="1" style="width: 131px;"></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Terms</b></td> <td><b>Friday's Top National Rate</b></td> <td><b>Today's Top National Rate</b></td> <td><b>Day's Change </b>(percentage points)</td> <td><b>Top Rate Provider</b></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-month-cd-rates-5272288">3 months</a></td> <td>5.42% APY</td> <td>5.42% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.totaldirectbank.com/personal/cds&amp;lender=TotalDirectBank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">TotalDirectBank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267">6 months</a></td> <td>5.55% APY</td> <td>5.55% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Newtek Bank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">1 year</a></td> <td>5.40% APY</td> <td>5.40% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.applefcu.org/rates&amp;lender=Apple%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Apple Federal Credit Union</a>, <a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.expeditioncu.com/rates/index.html&amp;lender=Expedition%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Expedition Credit Union</a>, and <a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nexbankpersonal.com/certificates-of-deposit-cds&amp;lender=NexBank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">NexBank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348">18 months</a></td> <td>5.30% APY</td> <td>5.40% APY</td> <td>+ 0.10</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://northernbankdirect.com/cds-all-rates&amp;lender=Northern%20Bank%20Direct&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Northern Bank Direct</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&amp;lender=XCEL%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">2 years</a></td> <td>5.30% APY</td> <td>5.30% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-year-cd-rates-4782938">3 years</a></td> <td>5.00% APY</td> <td>5.00% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&amp;lender=DollarSavingsDirect&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">DollarSavingsDirect</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473">4 years</a></td> <td>4.70% APY</td> <td>4.70% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&amp;lender=Lafayette%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">5 years</a></td> <td>4.70% APY</td> <td>4.70% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human</a></td> </tr> </tbody> </table> <figcaption>To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-tip" 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>Today's high CD rates are a perfect antitode to stubborn inflation, with rates available in every CD term that far out-earn the current inflation rate of 3.5%. By putting money into one of these top-paying CDs today, you can stay<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-beat-todays-stubborn-inflation-with-a-top-paying-cd-8610878"> 1 to 2 percentage points ahead of inflation</a>.</p></div></div></div> <span class="heading-toc" id="toc-cd-rates-are-still-near-record-highs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> CD Rates Are Still Near Record Highs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">Certificate of deposit (CD) rates</a> have inched lower since they climbed to a historic high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid a least 5.50% APY was 30. Today that count sits at three. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Also keep in mind that snagging the absolute <em>highest</em> APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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/7T8ds/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Today's CD rates vs. Fall peak vs. Jan 2022"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <span class="heading-toc" id="toc-jumbo-deposits-can-provide-more-cd-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-heading__text"> Jumbo Deposits Can Provide More CD Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> The top two jumbo CDs let you earn more than you can with a standard CD. <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://statebnk.com/sbotrates/&amp;lender=State%20Bank%20Credit%20Texas&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">State Bank of Texas</a> is paying 5.50% APY on a 12-month certificate, while <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.myebanc.com/online-products/online-time-deposits/&amp;lender=My%20eBanc&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">My eBanc</a> offers 5.49% APY for 6 months. </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"> Beware that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766">the best jumbo CD rates</a> don't <em>always</em> pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the terms below, so it's always wise to shop both certificate types before making a final decision. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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="width: 92px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Term</b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-bank-cd-rates-4801462">Today's Top National Bank Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">Today's Top National Credit Union Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766">Today's Top National Jumbo Rate</a></b></td> </tr> <tr> <td>3 months</td> <td>5.42% APY*</td> <td>5.30% APY</td> <td>5.20% APY</td> </tr> <tr> <td>6 months</td> <td>5.55% APY*</td> <td>5.50% APY</td> <td>5.49% APY</td> </tr> <tr> <td>1 year</td> <td>5.40% APY</td> <td>5.40% APY</td> <td>5.50% APY*</td> </tr> <tr> <td>18 months</td> <td>5.40% APY</td> <td>5.30% APY</td> <td>5.41% APY*</td> </tr> <tr> <td>2 years</td> <td>4.90% APY</td> <td>5.30% APY*</td> <td>4.96% APY</td> </tr> <tr> <td>3 years</td> <td>5.00% APY*</td> <td>5.00% APY*</td> <td>4.97% APY</td> </tr> <tr> <td>4 years</td> <td>4.55% APY</td> <td>4.70% APY*</td> <td>4.48% APY</td> </tr> <tr> <td>5 years</td> <td>4.55% APY</td> <td>4.70% APY*</td> <td>4.37% APY</td> </tr> </tbody> </table> <figcaption>*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-where-are-cd-rates-headed-in-2024"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> Where Are CD Rates Headed in 2024? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> To combat decades-high inflation, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve</a> aggressively hiked the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">money market account</a>. Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_45-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/BQd5u/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Top CD Rates Since December 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723">maintain the fed fund rate at its current level</a>, the fifth meeting in a row it's done so.<span class="ql-inline-citation" data-cite="32"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> That's because <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke last week about how the first rate cut could still be a ways off. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks.<span class="ql-inline-citation" data-cite="43"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Unfortunately for those anxious for rate cuts, last week's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-heated-up-in-march-8629363">release of new inflation data</a> did not help the outlook. The March Consumer Price Index came in at 3.5%, which is 0.3 percentage points higher than February and 0.4 higher than January.<span class="ql-inline-citation" data-cite="44"></span> In fact, it's the highest inflation reading since September, moving in the wrong direction to trigger Fed rate decreases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year.<span class="ql-inline-citation" data-cite="41"></span> But confidence in that prediction is waning as new data comes to light. According to the CME Group's FedWatch Tool, less than 25% of traders currently predict we'll see three cuts by the end of 2024.<span class="ql-inline-citation" data-cite="39"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Still, it's a reasonable prediction that the Fed will find it appropriate to lower its benchmark rate sometime this year, if not three times. But Fed moves several months into the future are unpredictable, and until more data comes in, it's impossible to say if any 2024 rate cuts will come to fruition. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> As a result, CD rates could continue their current plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears that could be months away. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1.<span class="ql-inline-citation" data-cite="42"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_64-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Best High-Yield Savings Accounts for May 2024—Up to 5.55%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_66-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-cd-rates-4770214" id="mntl-sc-block-featuredlink__link_2-0" rel="nocaes"><span class="link__wrapper">Best CD Rates for May 2024: Up to 5.51%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_68-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-money-market-accounts-5096917" id="mntl-sc-block-featuredlink__link_3-0" rel="nocaes"><span class="link__wrapper">Best Money Market Account Rates for May 2024—Up to 5.35%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_70-0"><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_71-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher.</p></div></div></div> <span class="heading-toc" id="toc-how-we-find-the-best-cd-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_72-0"> <span class="mntl-sc-block-heading__text"> How We Find the Best CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">FDIC</a> for banks, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua-insured-institution.asp">NCUA</a> for credit unions), and the CD's minimum initial deposit must not exceed $25,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816">read our full methodology</a>.<br/> </p></div>
![Bar graph showing the top nationally available rate in each CD term, ranging from 4.70% to 5.55% - Rates as of April 15, 2024]() ![Bar graph showing the top nationally available rate in each CD term, ranging from 4.70% to 5.55% - Rates as of April 15, 2024](https://www.investopedia.com/thmb/0trbQxjum7TuJCi-LLuTWCRCUf8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-15-4d0e5adc9fa24ccfbd424835c05ad82f.png) ### Key Takeaways * For the second business day in a row, the leading nationally available CD rate in the 18-month term climbed: You can now earn 5.40% APY from [Northern Bank Direct](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://northernbankdirect.com/cds-all-rates&lender=Northern%20Bank%20Direct&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) on a 15-month term. * The overall leading CD rate remains 5.55% APY, offered for 6 months by [Newtek Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&lender=Newtek%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ). * Anyone interested in locking their rate for a longer term can score 5% or more for up to 3 years. * The [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) have been gradually easing lower for months, in anticipation of future Fed rate cuts—something that's been expected to occur this year. * But last week's inflation data suggests it might be a while before the central bank feels comfortable lowering rates. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. ## Lock In 5.30% to 5.55% APY for 3 to 23 Months After climbing from 5.25% to 5.30% Friday, the top nationally available rate in the [18-month CD term](https://www.investopedia.com/best-18-month-cd-rates-5272348) rose again today. Bumping the top rate to 5.40% APY is Northern Bank Direct, whose offer is available for a 15-month term. The highest CD yields of all continue to be offered on short-term certificates. Presiding at the top of our rankings is Newtek Bank, which is paying the nation-leading rate of 5.55%, available for a [6-month term](https://www.investopedia.com/best-6-month-cd-rates-4783267). The runner-up rate is 5.50%, available from two different institutions, with terms of 5 or 7 months. In addition to those three tip-top rates, nine more CDs are paying 5.40% APY or better, with terms of 3 to [12 months](https://www.investopedia.com/best-1-year-cd-rates-4796650). For a slightly longer term, though, you might like [Credit Human's](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) offer of 5.30% on a take-your-pick term of 12-23 months. ## Longer Terms Will Lock Your Rate to 2027—Or Beyond Choosing a CD term longer than two years is also a smart option, since it's possible U.S. interest rates could enter a declining rate period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a [top 3-year CD](https://www.investopedia.com/best-2-year-cd-rates-4801682) paying 5.00%, guaranteeing that return until 2027. Or you can opt to guarantee rates in the mid-to-high 4% range for as far as 4 or [5 years](https://www.investopedia.com/best-5-year-cd-rates-4801473) down the road. | **CD Terms** | **Friday's Top National Rate** | **Today's Top National Rate** | **Day's Change** (percentage points) | **Top Rate Provider** | | --- | --- | --- | --- | --- | | [3 months](https://www.investopedia.com/best-3-month-cd-rates-5272288) | 5.42% APY | 5.42% APY | No change | [TotalDirectBank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.totaldirectbank.com/personal/cds&lender=TotalDirectBank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [6 months](https://www.investopedia.com/best-6-month-cd-rates-4783267) | 5.55% APY | 5.55% APY | No change | [Newtek Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&lender=Newtek%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [1 year](https://www.investopedia.com/best-1-year-cd-rates-4796650) | 5.40% APY | 5.40% APY | No change | [Apple Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.applefcu.org/rates&lender=Apple%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ), [Expedition Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.expeditioncu.com/rates/index.html&lender=Expedition%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ), and [NexBank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nexbankpersonal.com/certificates-of-deposit-cds&lender=NexBank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [18 months](https://www.investopedia.com/best-18-month-cd-rates-5272348) | 5.30% APY | 5.40% APY | + 0.10 | [Northern Bank Direct](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://northernbankdirect.com/cds-all-rates&lender=Northern%20Bank%20Direct&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [2 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&lender=XCEL%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 5.30% APY | 5.30% APY | No change | [Credit Human](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [3 years](https://www.investopedia.com/best-3-year-cd-rates-4782938) | 5.00% APY | 5.00% APY | No change | [DollarSavingsDirect](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&lender=DollarSavingsDirect&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [4 years](https://www.investopedia.com/best-5-year-cd-rates-4801473) | 4.70% APY | 4.70% APY | No change | [Credit Human](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [5 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&lender=Lafayette%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.70% APY | 4.70% APY | No change | [Credit Human](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. ### Today's high CD rates are a perfect antitode to stubborn inflation, with rates available in every CD term that far out-earn the current inflation rate of 3.5%. By putting money into one of these top-paying CDs today, you can stay [1 to 2 percentage points ahead of inflation](https://www.investopedia.com/how-to-beat-todays-stubborn-inflation-with-a-top-paying-cd-8610878). ## CD Rates Are Still Near Record Highs [Certificate of deposit (CD) rates](https://www.investopedia.com/terms/c/certificateofdeposit.asp) have inched lower since they climbed to a historic high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid a least 5.50% APY was 30. Today that count sits at three. But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute *highest* APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move. ## Jumbo Deposits Can Provide More CD Options The top two jumbo CDs let you earn more than you can with a standard CD. [State Bank of Texas](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://statebnk.com/sbotrates/&lender=State%20Bank%20Credit%20Texas&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) is paying 5.50% APY on a 12-month certificate, while [My eBanc](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.myebanc.com/online-products/online-time-deposits/&lender=My%20eBanc&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) offers 5.49% APY for 6 months. Beware that [the best jumbo CD rates](https://www.investopedia.com/best-jumbo-cd-rates-4797766) don't *always* pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the terms below, so it's always wise to shop both certificate types before making a final decision. | **CD Term** | **[Today's Top National Bank Rate](https://www.investopedia.com/best-bank-cd-rates-4801462)** | **[Today's Top National Credit Union Rate](https://www.investopedia.com/best-cd-rates-4770214)** | **[Today's Top National Jumbo Rate](https://www.investopedia.com/best-jumbo-cd-rates-4797766)** | | --- | --- | --- | --- | | 3 months | 5.42% APY\* | 5.30% APY | 5.20% APY | | 6 months | 5.55% APY\* | 5.50% APY | 5.49% APY | | 1 year | 5.40% APY | 5.40% APY | 5.50% APY\* | | 18 months | 5.40% APY | 5.30% APY | 5.41% APY\* | | 2 years | 4.90% APY | 5.30% APY\* | 4.96% APY | | 3 years | 5.00% APY\* | 5.00% APY\* | 4.97% APY | | 4 years | 4.55% APY | 4.70% APY\* | 4.48% APY | | 5 years | 4.55% APY | 4.70% APY\* | 4.37% APY | \*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. ## Where Are CD Rates Headed in 2024? To combat decades-high inflation, the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) aggressively hiked the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a [high-yield savings](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) or [money market account](https://www.investopedia.com/best-money-market-accounts-5096917). Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would [maintain the fed fund rate at its current level](https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723), the fifth meeting in a row it's done so. That's because [inflation](https://www.investopedia.com/terms/i/inflation.asp) has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke last week about how the first rate cut could still be a ways off. "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks. Unfortunately for those anxious for rate cuts, last week's [release of new inflation data](https://www.investopedia.com/inflation-heated-up-in-march-8629363) did not help the outlook. The March Consumer Price Index came in at 3.5%, which is 0.3 percentage points higher than February and 0.4 higher than January. In fact, it's the highest inflation reading since September, moving in the wrong direction to trigger Fed rate decreases. At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year. But confidence in that prediction is waning as new data comes to light. According to the CME Group's FedWatch Tool, less than 25% of traders currently predict we'll see three cuts by the end of 2024. Still, it's a reasonable prediction that the Fed will find it appropriate to lower its benchmark rate sometime this year, if not three times. But Fed moves several months into the future are unpredictable, and until more data comes in, it's impossible to say if any 2024 rate cuts will come to fruition. As a result, CD rates could continue their current plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears that could be months away. The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1. [Best High-Yield Savings Accounts for May 2024—Up to 5.55%](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) [Best CD Rates for May 2024: Up to 5.51%](https://www.investopedia.com/best-cd-rates-4770214) [Best Money Market Account Rates for May 2024—Up to 5.35%](https://www.investopedia.com/best-money-market-accounts-5096917) ### Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. ## How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured ([FDIC](https://www.investopedia.com/terms/f/fdic-insured-account.asp) for banks, [NCUA](https://www.investopedia.com/terms/n/ncua-insured-institution.asp) for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, [read our full methodology](https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816).
Key Takeaways For the second business day in a row, the leading nationally available CD rate in the 18-month term climbed: You can now earn 5.40% APY from Northern Bank Direct on a 15-month term. The overall leading CD rate remains 5.55% APY, offered for 6 months by Newtek Bank. Anyone interested in locking their rate for a longer term can score 5% or more for up to 3 years. The best CD rates have been gradually easing lower for months, in anticipation of future Fed rate cuts—something that's been expected to occur this year. But last week's inflation data suggests it might be a while before the central bank feels comfortable lowering rates. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. Lock In 5.30% to 5.55% APY for 3 to 23 Months After climbing from 5.25% to 5.30% Friday, the top nationally available rate in the 18-month CD term rose again today. Bumping the top rate to 5.40% APY is Northern Bank Direct, whose offer is available for a 15-month term. The highest CD yields of all continue to be offered on short-term certificates. Presiding at the top of our rankings is Newtek Bank, which is paying the nation-leading rate of 5.55%, available for a 6-month term. The runner-up rate is 5.50%, available from two different institutions, with terms of 5 or 7 months. In addition to those three tip-top rates, nine more CDs are paying 5.40% APY or better, with terms of 3 to 12 months. For a slightly longer term, though, you might like Credit Human's offer of 5.30% on a take-your-pick term of 12-23 months. Longer Terms Will Lock Your Rate to 2027—Or Beyond Choosing a CD term longer than two years is also a smart option, since it's possible U.S. interest rates could enter a declining rate period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a top 3-year CD paying 5.00%, guaranteeing that return until 2027. Or you can opt to guarantee rates in the mid-to-high 4% range for as far as 4 or 5 years down the road. CD Terms Friday's Top National Rate Today's Top National Rate Day's Change (percentage points) Top Rate Provider 3 months 5.42% APY 5.42% APY No change TotalDirectBank 6 months 5.55% APY 5.55% APY No change Newtek Bank 1 year 5.40% APY 5.40% APY No change Apple Federal Credit Union, Expedition Credit Union, and NexBank 18 months 5.30% APY 5.40% APY + 0.10 Northern Bank Direct 2 years 5.30% APY 5.30% APY No change Credit Human 3 years 5.00% APY 5.00% APY No change DollarSavingsDirect 4 years 4.70% APY 4.70% APY No change Credit Human 5 years 4.70% APY 4.70% APY No change Credit Human To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. Today's high CD rates are a perfect antitode to stubborn inflation, with rates available in every CD term that far out-earn the current inflation rate of 3.5%. By putting money into one of these top-paying CDs today, you can stay 1 to 2 percentage points ahead of inflation. CD Rates Are Still Near Record Highs Certificate of deposit (CD) rates have inched lower since they climbed to a historic high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid a least 5.50% APY was 30. Today that count sits at three. But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute highest APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move. Jumbo Deposits Can Provide More CD Options The top two jumbo CDs let you earn more than you can with a standard CD. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while My eBanc offers 5.49% APY for 6 months. Beware that the best jumbo CD rates don't always pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the terms below, so it's always wise to shop both certificate types before making a final decision. CD Term Today's Top National Bank Rate Today's Top National Credit Union Rate Today's Top National Jumbo Rate 3 months 5.42% APY* 5.30% APY 5.20% APY 6 months 5.55% APY* 5.50% APY 5.49% APY 1 year 5.40% APY 5.40% APY 5.50% APY* 18 months 5.40% APY 5.30% APY 5.41% APY* 2 years 4.90% APY 5.30% APY* 4.96% APY 3 years 5.00% APY* 5.00% APY* 4.97% APY 4 years 4.55% APY 4.70% APY* 4.48% APY 5 years 4.55% APY 4.70% APY* 4.37% APY *Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. Where Are CD Rates Headed in 2024? To combat decades-high inflation, the Federal Reserve aggressively hiked the federal funds rate between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a high-yield savings or money market account. Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would maintain the fed fund rate at its current level, the fifth meeting in a row it's done so. That's because inflation has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke last week about how the first rate cut could still be a ways off. "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks. Unfortunately for those anxious for rate cuts, last week's release of new inflation data did not help the outlook. The March Consumer Price Index came in at 3.5%, which is 0.3 percentage points higher than February and 0.4 higher than January. In fact, it's the highest inflation reading since September, moving in the wrong direction to trigger Fed rate decreases. At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year. But confidence in that prediction is waning as new data comes to light. According to the CME Group's FedWatch Tool, less than 25% of traders currently predict we'll see three cuts by the end of 2024. Still, it's a reasonable prediction that the Fed will find it appropriate to lower its benchmark rate sometime this year, if not three times. But Fed moves several months into the future are unpredictable, and until more data comes in, it's impossible to say if any 2024 rate cuts will come to fruition. As a result, CD rates could continue their current plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears that could be months away. The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1. Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best CD Rates for May 2024: Up to 5.51% Best Money Market Account Rates for May 2024—Up to 5.35% Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.
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"12 months", "https://www.investopedia.com/best-1-year-cd-rates-4796650" ], [ "Credit Human's", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "top 3-year CD", "https://www.investopedia.com/best-2-year-cd-rates-4801682" ], [ "5 years", "https://www.investopedia.com/best-5-year-cd-rates-4801473" ], [ "3 months", "https://www.investopedia.com/best-3-month-cd-rates-5272288" ], [ "TotalDirectBank", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.totaldirectbank.com/personal/cds&lender=TotalDirectBank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "6 months", "https://www.investopedia.com/best-6-month-cd-rates-4783267" ], [ "Newtek Bank", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&lender=Newtek%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "1 year", "https://www.investopedia.com/best-1-year-cd-rates-4796650" ], [ "Apple Federal Credit Union", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.applefcu.org/rates&lender=Apple%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "Expedition Credit Union", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.expeditioncu.com/rates/index.html&lender=Expedition%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "NexBank", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nexbankpersonal.com/certificates-of-deposit-cds&lender=NexBank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "18 months", "https://www.investopedia.com/best-18-month-cd-rates-5272348" ], [ "Northern Bank Direct", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://northernbankdirect.com/cds-all-rates&lender=Northern%20Bank%20Direct&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "2 years", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&lender=XCEL%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "Credit Human", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "3 years", "https://www.investopedia.com/best-3-year-cd-rates-4782938" ], [ "DollarSavingsDirect", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&lender=DollarSavingsDirect&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "4 years", "https://www.investopedia.com/best-5-year-cd-rates-4801473" ], [ "Credit Human", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "5 years", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&lender=Lafayette%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "Credit Human", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "1 to 2 percentage points ahead of inflation", "https://www.investopedia.com/how-to-beat-todays-stubborn-inflation-with-a-top-paying-cd-8610878" ], [ "Certificate of deposit (CD) rates", "https://www.investopedia.com/terms/c/certificateofdeposit.asp" ], [ "State Bank of Texas", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://statebnk.com/sbotrates/&lender=State%20Bank%20Credit%20Texas&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "My eBanc", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.myebanc.com/online-products/online-time-deposits/&lender=My%20eBanc&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "the best jumbo CD rates", "https://www.investopedia.com/best-jumbo-cd-rates-4797766" ], [ "Today's Top National Bank Rate", "https://www.investopedia.com/best-bank-cd-rates-4801462" ], [ "Today's Top National Credit Union Rate", "https://www.investopedia.com/best-cd-rates-4770214" ], [ "Today's Top National Jumbo Rate", "https://www.investopedia.com/best-jumbo-cd-rates-4797766" ], [ "Federal Reserve", "https://www.investopedia.com/terms/f/federalreservebank.asp" ], [ "federal funds rate", "https://www.investopedia.com/terms/f/federalfundsrate.asp" ], [ "high-yield savings", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "money market account", "https://www.investopedia.com/best-money-market-accounts-5096917" ], [ "maintain the fed fund rate at its current level", "https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723" ], [ "inflation", "https://www.investopedia.com/terms/i/inflation.asp" ], [ "release of new inflation data", "https://www.investopedia.com/inflation-heated-up-in-march-8629363" ], [ "Best High-Yield Savings Accounts for May 2024—Up to 5.55%", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "Best CD Rates for May 2024: Up to 5.51%", "https://www.investopedia.com/best-cd-rates-4770214" ], [ "Best Money Market Account Rates for May 2024—Up to 5.35%", "https://www.investopedia.com/best-money-market-accounts-5096917" ], [ "FDIC", "https://www.investopedia.com/terms/f/fdic-insured-account.asp" ], [ "NCUA", "https://www.investopedia.com/terms/n/ncua-insured-institution.asp" ], [ "read our full methodology", "https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816" ] ]
https://www.investopedia.com/articles/personal-finance/091515/beginners-guide-student-loans.asp
How to Apply for Student Loans
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Unless their parents have somehow saved enough money—or earn massive salaries—most students need to borrow to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/paying-for-college-as-an-lgbtq-student-5176574">pay for college</a> today. Working your way through college is also largely a thing of the past. Few students can make enough to pay for college while they're also taking classes. For that reason, student loans (and debt) have become increasingly common. Here's what you need to know about applying. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>To apply for federal loans for college, students and parents need to fill out the Free Application for Federal Student Aid, or FAFSA.</li><li>Federal student loans come in two basic types: subsidized and unsubsidized. Subsidized loans are more affordable, if you qualify.</li><li>Other loan sources include federal PLUS loans for parents and private loans from banks and other lenders.</li></ul></div></div></div> <span class="heading-toc" id="toc-step-1-fill-out-the-fafsa"></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"> Step 1: Fill Out the FAFSA </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The first step in applying for student loans is to fill out the government's <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>. The FAFSA asks a series of questions about the student's and parents' income and investments, in addition to other relevant matters. Based on the information you supply, the FAFSA will calculate your Student Aid Index (SAI), formerly known as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expected-family-contribution.asp">Expected Family Contribution (EFC)</a>. That's the amount of money the government believes you should be able to pay for college for the coming school year out of your own financial resources. </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"> You can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://studentaid.gov/h/apply-for-aid/fafsa">complete the FAFSA online</a> at the office of the Federal Student Aid website.<span class="ql-inline-citation" data-cite="2"></span> To save time, round up all of your account information before you sit down to start work on it. You must not only complete the FAFSA when you first apply for aid but every year after that if you hope to continue receiving aid. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The confusingly-named Expected Family Contribution (EFC) was renamed the Student Aid Index (SAI) in July 2023 as part of the FAFSA Simplification Act. It does not indicate how much the student must pay the college. It is used by the school to calculate how much student aid the applicant is eligible to receive.<span class="ql-inline-citation" data-cite="6"></span> The transition is not just a name change. The SAI will not consider how many other children in the family may be in the higher education system and creates a new rubric for how Federal Pell Grants are awarded.<span class="ql-inline-citation" data-cite="9"></span></p></div></div></div> <span class="heading-toc" id="toc-step-2-compare-your-financial-aid-offers"></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"> Step 2: Compare Your Financial Aid Offers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The financial aid offices at the colleges you apply to will use the information from your FAFSA to determine how much aid to make available to you. They compute your need by subtracting your EFC from their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cost-of-attendance.asp">cost of attendance (COA)</a>. Cost of attendance includes tuition, mandatory fees, room and board, and some other expenses. It can be found on most colleges' websites. </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 order to bridge the gap between your EFC and their COA, colleges will put together an aid package that may include federal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pell-grant.asp">Pell Grants</a> and paid work-study, in addition to loans. Grants, unlike loans, do not need to be paid back, except in rare instances. They are intended for students with what the government considers "exceptional financial need." </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"> Award letters can differ from college to college, so it's important to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/understanding-your-financial-aid-award-letter-4783535">compare them side by side</a>. In terms of loans, you'll want to look at how much money each school offers and whether the loans are subsidized or unsubsidized. </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"> <strong>Direct subsidized loans</strong>, like grants, are meant for students with exceptional financial need. The advantage of subsidized student loans is that the U.S. Department of Education will cover the interest while you're still at least a half-time student and for the first six months after you graduate.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <strong>Direct unsubsidized loans</strong> are available to families regardless of need, and the interest will start accruing immediately.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Payments and interest on these loans were suspended in 2020 during the economic crisis. Payments resume Oct. 2023, and interest will begin accruing on Sept. 1, 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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> If you qualify, a college might offer you both subsidized and unsubsidized loans. </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"> Federal loans have a number of advantages over student loans from banks and other private lenders. They have relatively low, fixed interest rates (private loans often have variable rates) and offer a variety of flexible repayment plans. </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, the amount you can borrow is limited. For example, most first-year undergraduates can only borrow up to $5,500, of which no more than $3,500 can be in subsidized loans. There are also limits on how much you can borrow in total over the course of your college career.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> If you need to borrow more than that, one option is a federal direct PLUS Loan. PLUS loans are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-apply-for-a-parent-plus-loan-7569630">intended for the parents</a> of undergraduates (as well as for professional and graduate students). PLUS loans have higher limits—up to the full cost of attendance minus any other aid the student is receiving—and are available regardless of need. However, the parent borrower must generally pass a credit check to prove their creditworthiness.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_33-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Private student loans lack the flexible repayment options available with federal loans.</p></div></div></div> <span class="heading-toc" id="toc-step-3-consider-private-student-loans"></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"> Step 3: Consider Private Student Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Another option if you need to borrow more money than federal student loans can provide is to apply for a private loan from a bank, credit union, or other financial institution. </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"> Private loans are available regardless of need, and you apply for them using the financial institution's own forms rather than the FAFSA. To obtain a private loan, you will need to have a good credit rating or get someone who does have one, such as a parent or other relative, to co-sign on the loan. </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"> Having less-than-stellar credit can make it difficult to qualify for student loans. Private lenders will consider your income and credit history, and as a college student, you likely have poor credit or no credit at all. However, some lenders offer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-student-loans-for-bad-credit-4779788">student loan options for borrowers with bad credit</a>. </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"> Generally, private loans carry higher interest rates than federal loans, and these rates are variable rather than fixed, which adds some uncertainty to the question of how much you'll eventually owe. Private loans also lack the flexible repayment plans available with federal loans and are not eligible for loan consolidation under the Federal Direct Consolidation Loan program. However, you can refinance your private loans after you graduate, possibly at a lower interest rate. </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"> Each college will notify you of how much aid it is offering around the same time that you receive your official acceptance. This is often referred to as an award letter. In addition to federal aid, colleges may make money available out of their own funds, such as merit or athletic scholarships. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <span class="heading-toc" id="toc-step-4-choose-your-school"></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"> Step 4: Choose Your School </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> How much you'll have to borrow to attend one school versus another may not be the most important factor in choosing a college. But it should definitely be high on the list. Graduating from college with an unmanageable amount of debt—or, worse still, taking on debt and not graduating—is not only a burden that might keep you up at night; it can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/100515/10-ways-student-debt-can-destroy-your-life.asp">limit—or even derail—your career and life choices</a> for years to come. Also factor in the future careers you are considering when you choose to pay more for college. A <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/college-degrees-best-starting-salaries/">career with a high entry-level salary</a> will put you in a better position to repay your loans and justify taking on more debt. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_49-0"><span class="heading-toc" id="toc-how-do-you-borrow-college-money-under-federal-loan-programs"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Borrow College Money Under Federal Loan Programs?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>To qualify for a federal loan, you will need to complete and submit the Free Application for Federal Student Aid (FAFSA). Borrowers must answer questions about the student's and parents' income and investments, in addition to other relevant matters. Using that information, the FAFSA determines the Student Aid Index (SAI). That figure is used to calculate how much assistance you're eligible to receive.</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-some-advantages-of-federal-loans-over-private"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Some Advantages of Federal Loans Over Private?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Federal loans have relatively low, fixed interest rates (private loans often have variable rates) and offer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-long-pay-off-student-loan-debt-8549844">a variety of flexible repayment plans</a>. Private loans, unlike those from the government, aren't based on financial need. Borrowers may have to pass a credit check to prove their creditworthiness. Borrowers with little or no credit history, or a poor score, may need a co-signer on the loan. Private loans may also have higher borrowing limits than federal loans.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-what-are-the-differences-between-direct-subsidized-loans-and-direct-unsubsidized-loans"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Differences Between Direct Subsidized Loans and Direct Unsubsidized Loans?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Like grants, direct subsidized loans are meant for students with exceptional financial need. The U.S. Department of Education will cover the interest while you're still at least a half-time student and for the first six months after you graduate. By contrast, direct unsubsidized loans are available to families regardless of need, and the interest will start accruing immediately.<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_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"> Student loans are among the resources available to help families pay college bills. Private and federal loans have advantages and disadvantages depending on your situation. Private loans, administered by banks and credit unions, are much like any other kind of loan, meaning a credit check will be required. Federal loans are often needs-based with lower interest rates and flexibility in repayment. Those who do the required legwork will find options that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-advice-5193970">best meet their needs</a>.<br/> </p></div>
Unless their parents have somehow saved enough money—or earn massive salaries—most students need to borrow to [pay for college](https://www.investopedia.com/paying-for-college-as-an-lgbtq-student-5176574) today. Working your way through college is also largely a thing of the past. Few students can make enough to pay for college while they're also taking classes. For that reason, student loans (and debt) have become increasingly common. Here's what you need to know about applying. ### Key Takeaways * To apply for federal loans for college, students and parents need to fill out the Free Application for Federal Student Aid, or FAFSA. * Federal student loans come in two basic types: subsidized and unsubsidized. Subsidized loans are more affordable, if you qualify. * Other loan sources include federal PLUS loans for parents and private loans from banks and other lenders. ## Step 1: Fill Out the FAFSA The first step in applying for student loans is to fill out the government's [Free Application for Federal Student Aid (FAFSA)](https://www.investopedia.com/terms/f/federal-application-of-student-aid-fafsa.asp). The FAFSA asks a series of questions about the student's and parents' income and investments, in addition to other relevant matters. Based on the information you supply, the FAFSA will calculate your Student Aid Index (SAI), formerly known as the [Expected Family Contribution (EFC)](https://www.investopedia.com/terms/e/expected-family-contribution.asp). That's the amount of money the government believes you should be able to pay for college for the coming school year out of your own financial resources. You can [complete the FAFSA online](https://studentaid.gov/h/apply-for-aid/fafsa) at the office of the Federal Student Aid website. To save time, round up all of your account information before you sit down to start work on it. You must not only complete the FAFSA when you first apply for aid but every year after that if you hope to continue receiving aid. ### The confusingly-named Expected Family Contribution (EFC) was renamed the Student Aid Index (SAI) in July 2023 as part of the FAFSA Simplification Act. It does not indicate how much the student must pay the college. It is used by the school to calculate how much student aid the applicant is eligible to receive. The transition is not just a name change. The SAI will not consider how many other children in the family may be in the higher education system and creates a new rubric for how Federal Pell Grants are awarded. ## Step 2: Compare Your Financial Aid Offers The financial aid offices at the colleges you apply to will use the information from your FAFSA to determine how much aid to make available to you. They compute your need by subtracting your EFC from their [cost of attendance (COA)](https://www.investopedia.com/terms/c/cost-of-attendance.asp). Cost of attendance includes tuition, mandatory fees, room and board, and some other expenses. It can be found on most colleges' websites. In order to bridge the gap between your EFC and their COA, colleges will put together an aid package that may include federal [Pell Grants](https://www.investopedia.com/terms/p/pell-grant.asp) and paid work-study, in addition to loans. Grants, unlike loans, do not need to be paid back, except in rare instances. They are intended for students with what the government considers "exceptional financial need." Award letters can differ from college to college, so it's important to [compare them side by side](https://www.investopedia.com/understanding-your-financial-aid-award-letter-4783535). In terms of loans, you'll want to look at how much money each school offers and whether the loans are subsidized or unsubsidized. **Direct subsidized loans**, like grants, are meant for students with exceptional financial need. The advantage of subsidized student loans is that the U.S. Department of Education will cover the interest while you're still at least a half-time student and for the first six months after you graduate. **Direct unsubsidized loans** are available to families regardless of need, and the interest will start accruing immediately. Payments and interest on these loans were suspended in 2020 during the economic crisis. Payments resume Oct. 2023, and interest will begin accruing on Sept. 1, 2023. If you qualify, a college might offer you both subsidized and unsubsidized loans. Federal loans have a number of advantages over student loans from banks and other private lenders. They have relatively low, fixed interest rates (private loans often have variable rates) and offer a variety of flexible repayment plans. However, the amount you can borrow is limited. For example, most first-year undergraduates can only borrow up to $5,500, of which no more than $3,500 can be in subsidized loans. There are also limits on how much you can borrow in total over the course of your college career. If you need to borrow more than that, one option is a federal direct PLUS Loan. PLUS loans are [intended for the parents](https://www.investopedia.com/how-to-apply-for-a-parent-plus-loan-7569630) of undergraduates (as well as for professional and graduate students). PLUS loans have higher limits—up to the full cost of attendance minus any other aid the student is receiving—and are available regardless of need. However, the parent borrower must generally pass a credit check to prove their creditworthiness. ### Private student loans lack the flexible repayment options available with federal loans. ## Step 3: Consider Private Student Loans Another option if you need to borrow more money than federal student loans can provide is to apply for a private loan from a bank, credit union, or other financial institution. Private loans are available regardless of need, and you apply for them using the financial institution's own forms rather than the FAFSA. To obtain a private loan, you will need to have a good credit rating or get someone who does have one, such as a parent or other relative, to co-sign on the loan. Having less-than-stellar credit can make it difficult to qualify for student loans. Private lenders will consider your income and credit history, and as a college student, you likely have poor credit or no credit at all. However, some lenders offer [student loan options for borrowers with bad credit](https://www.investopedia.com/best-student-loans-for-bad-credit-4779788). Generally, private loans carry higher interest rates than federal loans, and these rates are variable rather than fixed, which adds some uncertainty to the question of how much you'll eventually owe. Private loans also lack the flexible repayment plans available with federal loans and are not eligible for loan consolidation under the Federal Direct Consolidation Loan program. However, you can refinance your private loans after you graduate, possibly at a lower interest rate. Each college will notify you of how much aid it is offering around the same time that you receive your official acceptance. This is often referred to as an award letter. In addition to federal aid, colleges may make money available out of their own funds, such as merit or athletic scholarships. ## Step 4: Choose Your School How much you'll have to borrow to attend one school versus another may not be the most important factor in choosing a college. But it should definitely be high on the list. Graduating from college with an unmanageable amount of debt—or, worse still, taking on debt and not graduating—is not only a burden that might keep you up at night; it can [limit—or even derail—your career and life choices](https://www.investopedia.com/articles/personal-finance/100515/10-ways-student-debt-can-destroy-your-life.asp) for years to come. Also factor in the future careers you are considering when you choose to pay more for college. A [career with a high entry-level salary](https://www.investopedia.com/personal-finance/college-degrees-best-starting-salaries/) will put you in a better position to repay your loans and justify taking on more debt. ## How Do You Borrow College Money Under Federal Loan Programs? To qualify for a federal loan, you will need to complete and submit the Free Application for Federal Student Aid (FAFSA). Borrowers must answer questions about the student's and parents' income and investments, in addition to other relevant matters. Using that information, the FAFSA determines the Student Aid Index (SAI). That figure is used to calculate how much assistance you're eligible to receive. ## What Are Some Advantages of Federal Loans Over Private? Federal loans have relatively low, fixed interest rates (private loans often have variable rates) and offer [a variety of flexible repayment plans](https://www.investopedia.com/how-long-pay-off-student-loan-debt-8549844). Private loans, unlike those from the government, aren't based on financial need. Borrowers may have to pass a credit check to prove their creditworthiness. Borrowers with little or no credit history, or a poor score, may need a co-signer on the loan. Private loans may also have higher borrowing limits than federal loans. ## What Are the Differences Between Direct Subsidized Loans and Direct Unsubsidized Loans? Like grants, direct subsidized loans are meant for students with exceptional financial need. The U.S. Department of Education will cover the interest while you're still at least a half-time student and for the first six months after you graduate. By contrast, direct unsubsidized loans are available to families regardless of need, and the interest will start accruing immediately. ## The Bottom Line Student loans are among the resources available to help families pay college bills. Private and federal loans have advantages and disadvantages depending on your situation. Private loans, administered by banks and credit unions, are much like any other kind of loan, meaning a credit check will be required. Federal loans are often needs-based with lower interest rates and flexibility in repayment. Those who do the required legwork will find options that [best meet their needs](https://www.investopedia.com/student-loan-advice-5193970).
Unless their parents have somehow saved enough money—or earn massive salaries—most students need to borrow to pay for college today. Working your way through college is also largely a thing of the past. Few students can make enough to pay for college while they're also taking classes. For that reason, student loans (and debt) have become increasingly common. Here's what you need to know about applying. Key Takeaways To apply for federal loans for college, students and parents need to fill out the Free Application for Federal Student Aid, or FAFSA.Federal student loans come in two basic types: subsidized and unsubsidized. Subsidized loans are more affordable, if you qualify.Other loan sources include federal PLUS loans for parents and private loans from banks and other lenders. Step 1: Fill Out the FAFSA The first step in applying for student loans is to fill out the government's Free Application for Federal Student Aid (FAFSA). The FAFSA asks a series of questions about the student's and parents' income and investments, in addition to other relevant matters. Based on the information you supply, the FAFSA will calculate your Student Aid Index (SAI), formerly known as the Expected Family Contribution (EFC). That's the amount of money the government believes you should be able to pay for college for the coming school year out of your own financial resources. You can complete the FAFSA online at the office of the Federal Student Aid website. To save time, round up all of your account information before you sit down to start work on it. You must not only complete the FAFSA when you first apply for aid but every year after that if you hope to continue receiving aid. The confusingly-named Expected Family Contribution (EFC) was renamed the Student Aid Index (SAI) in July 2023 as part of the FAFSA Simplification Act. It does not indicate how much the student must pay the college. It is used by the school to calculate how much student aid the applicant is eligible to receive. The transition is not just a name change. The SAI will not consider how many other children in the family may be in the higher education system and creates a new rubric for how Federal Pell Grants are awarded. Step 2: Compare Your Financial Aid Offers The financial aid offices at the colleges you apply to will use the information from your FAFSA to determine how much aid to make available to you. They compute your need by subtracting your EFC from their cost of attendance (COA). Cost of attendance includes tuition, mandatory fees, room and board, and some other expenses. It can be found on most colleges' websites. In order to bridge the gap between your EFC and their COA, colleges will put together an aid package that may include federal Pell Grants and paid work-study, in addition to loans. Grants, unlike loans, do not need to be paid back, except in rare instances. They are intended for students with what the government considers "exceptional financial need." Award letters can differ from college to college, so it's important to compare them side by side. In terms of loans, you'll want to look at how much money each school offers and whether the loans are subsidized or unsubsidized. Direct subsidized loans, like grants, are meant for students with exceptional financial need. The advantage of subsidized student loans is that the U.S. Department of Education will cover the interest while you're still at least a half-time student and for the first six months after you graduate. Direct unsubsidized loans are available to families regardless of need, and the interest will start accruing immediately. Payments and interest on these loans were suspended in 2020 during the economic crisis. Payments resume Oct. 2023, and interest will begin accruing on Sept. 1, 2023. If you qualify, a college might offer you both subsidized and unsubsidized loans. Federal loans have a number of advantages over student loans from banks and other private lenders. They have relatively low, fixed interest rates (private loans often have variable rates) and offer a variety of flexible repayment plans. However, the amount you can borrow is limited. For example, most first-year undergraduates can only borrow up to $5,500, of which no more than $3,500 can be in subsidized loans. There are also limits on how much you can borrow in total over the course of your college career. If you need to borrow more than that, one option is a federal direct PLUS Loan. PLUS loans are intended for the parents of undergraduates (as well as for professional and graduate students). PLUS loans have higher limits—up to the full cost of attendance minus any other aid the student is receiving—and are available regardless of need. However, the parent borrower must generally pass a credit check to prove their creditworthiness. Private student loans lack the flexible repayment options available with federal loans. Step 3: Consider Private Student Loans Another option if you need to borrow more money than federal student loans can provide is to apply for a private loan from a bank, credit union, or other financial institution. Private loans are available regardless of need, and you apply for them using the financial institution's own forms rather than the FAFSA. To obtain a private loan, you will need to have a good credit rating or get someone who does have one, such as a parent or other relative, to co-sign on the loan. Having less-than-stellar credit can make it difficult to qualify for student loans. Private lenders will consider your income and credit history, and as a college student, you likely have poor credit or no credit at all. However, some lenders offer student loan options for borrowers with bad credit. Generally, private loans carry higher interest rates than federal loans, and these rates are variable rather than fixed, which adds some uncertainty to the question of how much you'll eventually owe. Private loans also lack the flexible repayment plans available with federal loans and are not eligible for loan consolidation under the Federal Direct Consolidation Loan program. However, you can refinance your private loans after you graduate, possibly at a lower interest rate. Each college will notify you of how much aid it is offering around the same time that you receive your official acceptance. This is often referred to as an award letter. In addition to federal aid, colleges may make money available out of their own funds, such as merit or athletic scholarships. Step 4: Choose Your School How much you'll have to borrow to attend one school versus another may not be the most important factor in choosing a college. But it should definitely be high on the list. Graduating from college with an unmanageable amount of debt—or, worse still, taking on debt and not graduating—is not only a burden that might keep you up at night; it can limit—or even derail—your career and life choices for years to come. Also factor in the future careers you are considering when you choose to pay more for college. A career with a high entry-level salary will put you in a better position to repay your loans and justify taking on more debt. How Do You Borrow College Money Under Federal Loan Programs? To qualify for a federal loan, you will need to complete and submit the Free Application for Federal Student Aid (FAFSA). Borrowers must answer questions about the student's and parents' income and investments, in addition to other relevant matters. Using that information, the FAFSA determines the Student Aid Index (SAI). That figure is used to calculate how much assistance you're eligible to receive. What Are Some Advantages of Federal Loans Over Private? Federal loans have relatively low, fixed interest rates (private loans often have variable rates) and offer a variety of flexible repayment plans. Private loans, unlike those from the government, aren't based on financial need. Borrowers may have to pass a credit check to prove their creditworthiness. Borrowers with little or no credit history, or a poor score, may need a co-signer on the loan. Private loans may also have higher borrowing limits than federal loans. What Are the Differences Between Direct Subsidized Loans and Direct Unsubsidized Loans? Like grants, direct subsidized loans are meant for students with exceptional financial need. The U.S. Department of Education will cover the interest while you're still at least a half-time student and for the first six months after you graduate. By contrast, direct unsubsidized loans are available to families regardless of need, and the interest will start accruing immediately. The Bottom Line Student loans are among the resources available to help families pay college bills. Private and federal loans have advantages and disadvantages depending on your situation. Private loans, administered by banks and credit unions, are much like any other kind of loan, meaning a credit check will be required. Federal loans are often needs-based with lower interest rates and flexibility in repayment. Those who do the required legwork will find options that best meet their needs.
[ [ "pay for college", "https://www.investopedia.com/paying-for-college-as-an-lgbtq-student-5176574" ], [ "Free Application for Federal Student Aid (FAFSA)", "https://www.investopedia.com/terms/f/federal-application-of-student-aid-fafsa.asp" ], [ "Expected Family Contribution (EFC)", "https://www.investopedia.com/terms/e/expected-family-contribution.asp" ], [ "complete the FAFSA online", "https://studentaid.gov/h/apply-for-aid/fafsa" ], [ "cost of attendance (COA)", "https://www.investopedia.com/terms/c/cost-of-attendance.asp" ], [ "Pell Grants", "https://www.investopedia.com/terms/p/pell-grant.asp" ], [ "compare them side by side", "https://www.investopedia.com/understanding-your-financial-aid-award-letter-4783535" ], [ "intended for the parents", "https://www.investopedia.com/how-to-apply-for-a-parent-plus-loan-7569630" ], [ "student loan options for borrowers with bad credit", "https://www.investopedia.com/best-student-loans-for-bad-credit-4779788" ], [ "limit—or even derail—your career and life choices", "https://www.investopedia.com/articles/personal-finance/100515/10-ways-student-debt-can-destroy-your-life.asp" ], [ "career with a high entry-level salary", "https://www.investopedia.com/personal-finance/college-degrees-best-starting-salaries/" ], [ "a variety of flexible repayment plans", "https://www.investopedia.com/how-long-pay-off-student-loan-debt-8549844" ], [ "best meet their needs", "https://www.investopedia.com/student-loan-advice-5193970" ] ]
https://www.investopedia.com/mortgage-note-5221502
Mortgage Note: What It Is 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-mortgage-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 Mortgage Note? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A mortgage note is a legal document for the loan contract between the lender and borrower when purchasing real estate. Once signed by both parties, this document is legally binding and includes details such as the loan terms, the monthly payment amount, the interest payment, and penalties incurred for late or missed payments.<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 mortgage note is a legal document signed when closing on a mortgage.</li><li>The mortgage note contains details about a loan, including interest, monthly payments, and penalties for late payments.<span class="ql-inline-citation" data-cite="3"></span></li><li>The mortgage note establishes the property as collateral for the loan.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-real-estate-closing"></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"> Real Estate Closing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Near the end of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-process-explained-5213694">the mortgage process</a>, borrowers will be ready <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mortgages-real-estate/10/closing-home-process.asp">to close</a> on a property and sign important documents. A title company or an attorney will commonly host the closing. At this meeting, borrowers sign a mortgage note, which generally holds two parts: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <li>A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/promissorynote.asp">promissory note</a> is a legal document representing the borrower's agreement to repay the loan. The note details the loan value, the interest rate charged by the lender, the due dates for payments, and the loan terms.<span class="ql-inline-citation" data-cite="3"></span></li> <li>The mortgage portion is the document that gives the mortgage provider the right to take the property if the borrower fails to pay the mortgage under the loan terms.<span class="ql-inline-citation" data-cite="3"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The U.S. <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">Department of Housing and Urban Development (HUD)</a> provides an example of a standard mortgage promissory note on its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.hud.gov/sites/documents/13-19MLATCH1.PDF">website</a>.<span class="ql-inline-citation" data-cite="2"></span></p></div></div></div> <span class="heading-toc" id="toc-mortgage-note-details"></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"> Mortgage Note Details </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Mortgage notes vary among lenders, but every mortgage note contains the same basic information. The promissory note portion includes: </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>The dollar amount of the mortgage loan.</li> <li>The interest rate that borrowers will pay. If the rate is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arm.asp">adjustable</a>, the document will explain how and when the interest rate will be adjusted.   </li> <li>The down payment amount.   </li> <li>Whether monthly or bimonthly payments are required.   </li> <li>Whether a prepayment penalty is imposed.   </li> <li>The penalties for late payments.<span class="ql-inline-citation" data-cite="3"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_18-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_19-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>A mortgage note may contain details such as an occupancy section stating that the borrower must occupy the property as a principal residence. There may also be a clause that states borrowers cannot store hazardous substances on the property.<span class="ql-inline-citation" data-cite="3"></span></p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_20-0"><span class="heading-toc" id="toc-who-holds-the-mortgage-note"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Holds the Mortgage Note?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The mortgage note will be held by a mortgage provider.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_22-0"><span class="heading-toc" id="toc-what-if-a-borrower-defaults-on-a-mortgage"></span> <h2 class="mntl-sc-block-questionandanswer__question">What If a Borrower Defaults on a Mortgage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If a borrower <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">defaults</a> on a mortgage, the lender can begin foreclosure proceedings. The party pursuing the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreclosure.asp">foreclosure</a> must produce the mortgage note. However, the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/uniform-commercial-code.asp">Uniform Commercial Code (UCC)</a>, a set of business laws that regulate financial contracts employed across states, does allow for foreclosures in cases of lost notes.<span class="ql-inline-citation" data-cite="4"></span><br/></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-how-do-borrowers-obtain-a-copy-of-a-mortgage-note"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Borrowers Obtain a Copy of a Mortgage Note?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Borrowers receive a copy of the note when they close on the house or property. The note holder and the county recording office should also have copies.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> A mortgage note is a legal document signed when closing a mortgage.<span class="ql-inline-citation" data-cite="3"></span> It gives details of the amount of the loan and the terms of the agreement. A mortgage note also establishes the property as collateral for the loan. Before signing, borrowers should ensure that their mortgage note is correct and all terms agreed upon are recorded correctly. <strong><br/></strong><br/> </p></div>
## What Is a Mortgage Note? A mortgage note is a legal document for the loan contract between the lender and borrower when purchasing real estate. Once signed by both parties, this document is legally binding and includes details such as the loan terms, the monthly payment amount, the interest payment, and penalties incurred for late or missed payments. ### Key Takeaways * A mortgage note is a legal document signed when closing on a mortgage. * The mortgage note contains details about a loan, including interest, monthly payments, and penalties for late payments. * The mortgage note establishes the property as collateral for the loan. ## Real Estate Closing Near the end of [the mortgage process](https://www.investopedia.com/mortgage-process-explained-5213694), borrowers will be ready [to close](https://www.investopedia.com/articles/mortgages-real-estate/10/closing-home-process.asp) on a property and sign important documents. A title company or an attorney will commonly host the closing. At this meeting, borrowers sign a mortgage note, which generally holds two parts: * A [promissory note](https://www.investopedia.com/terms/p/promissorynote.asp) is a legal document representing the borrower's agreement to repay the loan. The note details the loan value, the interest rate charged by the lender, the due dates for payments, and the loan terms. * The mortgage portion is the document that gives the mortgage provider the right to take the property if the borrower fails to pay the mortgage under the loan terms. ### The U.S. [Department of Housing and Urban Development (HUD)](https://www.investopedia.com/terms/u/us-department-housing-urban-development-hud.asp) provides an example of a standard mortgage promissory note on its [website](https://www.hud.gov/sites/documents/13-19MLATCH1.PDF). ## Mortgage Note Details Mortgage notes vary among lenders, but every mortgage note contains the same basic information. The promissory note portion includes: * The dollar amount of the mortgage loan. * The interest rate that borrowers will pay. If the rate is [adjustable](https://www.investopedia.com/terms/a/arm.asp), the document will explain how and when the interest rate will be adjusted. * The down payment amount. * Whether monthly or bimonthly payments are required. * Whether a prepayment penalty is imposed. * The penalties for late payments. ### A mortgage note may contain details such as an occupancy section stating that the borrower must occupy the property as a principal residence. There may also be a clause that states borrowers cannot store hazardous substances on the property. ## Who Holds the Mortgage Note? The mortgage note will be held by a mortgage provider. ## What If a Borrower Defaults on a Mortgage? If a borrower [defaults](https://www.investopedia.com/terms/d/default2.asp) on a mortgage, the lender can begin foreclosure proceedings. The party pursuing the [foreclosure](https://www.investopedia.com/terms/f/foreclosure.asp) must produce the mortgage note. However, the [Uniform Commercial Code (UCC)](https://www.investopedia.com/terms/u/uniform-commercial-code.asp), a set of business laws that regulate financial contracts employed across states, does allow for foreclosures in cases of lost notes. ## How Do Borrowers Obtain a Copy of a Mortgage Note? Borrowers receive a copy of the note when they close on the house or property. The note holder and the county recording office should also have copies. ## The Bottom Line A mortgage note is a legal document signed when closing a mortgage. It gives details of the amount of the loan and the terms of the agreement. A mortgage note also establishes the property as collateral for the loan. Before signing, borrowers should ensure that their mortgage note is correct and all terms agreed upon are recorded correctly.
What Is a Mortgage Note? A mortgage note is a legal document for the loan contract between the lender and borrower when purchasing real estate. Once signed by both parties, this document is legally binding and includes details such as the loan terms, the monthly payment amount, the interest payment, and penalties incurred for late or missed payments. Key Takeaways A mortgage note is a legal document signed when closing on a mortgage.The mortgage note contains details about a loan, including interest, monthly payments, and penalties for late payments.The mortgage note establishes the property as collateral for the loan. Real Estate Closing Near the end of the mortgage process, borrowers will be ready to close on a property and sign important documents. A title company or an attorney will commonly host the closing. At this meeting, borrowers sign a mortgage note, which generally holds two parts: A promissory note is a legal document representing the borrower's agreement to repay the loan. The note details the loan value, the interest rate charged by the lender, the due dates for payments, and the loan terms. The mortgage portion is the document that gives the mortgage provider the right to take the property if the borrower fails to pay the mortgage under the loan terms. The U.S. Department of Housing and Urban Development (HUD) provides an example of a standard mortgage promissory note on its website. Mortgage Note Details Mortgage notes vary among lenders, but every mortgage note contains the same basic information. The promissory note portion includes: The dollar amount of the mortgage loan. The interest rate that borrowers will pay. If the rate is adjustable, the document will explain how and when the interest rate will be adjusted.    The down payment amount.    Whether monthly or bimonthly payments are required.    Whether a prepayment penalty is imposed.    The penalties for late payments. A mortgage note may contain details such as an occupancy section stating that the borrower must occupy the property as a principal residence. There may also be a clause that states borrowers cannot store hazardous substances on the property. Who Holds the Mortgage Note? The mortgage note will be held by a mortgage provider. What If a Borrower Defaults on a Mortgage? If a borrower defaults on a mortgage, the lender can begin foreclosure proceedings. The party pursuing the foreclosure must produce the mortgage note. However, the Uniform Commercial Code (UCC), a set of business laws that regulate financial contracts employed across states, does allow for foreclosures in cases of lost notes. How Do Borrowers Obtain a Copy of a Mortgage Note? Borrowers receive a copy of the note when they close on the house or property. The note holder and the county recording office should also have copies. The Bottom Line A mortgage note is a legal document signed when closing a mortgage. It gives details of the amount of the loan and the terms of the agreement. A mortgage note also establishes the property as collateral for the loan. Before signing, borrowers should ensure that their mortgage note is correct and all terms agreed upon are recorded correctly.
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https://www.investopedia.com/terms/c/corner.asp
Corner: What It is, Regulations, 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-corner"></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 Corner? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> In investing or trading, a corner is an act of one entity obtaining a controlling interest of a business, stock, commodity, or other security so that they may manipulate the price. Cornering may happen to a specific security or a market area if an individual or group of people have established a significant degree of control. Another term for cornering is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/manipulation.asp" rel="noopener noreferrer">market manipulation</a>. In most instances, cornering and market manipulation are illegal. </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>In an investing context, a corner refers to when an individual, group, or business gains control over a company, stock, or commodity to the point where it is possible to manipulate the price. </li><li>Some instances of cornering the market are unintentional and legal, while others are unlawful schemes devised by fraudsters looking to mislead and manipulate investors.</li><li>In a pump-and-dump scheme, culprits will attempt to artificially pump up the price of a stock by spreading exaggerated claims about the stock; after the share price increases, the culprits will sell or "dump" their shares back onto the market for a profit.</li><li>Conversely, in a poop-and-scoop scheme, fraudsters will attempt to drive down a stock's price by spreading false negative news about a company; once the price declines, these individuals will "scoop up" or buy the company's shares at bargain prices.</li><li>The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) police and prosecute fraudulent market manipulation involving the securities and commodities markets.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-corner-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 Corner Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> When someone is said to have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corneramarket.asp" rel="noopener noreferrer">cornered the market</a>, they have gained significant power over the manipulation of quantity and price. In other words, the obligations on future contracts to deliver a particular commodity greatly outweigh the actual amount of the product available.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> For example, if a volcanic eruption in Hawaii should destroy all except one pineapple grower, that surviving grower would have a corner on the pineapple market. While there was no malicious intent by the grower, they now can determine a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market-price.asp" rel="noopener noreferrer">market price</a> for the remaining crop. While rare, an event like this could drastically affect the futures market. Our grower has, now, cornered the pineapple futures market. In this situation, there are more existing market commitments for delivery than there is of the available product. </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-market-cornering"></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 Market Cornering </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Many people who try to corner the market are not innocent bystanders like our grower, but instead, active participants. The two most common cornering methods have colorful but fitting names. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-subheading__text"> Pump and Dump </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> In a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pumpanddump.asp" rel="noopener noreferrer">pump-and-dump</a> scheme, those with an existing position attempt to boost the price of a stock through recommendations based on false, misleading, or greatly exaggerated statements. This strategy frequently attempts to manipulate and artificially inflate a micro-cap or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/022316/small-cap-vs-mid-cap-vs-large-cap-stocks-2016.asp" rel="noopener noreferrer">small-cap stock</a>. The culprits will then sell out, leaving later buyers to hold the bag. </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"> Poop and Scoop </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Less frequent is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/poopandscoop.asp" rel="noopener noreferrer">poop and scoop</a> approach. Here a small group of informed people attempts to drive down a stock's price by spreading false information, rumors, and otherwise damaging information. If successful, the market price of the asset will fall as others sell. After the market selloff, they can then swoop in and purchase the stock at bargain prices, knowing the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundamentals.asp" rel="noopener noreferrer">fundamentals</a> of the business are sound. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> A business or individual may attempt to corner a market using other methods, including: </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>Improperly limiting the number of publicly traded shares that are available</li> <li>Making trades to create a false image of the demand for the security</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price_rigging.asp" rel="noopener noreferrer">Price rigging</a> to artificially inflate the price of a stock</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/paintingthetape.asp" rel="noopener noreferrer">Painting the tape</a> is another type of market manipulation that occurs when a group of market players attempts to control a stock's price by buying and selling the security among themselves, creating the illusion of significant trading activity.</p></div></div></div> <span class="heading-toc" id="toc-regulations-to-avoid-corners"></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"> Regulations to Avoid Corners </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Passed in 1936, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cea.asp">Commodity Exchange Act</a> (CEA) provides federal control of all futures trading activities in the United States.<span class="ql-inline-citation" data-cite="1"></span> The purpose of the CEA is to help advance a competitive and efficient market for futures trading by regulating transactions on commodity futures exchanges. The CEA looks to restrict and police fraudulent trade practices, thereby protecting investors from market manipulation.  </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp" rel="noopener noreferrer">Securities and Exchange Commission</a> (SEC) and Commodity Futures Trading Commission (CFTC) regulate and monitor activities involving securities and the commodities markets. These entities are responsible for preventing, and in some cases prosecuting, attempts to corner the markets if the actions include any violations of applicable laws. SEC penalties can be both civil and administrative and may include <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disgorgement.asp" rel="noopener noreferrer">disgorgement</a>, sanctions, fines, and the loss of trading rights. </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-real-world-examples-of-market-cornering"></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"> Real-World Examples of Market Cornering  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> In May 2018, the SEC charged four individuals in a fraudulent scheme that involved unlawful stock sales of micro-cap company Biozoom, Inc. According to the SEC's complaint, the alleged scheme generated almost $34 million for the defendants from illicit stock sales and caused significant harm to retail investors. The defendants allegedly used various methods to artificially inflate Biozoom's share price and to hide their deception, including using <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/managing-wealth/042916/offshore-banking-isnt-illegal-hiding-it.asp">offshore bank accounts</a> and sham legal documents.<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_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> In Aug. 2017, the SEC settled a case with an overseas stock manipulator, who was accused of a pump-and-dump scheme to artificially boost the stock price of a small oil and gas company. The stock manipulator, who had a significant stake in the company, ran a fraudulent promotional campaign to inflate the stock price, dumping the shares once the share price increased. The manipulator was permanently barred from trading <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pennystock.asp">penny stocks</a> and paid almost $800,000 in disgorgement, interest, and penalties.<span class="ql-inline-citation" data-cite="3"></span> </p></div>
## What Is a Corner? In investing or trading, a corner is an act of one entity obtaining a controlling interest of a business, stock, commodity, or other security so that they may manipulate the price. Cornering may happen to a specific security or a market area if an individual or group of people have established a significant degree of control. Another term for cornering is [market manipulation](https://www.investopedia.com/terms/m/manipulation.asp). In most instances, cornering and market manipulation are illegal. ### Key Takeaways * In an investing context, a corner refers to when an individual, group, or business gains control over a company, stock, or commodity to the point where it is possible to manipulate the price. * Some instances of cornering the market are unintentional and legal, while others are unlawful schemes devised by fraudsters looking to mislead and manipulate investors. * In a pump-and-dump scheme, culprits will attempt to artificially pump up the price of a stock by spreading exaggerated claims about the stock; after the share price increases, the culprits will sell or "dump" their shares back onto the market for a profit. * Conversely, in a poop-and-scoop scheme, fraudsters will attempt to drive down a stock's price by spreading false negative news about a company; once the price declines, these individuals will "scoop up" or buy the company's shares at bargain prices. * The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) police and prosecute fraudulent market manipulation involving the securities and commodities markets. ## How a Corner Works When someone is said to have [cornered the market](https://www.investopedia.com/terms/c/corneramarket.asp), they have gained significant power over the manipulation of quantity and price. In other words, the obligations on future contracts to deliver a particular commodity greatly outweigh the actual amount of the product available.  For example, if a volcanic eruption in Hawaii should destroy all except one pineapple grower, that surviving grower would have a corner on the pineapple market. While there was no malicious intent by the grower, they now can determine a [market price](https://www.investopedia.com/terms/m/market-price.asp) for the remaining crop. While rare, an event like this could drastically affect the futures market. Our grower has, now, cornered the pineapple futures market. In this situation, there are more existing market commitments for delivery than there is of the available product. ## Types of Market Cornering Many people who try to corner the market are not innocent bystanders like our grower, but instead, active participants. The two most common cornering methods have colorful but fitting names. ### Pump and Dump In a [pump-and-dump](https://www.investopedia.com/terms/p/pumpanddump.asp) scheme, those with an existing position attempt to boost the price of a stock through recommendations based on false, misleading, or greatly exaggerated statements. This strategy frequently attempts to manipulate and artificially inflate a micro-cap or [small-cap stock](https://www.investopedia.com/articles/markets/022316/small-cap-vs-mid-cap-vs-large-cap-stocks-2016.asp). The culprits will then sell out, leaving later buyers to hold the bag. ### Poop and Scoop Less frequent is the [poop and scoop](https://www.investopedia.com/terms/p/poopandscoop.asp) approach. Here a small group of informed people attempts to drive down a stock's price by spreading false information, rumors, and otherwise damaging information. If successful, the market price of the asset will fall as others sell. After the market selloff, they can then swoop in and purchase the stock at bargain prices, knowing the [fundamentals](https://www.investopedia.com/terms/f/fundamentals.asp) of the business are sound. A business or individual may attempt to corner a market using other methods, including: * Improperly limiting the number of publicly traded shares that are available * Making trades to create a false image of the demand for the security * [Price rigging](https://www.investopedia.com/terms/p/price_rigging.asp) to artificially inflate the price of a stock ### [Painting the tape](https://www.investopedia.com/terms/p/paintingthetape.asp) is another type of market manipulation that occurs when a group of market players attempts to control a stock's price by buying and selling the security among themselves, creating the illusion of significant trading activity. ## Regulations to Avoid Corners Passed in 1936, the [Commodity Exchange Act](https://www.investopedia.com/terms/c/cea.asp) (CEA) provides federal control of all futures trading activities in the United States. The purpose of the CEA is to help advance a competitive and efficient market for futures trading by regulating transactions on commodity futures exchanges. The CEA looks to restrict and police fraudulent trade practices, thereby protecting investors from market manipulation.  The [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC) and Commodity Futures Trading Commission (CFTC) regulate and monitor activities involving securities and the commodities markets. These entities are responsible for preventing, and in some cases prosecuting, attempts to corner the markets if the actions include any violations of applicable laws. SEC penalties can be both civil and administrative and may include [disgorgement](https://www.investopedia.com/terms/d/disgorgement.asp), sanctions, fines, and the loss of trading rights. ## Real-World Examples of Market Cornering In May 2018, the SEC charged four individuals in a fraudulent scheme that involved unlawful stock sales of micro-cap company Biozoom, Inc. According to the SEC's complaint, the alleged scheme generated almost $34 million for the defendants from illicit stock sales and caused significant harm to retail investors. The defendants allegedly used various methods to artificially inflate Biozoom's share price and to hide their deception, including using [offshore bank accounts](https://www.investopedia.com/articles/managing-wealth/042916/offshore-banking-isnt-illegal-hiding-it.asp) and sham legal documents. In Aug. 2017, the SEC settled a case with an overseas stock manipulator, who was accused of a pump-and-dump scheme to artificially boost the stock price of a small oil and gas company. The stock manipulator, who had a significant stake in the company, ran a fraudulent promotional campaign to inflate the stock price, dumping the shares once the share price increased. The manipulator was permanently barred from trading [penny stocks](https://www.investopedia.com/terms/p/pennystock.asp) and paid almost $800,000 in disgorgement, interest, and penalties.
What Is a Corner? In investing or trading, a corner is an act of one entity obtaining a controlling interest of a business, stock, commodity, or other security so that they may manipulate the price. Cornering may happen to a specific security or a market area if an individual or group of people have established a significant degree of control. Another term for cornering is market manipulation. In most instances, cornering and market manipulation are illegal. Key Takeaways In an investing context, a corner refers to when an individual, group, or business gains control over a company, stock, or commodity to the point where it is possible to manipulate the price. Some instances of cornering the market are unintentional and legal, while others are unlawful schemes devised by fraudsters looking to mislead and manipulate investors.In a pump-and-dump scheme, culprits will attempt to artificially pump up the price of a stock by spreading exaggerated claims about the stock; after the share price increases, the culprits will sell or "dump" their shares back onto the market for a profit.Conversely, in a poop-and-scoop scheme, fraudsters will attempt to drive down a stock's price by spreading false negative news about a company; once the price declines, these individuals will "scoop up" or buy the company's shares at bargain prices.The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) police and prosecute fraudulent market manipulation involving the securities and commodities markets. How a Corner Works When someone is said to have cornered the market, they have gained significant power over the manipulation of quantity and price. In other words, the obligations on future contracts to deliver a particular commodity greatly outweigh the actual amount of the product available.  For example, if a volcanic eruption in Hawaii should destroy all except one pineapple grower, that surviving grower would have a corner on the pineapple market. While there was no malicious intent by the grower, they now can determine a market price for the remaining crop. While rare, an event like this could drastically affect the futures market. Our grower has, now, cornered the pineapple futures market. In this situation, there are more existing market commitments for delivery than there is of the available product. Types of Market Cornering Many people who try to corner the market are not innocent bystanders like our grower, but instead, active participants. The two most common cornering methods have colorful but fitting names. Pump and Dump In a pump-and-dump scheme, those with an existing position attempt to boost the price of a stock through recommendations based on false, misleading, or greatly exaggerated statements. This strategy frequently attempts to manipulate and artificially inflate a micro-cap or small-cap stock. The culprits will then sell out, leaving later buyers to hold the bag. Poop and Scoop Less frequent is the poop and scoop approach. Here a small group of informed people attempts to drive down a stock's price by spreading false information, rumors, and otherwise damaging information. If successful, the market price of the asset will fall as others sell. After the market selloff, they can then swoop in and purchase the stock at bargain prices, knowing the fundamentals of the business are sound. A business or individual may attempt to corner a market using other methods, including: Improperly limiting the number of publicly traded shares that are available Making trades to create a false image of the demand for the security Price rigging to artificially inflate the price of a stock Painting the tape is another type of market manipulation that occurs when a group of market players attempts to control a stock's price by buying and selling the security among themselves, creating the illusion of significant trading activity. Regulations to Avoid Corners Passed in 1936, the Commodity Exchange Act (CEA) provides federal control of all futures trading activities in the United States. The purpose of the CEA is to help advance a competitive and efficient market for futures trading by regulating transactions on commodity futures exchanges. The CEA looks to restrict and police fraudulent trade practices, thereby protecting investors from market manipulation.  The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) regulate and monitor activities involving securities and the commodities markets. These entities are responsible for preventing, and in some cases prosecuting, attempts to corner the markets if the actions include any violations of applicable laws. SEC penalties can be both civil and administrative and may include disgorgement, sanctions, fines, and the loss of trading rights. Real-World Examples of Market Cornering  In May 2018, the SEC charged four individuals in a fraudulent scheme that involved unlawful stock sales of micro-cap company Biozoom, Inc. According to the SEC's complaint, the alleged scheme generated almost $34 million for the defendants from illicit stock sales and caused significant harm to retail investors. The defendants allegedly used various methods to artificially inflate Biozoom's share price and to hide their deception, including using offshore bank accounts and sham legal documents. In Aug. 2017, the SEC settled a case with an overseas stock manipulator, who was accused of a pump-and-dump scheme to artificially boost the stock price of a small oil and gas company. The stock manipulator, who had a significant stake in the company, ran a fraudulent promotional campaign to inflate the stock price, dumping the shares once the share price increased. The manipulator was permanently barred from trading penny stocks and paid almost $800,000 in disgorgement, interest, and penalties.
[ [ "market manipulation", "https://www.investopedia.com/terms/m/manipulation.asp" ], [ "cornered the market", "https://www.investopedia.com/terms/c/corneramarket.asp" ], [ "market price", "https://www.investopedia.com/terms/m/market-price.asp" ], [ "pump-and-dump", "https://www.investopedia.com/terms/p/pumpanddump.asp" ], [ "small-cap stock", "https://www.investopedia.com/articles/markets/022316/small-cap-vs-mid-cap-vs-large-cap-stocks-2016.asp" ], [ "poop and scoop", "https://www.investopedia.com/terms/p/poopandscoop.asp" ], [ "fundamentals", "https://www.investopedia.com/terms/f/fundamentals.asp" ], [ "Price rigging", "https://www.investopedia.com/terms/p/price_rigging.asp" ], [ "Painting the tape", "https://www.investopedia.com/terms/p/paintingthetape.asp" ], [ "Commodity Exchange Act", "https://www.investopedia.com/terms/c/cea.asp" ], [ "Securities and Exchange Commission", "https://www.investopedia.com/terms/s/sec.asp" ], [ "disgorgement", "https://www.investopedia.com/terms/d/disgorgement.asp" ], [ "offshore bank accounts", "https://www.investopedia.com/articles/managing-wealth/042916/offshore-banking-isnt-illegal-hiding-it.asp" ], [ "penny stocks", "https://www.investopedia.com/terms/p/pennystock.asp" ] ]
https://www.investopedia.com/terms/s/seat.asp
Seat: What It Means, How It Works, Purpose
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-seat"></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 Seat? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A seat refers to membership on a stock exchange, which enables a person to trade on the floor of the exchange either as an agent for someone else, called a floor broker, or for their own personal account, called a floor trader. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> In the finance industry, owning a seat on an exchange has long been considered a prestigious position, open only to a lucky and wealthy few. The term is most commonly used to refer to membership on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nyse.asp" rel="noopener noreferrer">New York Stock Exchange</a> (NYSE). </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 NYSE ceased selling seats in 2006 when it became a for-profit company, however, membership is still sold via one-year licenses, which is still a difficult process to obtain. </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 term "seat" is a reference to a seat on a stock exchange from which a person can trade, either as a floor broker or a floor trader.</li><li>Historically, owning a seat was possible only for the wealthy and the lucky as there were a limited amount of seats.</li><li>The term seat was most commonly used in the context of the NYSE.</li><li>Seats ceased to exist on the NYSE in 2006 when the exchange became a for-profit public company.</li><li>Membership is still sold on the NYSE but through one-year membership licenses.</li><li>Due to the advent of electronic trading, floor trading has become a relic of the past, and as such, the need for a seat is much less.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-seat"></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 Seat </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> A seat is an expression that came into use with respect to NYSE membership. When the NYSE first started, each <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trader.asp" rel="noopener noreferrer">trader</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker.asp" rel="noopener noreferrer">broker</a> was assigned a chair in the hall where trading took place with each stock individually called to trade. The exchange moved to a system of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/continuoustrading.asp" rel="noopener noreferrer">continuous trading</a> in 1871. As trading boomed in the years following the Civil War, the term ceased to have the literal meaning of a chair from which to trade. </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 history of the NYSE dates back to 1792 when 24 businessmen signed the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buttonwoodagreement.asp" rel="noopener noreferrer">Buttonwood Agreement</a> under a tree on Wall Street in Manhattan. The men agreed on basic ground rules for trading stocks. The NYSE Board was formed in 1817. In 1868, the exchange fixed the number of seats at 1,060, which was later increased to 1,366.<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"> In 1868, a seat became a property that could be bought and sold. Prices were as low as $4,000 at the time. The price of a seat in mid-1929 hit $625,000 shortly before the stock market crash.<span class="ql-inline-citation" data-cite="3"></span> The price fell to $68,000 in 1932 and then to $17,000 in 1942.<span class="ql-inline-citation" data-cite="4"></span> In the late 1970s, the NYSE began allowing members to lease their seats to qualified nonmembers. The price of a seat reached its highest point in 2005, selling for $3.575 million.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-purpose-and-power-of-a-seat"></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"> Purpose and Power of a Seat </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Owning a seat was a matter of prestige as it indicated power, wealth, and influence, to be able to purchase and achieve access to such a coveted item. Being a seat holder meant that you were either a floor broker or trader and able to buy and sell <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp" rel="noopener noreferrer">securities</a> listed on the exchange. It also came with the responsibility of maintaining order on the exchange's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trading_floor.asp" rel="noopener noreferrer">trading floor</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"> Today, because of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/110713/basics-mechanics-behind-electronic-trading.asp" rel="noopener noreferrer">electronic trading</a>, anyone can log in to their computer and brokerage account and buy or sell shares of a company. But before the advent of electronic trading, if you wanted to buy or sell shares of a company, you would have to contact a floor broker who would be able to execute your trade. This meant floor brokers were the middle-man/woman, the contact point, for anyone wanting to trade in the stock market; a very important position. </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-the-ending-of-seats"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> The Ending of Seats </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The NYSE became a public company in 2006 and became a for-profit organization and ended its private membership structure. At that time, the NYSE structure that allowed for seats changed. The 1,366 seat owners received 80,177 shares of the newly public company, plus $300,000 in cash and $70,571 in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp" rel="noopener noreferrer">dividends</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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> At that point, the concept of a seat ceased to exist, and the right to trade on the exchange requires only a one-year license. The license cannot be resold, but ownership of the license can be transferred if the company that owns it is sold. </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 NYSE was bought by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intercontinentalexchange.asp" rel="noopener noreferrer">Intercontinental Exchange</a>, known as ICE, in 2013 for $10.9 billion.<span class="ql-inline-citation" data-cite="6"></span> With virtually all trading done via computer, the floor of the exchange has become a relic, with only a few remaining traders working on the exchange floor. </p></div>
## What Is a Seat? A seat refers to membership on a stock exchange, which enables a person to trade on the floor of the exchange either as an agent for someone else, called a floor broker, or for their own personal account, called a floor trader. In the finance industry, owning a seat on an exchange has long been considered a prestigious position, open only to a lucky and wealthy few. The term is most commonly used to refer to membership on the [New York Stock Exchange](https://www.investopedia.com/terms/n/nyse.asp) (NYSE). The NYSE ceased selling seats in 2006 when it became a for-profit company, however, membership is still sold via one-year licenses, which is still a difficult process to obtain. ### Key Takeaways * The term "seat" is a reference to a seat on a stock exchange from which a person can trade, either as a floor broker or a floor trader. * Historically, owning a seat was possible only for the wealthy and the lucky as there were a limited amount of seats. * The term seat was most commonly used in the context of the NYSE. * Seats ceased to exist on the NYSE in 2006 when the exchange became a for-profit public company. * Membership is still sold on the NYSE but through one-year membership licenses. * Due to the advent of electronic trading, floor trading has become a relic of the past, and as such, the need for a seat is much less. ## Understanding a Seat A seat is an expression that came into use with respect to NYSE membership. When the NYSE first started, each [trader](https://www.investopedia.com/terms/t/trader.asp) or [broker](https://www.investopedia.com/terms/b/broker.asp) was assigned a chair in the hall where trading took place with each stock individually called to trade. The exchange moved to a system of [continuous trading](https://www.investopedia.com/terms/c/continuoustrading.asp) in 1871. As trading boomed in the years following the Civil War, the term ceased to have the literal meaning of a chair from which to trade. The history of the NYSE dates back to 1792 when 24 businessmen signed the [Buttonwood Agreement](https://www.investopedia.com/terms/b/buttonwoodagreement.asp) under a tree on Wall Street in Manhattan. The men agreed on basic ground rules for trading stocks. The NYSE Board was formed in 1817. In 1868, the exchange fixed the number of seats at 1,060, which was later increased to 1,366. In 1868, a seat became a property that could be bought and sold. Prices were as low as $4,000 at the time. The price of a seat in mid-1929 hit $625,000 shortly before the stock market crash. The price fell to $68,000 in 1932 and then to $17,000 in 1942. In the late 1970s, the NYSE began allowing members to lease their seats to qualified nonmembers. The price of a seat reached its highest point in 2005, selling for $3.575 million. ## Purpose and Power of a Seat Owning a seat was a matter of prestige as it indicated power, wealth, and influence, to be able to purchase and achieve access to such a coveted item. Being a seat holder meant that you were either a floor broker or trader and able to buy and sell [securities](https://www.investopedia.com/terms/s/security.asp) listed on the exchange. It also came with the responsibility of maintaining order on the exchange's [trading floor](https://www.investopedia.com/terms/t/trading_floor.asp). Today, because of [electronic trading](https://www.investopedia.com/articles/investing/110713/basics-mechanics-behind-electronic-trading.asp), anyone can log in to their computer and brokerage account and buy or sell shares of a company. But before the advent of electronic trading, if you wanted to buy or sell shares of a company, you would have to contact a floor broker who would be able to execute your trade. This meant floor brokers were the middle-man/woman, the contact point, for anyone wanting to trade in the stock market; a very important position. ## The Ending of Seats The NYSE became a public company in 2006 and became a for-profit organization and ended its private membership structure. At that time, the NYSE structure that allowed for seats changed. The 1,366 seat owners received 80,177 shares of the newly public company, plus $300,000 in cash and $70,571 in [dividends](https://www.investopedia.com/terms/d/dividend.asp).  At that point, the concept of a seat ceased to exist, and the right to trade on the exchange requires only a one-year license. The license cannot be resold, but ownership of the license can be transferred if the company that owns it is sold. The NYSE was bought by the [Intercontinental Exchange](https://www.investopedia.com/terms/i/intercontinentalexchange.asp), known as ICE, in 2013 for $10.9 billion. With virtually all trading done via computer, the floor of the exchange has become a relic, with only a few remaining traders working on the exchange floor.
What Is a Seat? A seat refers to membership on a stock exchange, which enables a person to trade on the floor of the exchange either as an agent for someone else, called a floor broker, or for their own personal account, called a floor trader. In the finance industry, owning a seat on an exchange has long been considered a prestigious position, open only to a lucky and wealthy few. The term is most commonly used to refer to membership on the New York Stock Exchange (NYSE). The NYSE ceased selling seats in 2006 when it became a for-profit company, however, membership is still sold via one-year licenses, which is still a difficult process to obtain. Key Takeaways The term "seat" is a reference to a seat on a stock exchange from which a person can trade, either as a floor broker or a floor trader.Historically, owning a seat was possible only for the wealthy and the lucky as there were a limited amount of seats.The term seat was most commonly used in the context of the NYSE.Seats ceased to exist on the NYSE in 2006 when the exchange became a for-profit public company.Membership is still sold on the NYSE but through one-year membership licenses.Due to the advent of electronic trading, floor trading has become a relic of the past, and as such, the need for a seat is much less. Understanding a Seat A seat is an expression that came into use with respect to NYSE membership. When the NYSE first started, each trader or broker was assigned a chair in the hall where trading took place with each stock individually called to trade. The exchange moved to a system of continuous trading in 1871. As trading boomed in the years following the Civil War, the term ceased to have the literal meaning of a chair from which to trade. The history of the NYSE dates back to 1792 when 24 businessmen signed the Buttonwood Agreement under a tree on Wall Street in Manhattan. The men agreed on basic ground rules for trading stocks. The NYSE Board was formed in 1817. In 1868, the exchange fixed the number of seats at 1,060, which was later increased to 1,366. In 1868, a seat became a property that could be bought and sold. Prices were as low as $4,000 at the time. The price of a seat in mid-1929 hit $625,000 shortly before the stock market crash. The price fell to $68,000 in 1932 and then to $17,000 in 1942. In the late 1970s, the NYSE began allowing members to lease their seats to qualified nonmembers. The price of a seat reached its highest point in 2005, selling for $3.575 million. Purpose and Power of a Seat Owning a seat was a matter of prestige as it indicated power, wealth, and influence, to be able to purchase and achieve access to such a coveted item. Being a seat holder meant that you were either a floor broker or trader and able to buy and sell securities listed on the exchange. It also came with the responsibility of maintaining order on the exchange's trading floor. Today, because of electronic trading, anyone can log in to their computer and brokerage account and buy or sell shares of a company. But before the advent of electronic trading, if you wanted to buy or sell shares of a company, you would have to contact a floor broker who would be able to execute your trade. This meant floor brokers were the middle-man/woman, the contact point, for anyone wanting to trade in the stock market; a very important position. The Ending of Seats The NYSE became a public company in 2006 and became a for-profit organization and ended its private membership structure. At that time, the NYSE structure that allowed for seats changed. The 1,366 seat owners received 80,177 shares of the newly public company, plus $300,000 in cash and $70,571 in dividends.  At that point, the concept of a seat ceased to exist, and the right to trade on the exchange requires only a one-year license. The license cannot be resold, but ownership of the license can be transferred if the company that owns it is sold. The NYSE was bought by the Intercontinental Exchange, known as ICE, in 2013 for $10.9 billion. With virtually all trading done via computer, the floor of the exchange has become a relic, with only a few remaining traders working on the exchange floor.
[ [ "New York Stock Exchange", "https://www.investopedia.com/terms/n/nyse.asp" ], [ "trader", "https://www.investopedia.com/terms/t/trader.asp" ], [ "broker", "https://www.investopedia.com/terms/b/broker.asp" ], [ "continuous trading", "https://www.investopedia.com/terms/c/continuoustrading.asp" ], [ "Buttonwood Agreement", "https://www.investopedia.com/terms/b/buttonwoodagreement.asp" ], [ "securities", "https://www.investopedia.com/terms/s/security.asp" ], [ "trading floor", "https://www.investopedia.com/terms/t/trading_floor.asp" ], [ "electronic trading", "https://www.investopedia.com/articles/investing/110713/basics-mechanics-behind-electronic-trading.asp" ], [ "dividends", "https://www.investopedia.com/terms/d/dividend.asp" ], [ "Intercontinental Exchange", "https://www.investopedia.com/terms/i/intercontinentalexchange.asp" ] ]
https://www.investopedia.com/terms/c/commodityindices.asp
What Is a Commodity Index, Its Functions, Major 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-commodity-index"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Commodity Index? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A commodity index is an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/index.asp">index</a> that tracks the price and returns on a basket of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodity.asp">commodities</a>. These indexes are often accessible for investing through mutual funds or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange traded funds (ETFs)</a>. Many investors who want access to the commodities market without entering the futures market decide to invest in commodity index 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"> The value of these indexes fluctuates based on their underlying commodities; similar to stock index futures, this value can be traded on an exchange. </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 commodity index is an index that tracks the price of a basket of commodities.</li><li>The value of these indexes fluctuates based on their underlying commodities.</li><li>Commodity indexes vary in the way they are weighted and the commodities that they are composed of.</li><li>Commodity indexes differ from other indexes in one very important way: the total return of the commodity index is entirely dependent on the capital gains, or price performance, of the commodities in the index.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-commodity-index"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding a Commodity Index </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Every commodity index on the market has a different makeup in terms of what commodities it is composed of. The Refinitiv/CoreCommodity CRB Total Return Index, for example, consists of 19 different types of commodities, including, cocoa, soybeans, gold, crude oil, and wheat.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Commodity indexes also vary in the way they are weighted; some indexes are equally <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/weighted.asp">weighted</a>, which means that each commodity makes up the same percentage of the index. Other indexes have a predetermined, fixed weighting scheme that may value a higher percentage in a specific commodity. For example, some commodity indexes are heavily weighted for energy-related commodities like coal and oil as opposed to agricultural commodities. </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 Dow Jones Commodity Futures Index, established in 1933, was the first index to track commodity prices.<span class="ql-inline-citation" data-cite="9"></span> Goldman Sachs launched its commodity index in 1991, called the Goldman Sachs Commodity Index (GSCI). Goldman Sachs's index was renamed the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gsci.asp">S&amp;P GSCI</a> when it was purchased by Standard and Poor's in 2007.<span class="ql-inline-citation" data-cite="10"></span> The Bloomberg Commodity Index (BCOM) family and the Rogers International Commodity Index (RICI) are two other popular commodity indexes.<span class="ql-inline-citation" data-cite="12"></span><span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Investors cannot directly invest in a commodity index but they can invest in funds that track specific indexes. Investing in commodity index funds gained in popularity in the early 2000s as the price of oil began to move out of the historic $20 to $30 per barrel range that it had occupied for over a decade, and Chinese industrial production started to grow rapidly.<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_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The rise in demand for commodities as a result of China's growing economy, combined with a limited global supply of commodities, caused commodity prices to rise and many investors became more interested in finding a way to invest in the <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> of industrial production. </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-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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Commodity indexes differ from other indexes in one very important way: the <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/totalreturn.asp">total return</a> of the commodity index is entirely dependent on the <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>, or price performance, of the commodities in the index. </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 most investments, the total return of the investment includes periodic cash receipts—such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a>, and other distributions—as well as capital gains. For example, stocks pay dividends and bonds pay interest, which contributes to the investment's total return even when there is no increase in the investment's price. </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"> Commodities do not pay dividends or interest, so an investor is dependent solely on capital gains for investment performance. If the price of commodities does not go up, the investor experiences a zero return on their investment. </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 zero return scenario is never the case for bonds that pay interest and stocks that pay dividends. For example, if a stock price is the same at the end of the investment horizon, but has paid a dividend, the investor will have a positive return on investment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_28-0"><span class="heading-toc" id="toc-what-are-the-major-commodity-indexes"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Major Commodity Indexes?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The major commodity indexes are the S&amp;P GSCI Index, the Bloomberg Commodity Index, and the DBIQ Optimum Yield Diversified Commodity Index. These are just three of the many commodity indexes available to investors.</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-how-do-i-buy-commodities"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Buy Commodities?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are three primary methods for investors to buy commodities. These are to purchase the commodity outright, to invest in the stocks of commodity-related companies, such as oil and gas companies, and to invest in funds that have exposure to commodities. Purchasing the commodity outright can be difficult and complicated, such as buying and storing physical oil. Investing in an exchange traded fund (ETF) that has exposure to commodities is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/etp-vs-etf-what-is-the-difference-8557256">the most simple method of buying commodities</a>.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_32-0"><span class="heading-toc" id="toc-what-makes-up-a-commodity-index"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Makes Up a Commodity Index?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The components that make up a commodity index are the underlying commodities, such as wheat, oil, gold, or soybeans. A commodity index picks a basket of commodities to track and the performance of that index depends on the price movements of the underlying commodities.</p></div> </div></div>
## What Is a Commodity Index? A commodity index is an [index](https://www.investopedia.com/terms/i/index.asp) that tracks the price and returns on a basket of [commodities](https://www.investopedia.com/terms/c/commodity.asp). These indexes are often accessible for investing through mutual funds or [exchange traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp). Many investors who want access to the commodities market without entering the futures market decide to invest in commodity index funds. The value of these indexes fluctuates based on their underlying commodities; similar to stock index futures, this value can be traded on an exchange. ### Key Takeaways * A commodity index is an index that tracks the price of a basket of commodities. * The value of these indexes fluctuates based on their underlying commodities. * Commodity indexes vary in the way they are weighted and the commodities that they are composed of. * Commodity indexes differ from other indexes in one very important way: the total return of the commodity index is entirely dependent on the capital gains, or price performance, of the commodities in the index. ## Understanding a Commodity Index Every commodity index on the market has a different makeup in terms of what commodities it is composed of. The Refinitiv/CoreCommodity CRB Total Return Index, for example, consists of 19 different types of commodities, including, cocoa, soybeans, gold, crude oil, and wheat. Commodity indexes also vary in the way they are weighted; some indexes are equally [weighted](https://www.investopedia.com/terms/w/weighted.asp), which means that each commodity makes up the same percentage of the index. Other indexes have a predetermined, fixed weighting scheme that may value a higher percentage in a specific commodity. For example, some commodity indexes are heavily weighted for energy-related commodities like coal and oil as opposed to agricultural commodities. The Dow Jones Commodity Futures Index, established in 1933, was the first index to track commodity prices. Goldman Sachs launched its commodity index in 1991, called the Goldman Sachs Commodity Index (GSCI). Goldman Sachs's index was renamed the [S&P GSCI](https://www.investopedia.com/terms/g/gsci.asp) when it was purchased by Standard and Poor's in 2007. The Bloomberg Commodity Index (BCOM) family and the Rogers International Commodity Index (RICI) are two other popular commodity indexes. Investors cannot directly invest in a commodity index but they can invest in funds that track specific indexes. Investing in commodity index funds gained in popularity in the early 2000s as the price of oil began to move out of the historic $20 to $30 per barrel range that it had occupied for over a decade, and Chinese industrial production started to grow rapidly. The rise in demand for commodities as a result of China's growing economy, combined with a limited global supply of commodities, caused commodity prices to rise and many investors became more interested in finding a way to invest in the [raw materials](https://www.investopedia.com/terms/r/rawmaterials.asp) of industrial production. ## Special Considerations Commodity indexes differ from other indexes in one very important way: the [total return](https://www.investopedia.com/terms/t/totalreturn.asp) of the commodity index is entirely dependent on the [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp), or price performance, of the commodities in the index. For most investments, the total return of the investment includes periodic cash receipts—such as [interest](https://www.investopedia.com/terms/i/interest.asp), [dividends](https://www.investopedia.com/terms/d/dividend.asp), and other distributions—as well as capital gains. For example, stocks pay dividends and bonds pay interest, which contributes to the investment's total return even when there is no increase in the investment's price. Commodities do not pay dividends or interest, so an investor is dependent solely on capital gains for investment performance. If the price of commodities does not go up, the investor experiences a zero return on their investment. A zero return scenario is never the case for bonds that pay interest and stocks that pay dividends. For example, if a stock price is the same at the end of the investment horizon, but has paid a dividend, the investor will have a positive return on investment. ## What Are the Major Commodity Indexes? The major commodity indexes are the S&P GSCI Index, the Bloomberg Commodity Index, and the DBIQ Optimum Yield Diversified Commodity Index. These are just three of the many commodity indexes available to investors. ## How Do I Buy Commodities? There are three primary methods for investors to buy commodities. These are to purchase the commodity outright, to invest in the stocks of commodity-related companies, such as oil and gas companies, and to invest in funds that have exposure to commodities. Purchasing the commodity outright can be difficult and complicated, such as buying and storing physical oil. Investing in an exchange traded fund (ETF) that has exposure to commodities is [the most simple method of buying commodities](https://www.investopedia.com/etp-vs-etf-what-is-the-difference-8557256). ## What Makes Up a Commodity Index? The components that make up a commodity index are the underlying commodities, such as wheat, oil, gold, or soybeans. A commodity index picks a basket of commodities to track and the performance of that index depends on the price movements of the underlying commodities.
What Is a Commodity Index? A commodity index is an index that tracks the price and returns on a basket of commodities. These indexes are often accessible for investing through mutual funds or exchange traded funds (ETFs). Many investors who want access to the commodities market without entering the futures market decide to invest in commodity index funds. The value of these indexes fluctuates based on their underlying commodities; similar to stock index futures, this value can be traded on an exchange. Key Takeaways A commodity index is an index that tracks the price of a basket of commodities.The value of these indexes fluctuates based on their underlying commodities.Commodity indexes vary in the way they are weighted and the commodities that they are composed of.Commodity indexes differ from other indexes in one very important way: the total return of the commodity index is entirely dependent on the capital gains, or price performance, of the commodities in the index. Understanding a Commodity Index Every commodity index on the market has a different makeup in terms of what commodities it is composed of. The Refinitiv/CoreCommodity CRB Total Return Index, for example, consists of 19 different types of commodities, including, cocoa, soybeans, gold, crude oil, and wheat. Commodity indexes also vary in the way they are weighted; some indexes are equally weighted, which means that each commodity makes up the same percentage of the index. Other indexes have a predetermined, fixed weighting scheme that may value a higher percentage in a specific commodity. For example, some commodity indexes are heavily weighted for energy-related commodities like coal and oil as opposed to agricultural commodities. The Dow Jones Commodity Futures Index, established in 1933, was the first index to track commodity prices. Goldman Sachs launched its commodity index in 1991, called the Goldman Sachs Commodity Index (GSCI). Goldman Sachs's index was renamed the S&P GSCI when it was purchased by Standard and Poor's in 2007. The Bloomberg Commodity Index (BCOM) family and the Rogers International Commodity Index (RICI) are two other popular commodity indexes. Investors cannot directly invest in a commodity index but they can invest in funds that track specific indexes. Investing in commodity index funds gained in popularity in the early 2000s as the price of oil began to move out of the historic $20 to $30 per barrel range that it had occupied for over a decade, and Chinese industrial production started to grow rapidly. The rise in demand for commodities as a result of China's growing economy, combined with a limited global supply of commodities, caused commodity prices to rise and many investors became more interested in finding a way to invest in the raw materials of industrial production. Special Considerations Commodity indexes differ from other indexes in one very important way: the total return of the commodity index is entirely dependent on the capital gains, or price performance, of the commodities in the index. For most investments, the total return of the investment includes periodic cash receipts—such as interest, dividends, and other distributions—as well as capital gains. For example, stocks pay dividends and bonds pay interest, which contributes to the investment's total return even when there is no increase in the investment's price. Commodities do not pay dividends or interest, so an investor is dependent solely on capital gains for investment performance. If the price of commodities does not go up, the investor experiences a zero return on their investment. A zero return scenario is never the case for bonds that pay interest and stocks that pay dividends. For example, if a stock price is the same at the end of the investment horizon, but has paid a dividend, the investor will have a positive return on investment. What Are the Major Commodity Indexes? The major commodity indexes are the S&P GSCI Index, the Bloomberg Commodity Index, and the DBIQ Optimum Yield Diversified Commodity Index. These are just three of the many commodity indexes available to investors. How Do I Buy Commodities? There are three primary methods for investors to buy commodities. These are to purchase the commodity outright, to invest in the stocks of commodity-related companies, such as oil and gas companies, and to invest in funds that have exposure to commodities. Purchasing the commodity outright can be difficult and complicated, such as buying and storing physical oil. Investing in an exchange traded fund (ETF) that has exposure to commodities is the most simple method of buying commodities. What Makes Up a Commodity Index? The components that make up a commodity index are the underlying commodities, such as wheat, oil, gold, or soybeans. A commodity index picks a basket of commodities to track and the performance of that index depends on the price movements of the underlying commodities.
[ [ "index", "https://www.investopedia.com/terms/i/index.asp" ], [ "commodities", "https://www.investopedia.com/terms/c/commodity.asp" ], [ "exchange traded funds (ETFs)", "https://www.investopedia.com/terms/e/etf.asp" ], [ "weighted", "https://www.investopedia.com/terms/w/weighted.asp" ], [ "S&P GSCI", "https://www.investopedia.com/terms/g/gsci.asp" ], [ "raw materials", "https://www.investopedia.com/terms/r/rawmaterials.asp" ], [ "total return", "https://www.investopedia.com/terms/t/totalreturn.asp" ], [ "capital gains", "https://www.investopedia.com/terms/c/capitalgain.asp" ], [ "interest", "https://www.investopedia.com/terms/i/interest.asp" ], [ "dividends", "https://www.investopedia.com/terms/d/dividend.asp" ], [ "the most simple method of buying commodities", "https://www.investopedia.com/etp-vs-etf-what-is-the-difference-8557256" ] ]
https://www.investopedia.com/chase-details-new-5-freedom-categories-for-q1-2022-5214756
Chase Details New 5% Freedom Categories for Q1 2022
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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/credit-card-4689721">Chase Freedom</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/chase-freedom-flex-review-5078011">Chase Freedom Flex</a> cardholders can now activate their 5% category bonuses for the first quarter of 2022. Upon activation, they'll earn 5% cash back on up to $1,500 spent in combined purchases on eBay and at grocery stores through the end of March. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Chase has announced its Freedom 5% bonus categories for January through March 2022.</li><li>Freedom or Freedom Flex cardholders can earn 5% cash back on up to $1,500 in combined spending on purchases made on eBay and at grocery stores, for a total of $75 in rewards.</li><li>In order to earn the accelerated rewards rate, cardholders must activate the bonus by March 14, 2021.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-to-take-advantage-of-chase-freedom-quarterly-bonuses"></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 Take Advantage of Chase Freedom Quarterly Bonuses </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The Chase Freedom and Chase Freedom Flex cards offer 5% cash back on quarterly rotating categories. To earn 5% back on eBay and grocery store purchases in the first quarter of 2022, you'll need to activate the bonus by March 14, 2022.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> There are four ways you can activate: </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>Respond to the email you should have received from Chase</li><li>Log into your account online or through the bank's mobile app</li><li>Call customer service</li><li>Visit a local Chase branch</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"> As long as you activate by the March 14 deadline, you'll receive credit for all of your eligible purchases during the quarter.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> To maximize this quarter's bonus categories, take your time to compare prices when shopping online to the same items found on eBay. </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, for the grocery store category, it's important to note that not all retailers that sell groceries are eligible. More specifically, Chase defines grocery stores as "supermarkets, merchants that offer a full service grocery line of merchandise including a deli and bakery as well as smaller grocery stores." </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"> Superstores like Target and Walmart, as well as wholesale clubs like Sam's Club and Costco, don't fall under that definition. The umbrella also doesn't cover drugstores, gas stations operated by merchants that also have grocery stores, or grocery delivery services unless the merchant has set up the service to be classified in the grocery store category.<span class="ql-inline-citation" data-cite="2"></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>
[Chase Freedom](https://www.investopedia.com/credit-card-4689721) and [Chase Freedom Flex](https://www.investopedia.com/chase-freedom-flex-review-5078011) cardholders can now activate their 5% category bonuses for the first quarter of 2022. Upon activation, they'll earn 5% cash back on up to $1,500 spent in combined purchases on eBay and at grocery stores through the end of March. ### Key Takeaways * Chase has announced its Freedom 5% bonus categories for January through March 2022. * Freedom or Freedom Flex cardholders can earn 5% cash back on up to $1,500 in combined spending on purchases made on eBay and at grocery stores, for a total of $75 in rewards. * In order to earn the accelerated rewards rate, cardholders must activate the bonus by March 14, 2021. ## How to Take Advantage of Chase Freedom Quarterly Bonuses The Chase Freedom and Chase Freedom Flex cards offer 5% cash back on quarterly rotating categories. To earn 5% back on eBay and grocery store purchases in the first quarter of 2022, you'll need to activate the bonus by March 14, 2022. There are four ways you can activate: * Respond to the email you should have received from Chase * Log into your account online or through the bank's mobile app * Call customer service * Visit a local Chase branch As long as you activate by the March 14 deadline, you'll receive credit for all of your eligible purchases during the quarter. To maximize this quarter's bonus categories, take your time to compare prices when shopping online to the same items found on eBay. Additionally, for the grocery store category, it's important to note that not all retailers that sell groceries are eligible. More specifically, Chase defines grocery stores as "supermarkets, merchants that offer a full service grocery line of merchandise including a deli and bakery as well as smaller grocery stores." Superstores like Target and Walmart, as well as wholesale clubs like Sam's Club and Costco, don't fall under that definition. The umbrella also doesn't cover drugstores, gas stations operated by merchants that also have grocery stores, or grocery delivery services unless the merchant has set up the service to be classified in the grocery store category. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
Chase Freedom and Chase Freedom Flex cardholders can now activate their 5% category bonuses for the first quarter of 2022. Upon activation, they'll earn 5% cash back on up to $1,500 spent in combined purchases on eBay and at grocery stores through the end of March. Key Takeaways Chase has announced its Freedom 5% bonus categories for January through March 2022.Freedom or Freedom Flex cardholders can earn 5% cash back on up to $1,500 in combined spending on purchases made on eBay and at grocery stores, for a total of $75 in rewards.In order to earn the accelerated rewards rate, cardholders must activate the bonus by March 14, 2021. How to Take Advantage of Chase Freedom Quarterly Bonuses The Chase Freedom and Chase Freedom Flex cards offer 5% cash back on quarterly rotating categories. To earn 5% back on eBay and grocery store purchases in the first quarter of 2022, you'll need to activate the bonus by March 14, 2022. There are four ways you can activate: Respond to the email you should have received from ChaseLog into your account online or through the bank's mobile appCall customer serviceVisit a local Chase branch As long as you activate by the March 14 deadline, you'll receive credit for all of your eligible purchases during the quarter. To maximize this quarter's bonus categories, take your time to compare prices when shopping online to the same items found on eBay. Additionally, for the grocery store category, it's important to note that not all retailers that sell groceries are eligible. More specifically, Chase defines grocery stores as "supermarkets, merchants that offer a full service grocery line of merchandise including a deli and bakery as well as smaller grocery stores." Superstores like Target and Walmart, as well as wholesale clubs like Sam's Club and Costco, don't fall under that definition. The umbrella also doesn't cover drugstores, gas stations operated by merchants that also have grocery stores, or grocery delivery services unless the merchant has set up the service to be classified in the grocery store category. Do you have a news tip for Investopedia reporters? Please email us at [email protected]
[ [ "Chase Freedom", "https://www.investopedia.com/credit-card-4689721" ], [ "Chase Freedom Flex", "https://www.investopedia.com/chase-freedom-flex-review-5078011" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/top-bank-etfs-for-q4-2023-7974616
Top Bank ETFs for Q4 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"> Investing in bank stocks provides exposure to the financial sector and, traditionally, the opportunity to earn dividends from relatively stable companies that operate in a highly regulated industry. However, banking stocks currently face challenges from downturns in the economy, increasing funding costs, and tightening regulations. </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"> Better performing bank-themed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stock-etf.asp">exchange-traded funds (ETFs)</a> to consider for the fourth quarter hold a portfolio of some of the nation's largest banks. Below, we outline three relatively well-performing bank ETFs, 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 Sept. 25. </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>Investing in top bank ETFs usually provides exposure to the financial sector and a chance to earn <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a> from relatively stable companies that operate in a regulated industry.</li> <li>Amid current sectoral and economic turmoil, KBE is one of the better-performing bank ETFs versus its benchmark. It has $1.13 billion in AUM and a -18.3% return over the past 12 months.</li> <li>ETF KBWB has declined 19.42% over the last 12 months and has AUM of $1.66 billion.</li> <li>ETF FTXO has net assets of $127.9 million and returned -21.57% over the past year.</li> </ul></div></div></div> <span class="heading-toc" id="toc-spdr-sp-bank-etf-kbe"></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"> SPDR S&amp;P Bank ETF (KBE) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <li>Performance Over 1 Year: -18.3%</li><li>Expense Ratio: 0.35%</li><li>Annual Dividend Yield: 3.34%</li><li>Three-Month Average Daily Volume: 2,578,861</li><li>Assets Under Management: $1.13 billion</li><li>Inception Date: Nov. 8, 2005</li><li>Issuer: State Street Global Advisors<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"> This ETF seeks to provide similar returns to the S&amp;P Banks Select Industry Index, an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equalweight.asp">equal-weight</a> benchmark comprising U.S. banking companies. KBE provides exposure to banking sub-industries, such as asset management, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/custodian.asp">custody</a>, regional banking, and mortgage finance.<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"> Several well-known banks in the fund's portfolio of 90 holdings include sector bellwethers JPMorgan Chase &amp; Co. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=jpm">JPM</a>), Wells Fargo &amp; Co. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=wfc">WFC</a>), and Citigroup Inc. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=c">C</a>), as well as regional bank PNC Financial Services Group Inc. (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=pnc">PNC</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_13-0"></div> <span class="heading-toc" id="toc-invesco-kbw-bank-etf-kbwb"></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"> Invesco KBW Bank ETF (KBWB) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>Performance Over 1 Year: -19.42%</li><li>Expense Ratio: 0.35%</li><li>Annual Dividend Yield: 3.69%</li><li>Three-Month Average Daily Volume: 862,428</li><li>Assets Under Management: $1.66 billion</li><li>Inception Date: Nov. 1, 2011</li><li>Issuer: Invesco<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="3"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> KBWB aims to track the performance of the KBW Nasdaq Bank Index, a modified market-capitalization-weighted benchmark comprising large national U.S. banks, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-regional-bank-7479637">regional banks</a>, and thrift institutions.<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"> This ETF’s basket holds a variety of respected names across the banking sector, including JPMorgan, Goldman Sachs Group Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=gs">GS</a>), and Morgan Stanley (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ms">MS</a>). KBWB rebalances on a quarterly basis.<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-first-trust-nasdaq-bank-etf-ftxo"></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"> First Trust Nasdaq Bank ETF (FTXO) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <li>Performance Over 1 Year: -21.57%</li><li>Expense Ratio: 0.6%</li><li>Annual Dividend Yield: 3.52%</li><li>Three-Month Average Daily Volume: 34,547</li><li>Assets Under Management: $127.9 million</li><li>Inception Date: Sept. 20, 2016</li><li>Issuer: First Trust<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="5"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The fund, which rebalances quarterly, has an investment objective to deliver a return that corresponds to the Nasdaq US Smart Banks Index, a benchmark consisting of U.S. banking companies selected by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a>, volatility, value, and growth factors.<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"> FTXO’s top four holdings—<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/093014/how-wells-fargo-became-biggest-bank-america.asp">Wells Fargo</a>, JPMorgan, Citigroup, and Bank of America Corp. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=bac">BAC</a>)—carry a cumulative weight of 32.94%.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. 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_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <em>As of the date this article was written, the author does not own any of the above ETFs.</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>
Investing in bank stocks provides exposure to the financial sector and, traditionally, the opportunity to earn dividends from relatively stable companies that operate in a highly regulated industry. However, banking stocks currently face challenges from downturns in the economy, increasing funding costs, and tightening regulations. Better performing bank-themed [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/s/stock-etf.asp) to consider for the fourth quarter hold a portfolio of some of the nation's largest banks. Below, we outline three relatively well-performing bank ETFs, 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 Sept. 25. ### Key Takeaways * Investing in top bank ETFs usually provides exposure to the financial sector and a chance to earn [dividends](https://www.investopedia.com/terms/d/dividend.asp) from relatively stable companies that operate in a regulated industry. * Amid current sectoral and economic turmoil, KBE is one of the better-performing bank ETFs versus its benchmark. It has $1.13 billion in AUM and a -18.3% return over the past 12 months. * ETF KBWB has declined 19.42% over the last 12 months and has AUM of $1.66 billion. * ETF FTXO has net assets of $127.9 million and returned -21.57% over the past year. ## SPDR S&P Bank ETF (KBE) * Performance Over 1 Year: -18.3% * Expense Ratio: 0.35% * Annual Dividend Yield: 3.34% * Three-Month Average Daily Volume: 2,578,861 * Assets Under Management: $1.13 billion * Inception Date: Nov. 8, 2005 * Issuer: State Street Global Advisors This ETF seeks to provide similar returns to the S&P Banks Select Industry Index, an [equal-weight](https://www.investopedia.com/terms/e/equalweight.asp) benchmark comprising U.S. banking companies. KBE provides exposure to banking sub-industries, such as asset management, [custody](https://www.investopedia.com/terms/c/custodian.asp), regional banking, and mortgage finance. Several well-known banks in the fund's portfolio of 90 holdings include sector bellwethers JPMorgan Chase & Co. ([JPM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=jpm)), Wells Fargo & Co. ([WFC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=wfc)), and Citigroup Inc. ([C](https://www.investopedia.com/markets/quote?tvwidgetsymbol=c)), as well as regional bank PNC Financial Services Group Inc. ([PNC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=pnc)). ## Invesco KBW Bank ETF (KBWB) * Performance Over 1 Year: -19.42% * Expense Ratio: 0.35% * Annual Dividend Yield: 3.69% * Three-Month Average Daily Volume: 862,428 * Assets Under Management: $1.66 billion * Inception Date: Nov. 1, 2011 * Issuer: Invesco KBWB aims to track the performance of the KBW Nasdaq Bank Index, a modified market-capitalization-weighted benchmark comprising large national U.S. banks, [regional banks](https://www.investopedia.com/what-is-a-regional-bank-7479637), and thrift institutions. This ETF’s basket holds a variety of respected names across the banking sector, including JPMorgan, Goldman Sachs Group Inc. ([GS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=gs)), and Morgan Stanley ([MS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ms)). KBWB rebalances on a quarterly basis. ## First Trust Nasdaq Bank ETF (FTXO) * Performance Over 1 Year: -21.57% * Expense Ratio: 0.6% * Annual Dividend Yield: 3.52% * Three-Month Average Daily Volume: 34,547 * Assets Under Management: $127.9 million * Inception Date: Sept. 20, 2016 * Issuer: First Trust The fund, which rebalances quarterly, has an investment objective to deliver a return that corresponds to the Nasdaq US Smart Banks Index, a benchmark consisting of U.S. banking companies selected by [liquidity](https://www.investopedia.com/terms/l/liquidity.asp), volatility, value, and growth factors. FTXO’s top four holdings—[Wells Fargo](https://www.investopedia.com/articles/markets/093014/how-wells-fargo-became-biggest-bank-america.asp), JPMorgan, Citigroup, and Bank of America Corp. ([BAC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=bac))—carry a cumulative weight of 32.94%. *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 ETFs.* Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
Investing in bank stocks provides exposure to the financial sector and, traditionally, the opportunity to earn dividends from relatively stable companies that operate in a highly regulated industry. However, banking stocks currently face challenges from downturns in the economy, increasing funding costs, and tightening regulations. Better performing bank-themed exchange-traded funds (ETFs) to consider for the fourth quarter hold a portfolio of some of the nation's largest banks. Below, we outline three relatively well-performing bank ETFs, 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 Sept. 25. Key Takeaways Investing in top bank ETFs usually provides exposure to the financial sector and a chance to earn dividends from relatively stable companies that operate in a regulated industry. Amid current sectoral and economic turmoil, KBE is one of the better-performing bank ETFs versus its benchmark. It has $1.13 billion in AUM and a -18.3% return over the past 12 months. ETF KBWB has declined 19.42% over the last 12 months and has AUM of $1.66 billion. ETF FTXO has net assets of $127.9 million and returned -21.57% over the past year. SPDR S&P Bank ETF (KBE) Performance Over 1 Year: -18.3%Expense Ratio: 0.35%Annual Dividend Yield: 3.34%Three-Month Average Daily Volume: 2,578,861Assets Under Management: $1.13 billionInception Date: Nov. 8, 2005Issuer: State Street Global Advisors This ETF seeks to provide similar returns to the S&P Banks Select Industry Index, an equal-weight benchmark comprising U.S. banking companies. KBE provides exposure to banking sub-industries, such as asset management, custody, regional banking, and mortgage finance. Several well-known banks in the fund's portfolio of 90 holdings include sector bellwethers JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), and Citigroup Inc. (C), as well as regional bank PNC Financial Services Group Inc. (PNC). Invesco KBW Bank ETF (KBWB) Performance Over 1 Year: -19.42%Expense Ratio: 0.35%Annual Dividend Yield: 3.69%Three-Month Average Daily Volume: 862,428Assets Under Management: $1.66 billionInception Date: Nov. 1, 2011Issuer: Invesco KBWB aims to track the performance of the KBW Nasdaq Bank Index, a modified market-capitalization-weighted benchmark comprising large national U.S. banks, regional banks, and thrift institutions. This ETF’s basket holds a variety of respected names across the banking sector, including JPMorgan, Goldman Sachs Group Inc. (GS), and Morgan Stanley (MS). KBWB rebalances on a quarterly basis. First Trust Nasdaq Bank ETF (FTXO) Performance Over 1 Year: -21.57%Expense Ratio: 0.6%Annual Dividend Yield: 3.52%Three-Month Average Daily Volume: 34,547Assets Under Management: $127.9 millionInception Date: Sept. 20, 2016Issuer: First Trust The fund, which rebalances quarterly, has an investment objective to deliver a return that corresponds to the Nasdaq US Smart Banks Index, a benchmark consisting of U.S. banking companies selected by liquidity, volatility, value, and growth factors. FTXO’s top four holdings—Wells Fargo, JPMorgan, Citigroup, and Bank of America Corp. (BAC)—carry a cumulative weight of 32.94%. 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 ETFs. Do you have a news tip for Investopedia reporters? Please email us at [email protected]
[ [ "exchange-traded funds (ETFs)", "https://www.investopedia.com/terms/s/stock-etf.asp" ], [ "assets under management (AUM)", "https://www.investopedia.com/terms/a/aum.asp" ], [ "dividends", "https://www.investopedia.com/terms/d/dividend.asp" ], [ "equal-weight", "https://www.investopedia.com/terms/e/equalweight.asp" ], [ "custody", "https://www.investopedia.com/terms/c/custodian.asp" ], [ "JPM", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=jpm" ], [ "WFC", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=wfc" ], [ "C", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=c" ], [ "PNC", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=pnc" ], [ "regional banks", "https://www.investopedia.com/what-is-a-regional-bank-7479637" ], [ "GS", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=gs" ], [ "MS", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=ms" ], [ "liquidity", "https://www.investopedia.com/terms/l/liquidity.asp" ], [ "Wells Fargo", "https://www.investopedia.com/articles/markets/093014/how-wells-fargo-became-biggest-bank-america.asp" ], [ "BAC", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=bac" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/articles/trading/06/advcandlesticks.asp
Advanced Candlestick Patterns
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Candlestick patterns provide insight into <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-action.asp">price action</a> at a glance. While the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading/candlestick-charting-what-is-it/">basic candlestick patterns</a> may provide some insight into what the market is thinking, these simpler patterns often generate <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/false-signal.asp">false signals</a> because they are so common. </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 will look at more advanced candlestick patterns that offer a higher degree of reliability. These include the island reversal, hook reversal, three gaps and kicker patterns. </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-island-reversal-pattern"></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"> Island Reversal Pattern </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/islandreversal.asp">Island reversals</a> are strong short-term trend <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reversal.asp">reversal</a> signals. They are identified by a gap between a reversal candlestick and two candles on either side of it. Here is a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bull.asp">bullish</a> example. The price is moving down, gaps lower, then gaps up and continues higher. </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-landscape figure-high-res" id="mntl-sc-block_8-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:63.3%;"> <img alt="Bullish Island Reversal" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/_epiaxUhboyc6lAIwdpOUoBfCAY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns1-f78d8e7eec924f638fcf49fab1fc90df.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/_epiaxUhboyc6lAIwdpOUoBfCAY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns1-f78d8e7eec924f638fcf49fab1fc90df.png" data-srcset="https://www.investopedia.com/thmb/BicbDQ0p8a2g8vZiiMX-xobld38=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns1-f78d8e7eec924f638fcf49fab1fc90df.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_1-0" width="6250"/> <noscript> <img alt="Bullish Island Reversal" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/_epiaxUhboyc6lAIwdpOUoBfCAY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns1-f78d8e7eec924f638fcf49fab1fc90df.png" srcset="https://www.investopedia.com/thmb/BicbDQ0p8a2g8vZiiMX-xobld38=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns1-f78d8e7eec924f638fcf49fab1fc90df.png 750w" width="6250"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner">Image by Julie Bang © Investopedia 2020</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Below is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bear.asp">bearish</a> example of the same pattern. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></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_11-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:63.3%;"> <img alt="Bearish Island Reversal" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/bsOaV82YVJsN-YGyTMzHZTBm9-M=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns2-086e0cc700d54eb7bb152cf38ebd7fd8.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/bsOaV82YVJsN-YGyTMzHZTBm9-M=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns2-086e0cc700d54eb7bb152cf38ebd7fd8.png" data-srcset="https://www.investopedia.com/thmb/Tzo1aiEAHkvwRYeqZW3hA1xCuOo=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns2-086e0cc700d54eb7bb152cf38ebd7fd8.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_2-0" width="6251"/> <noscript> <img alt="Bearish Island Reversal" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/bsOaV82YVJsN-YGyTMzHZTBm9-M=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns2-086e0cc700d54eb7bb152cf38ebd7fd8.png" srcset="https://www.investopedia.com/thmb/Tzo1aiEAHkvwRYeqZW3hA1xCuOo=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns2-086e0cc700d54eb7bb152cf38ebd7fd8.png 750w" width="6251"/> </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 Julie Bang © Investopedia 2020</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <strong>Entry: </strong>The island reversal shows indecision and a battle between bulls and bears. This is often characterized by a long-ended <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/doji.asp">doji</a> candle that has high volume occurring after an extended trend. It is after the gap and move in the opposite direction that a trade is taken. For the bearish pattern, enter <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/short.asp">short</a> after the gap and move in the opposite direction. For the bullish pattern, enter <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/long.asp">long</a> after the gap and move in the opposite direction. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> <strong>Exit: </strong>An exit refers to both the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/profit-target.asp">target</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stop-lossorder.asp">stop-loss</a>. With this pattern, you want to capture the thrust in price that follows that pattern, but once that thrust starts to weaken, it is time to get out. If the price moves back to fill the gap, then the reversal pattern is invalidated, and you should exit right away. Therefore, a stop-loss can be placed in the gap or near the "island" candle. </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-hook-reversal-pattern"></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"> Hook Reversal Pattern </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hookreversal.asp">Hook reversals</a> are short- to medium-term reversal patterns. They are identified by a higher low and a lower high compared with the previous day. Here are bullish and bearish examples of the patterns. </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:63.3%;"> <img alt="Bullish Hook Reversal" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/VTFDdu-ipND4YBGf8Fw9kZuxSRw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns3-1db9fa747bff4181a5970961b42bde4d.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/VTFDdu-ipND4YBGf8Fw9kZuxSRw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns3-1db9fa747bff4181a5970961b42bde4d.png" data-srcset="https://www.investopedia.com/thmb/52NT4w1DePeI9ousOq9rxApqEZQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns3-1db9fa747bff4181a5970961b42bde4d.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_3-0" width="6251"/> <noscript> <img alt="Bullish Hook Reversal" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/VTFDdu-ipND4YBGf8Fw9kZuxSRw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns3-1db9fa747bff4181a5970961b42bde4d.png" srcset="https://www.investopedia.com/thmb/52NT4w1DePeI9ousOq9rxApqEZQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns3-1db9fa747bff4181a5970961b42bde4d.png 750w" width="6251"/> </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 Julie Bang © Investopedia 2020</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Below is a bearish example of the same pattern. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <figure class="comp mntl-sc-block finance-sc-block-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_22-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:63.3%;"> <img alt="Bearish Hook Reversal" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/_OvsM5P4TplbwovVueRAJEGzOUY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns4-fa047e5b2078456998bfc730dd6d7619.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/_OvsM5P4TplbwovVueRAJEGzOUY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns4-fa047e5b2078456998bfc730dd6d7619.png" data-srcset="https://www.investopedia.com/thmb/jwZpgchWwj7SkArRfCxNaWF9T2I=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns4-fa047e5b2078456998bfc730dd6d7619.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_4-0" width="6250"/> <noscript> <img alt="Bearish Hook Reversal" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/_OvsM5P4TplbwovVueRAJEGzOUY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns4-fa047e5b2078456998bfc730dd6d7619.png" srcset="https://www.investopedia.com/thmb/jwZpgchWwj7SkArRfCxNaWF9T2I=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns4-fa047e5b2078456998bfc730dd6d7619.png 750w" width="6250"/> </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 Julie Bang © Investopedia 2020</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <strong>Entry:</strong> On the bullish pattern, there is downtrend, followed by two up days. The first or second up day breaks the high of the last down day. It is the second up day when a long trade should be taken, as the pattern indicates that the price could continue to rally. For the bearish pattern, there is an uptrend, followed by two down days, and either the first or second down day breaks the low of the last up day. It is the second down day on which a short trade should be taken, as the pattern indicates the price could slide lower. </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"> <strong>Exit: </strong>Know your exit points before trading this pattern.<strong> </strong>In most cases, you will see a sharp reversal, as shown in the chart above. Anything to the contrary indicates that the pattern is not working, so exit immediately. Therefore, a stop-loss can be placed above the recent high for a bearish pattern, or below the recent low for the bullish pattern. We can't know <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/market-reversals-and-how-spot-them/">how long the reversal will last</a> based on the pattern alone. Therefore, maintain the trade for as long as the price is moving in the expected direction. When the move weakens or a pattern in the opposite direction occurs, take your profit. </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-san-ku-three-gaps-pattern"></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"> San-Ku (Three Gaps) Pattern </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sanku.asp">San-ku pattern</a> is an anticipatory trend reversal signal. The pattern does not indicate an exact point of reversal. Rather, it indicates that a reversal is likely to occur in the near future. The pattern is created by three trading sessions in a row with gaps in between. While each candle doesn't necessarily have to be large, usually at least two or three of the candles are.  </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"> Here is a three gaps pattern that signaled the end of an uptrend. The price is accelerating higher. There are three gaps higher in a row. Since such momentum can't last forever, the buyers are eventually exhausted and price moves the other way. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></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_32-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:63.3%;"> <img alt="San-Ku Triple Gap Pattern" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/B3aWDs06Wqym4FjxWhC9Wbv9dD4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns5-032566e8e8b1441c84e0f21234afa41e.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/B3aWDs06Wqym4FjxWhC9Wbv9dD4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns5-032566e8e8b1441c84e0f21234afa41e.png" data-srcset="https://www.investopedia.com/thmb/5GKx12_Jq9EWnvigD8HBbDzJuuE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns5-032566e8e8b1441c84e0f21234afa41e.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_5-0" width="6250"/> <noscript> <img alt="San-Ku Triple Gap Pattern" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/B3aWDs06Wqym4FjxWhC9Wbv9dD4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns5-032566e8e8b1441c84e0f21234afa41e.png" srcset="https://www.investopedia.com/thmb/5GKx12_Jq9EWnvigD8HBbDzJuuE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns5-032566e8e8b1441c84e0f21234afa41e.png 750w" width="6250"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_5-0"> <span class="figure-article-caption-owner">Image by Julie Bang © Investopedia 2020</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <strong>Entry:</strong> This pattern operates on the premise that the price is likely to retreat after a sharp move because traders will start taking profits. For additional evidence of the possibility of a reversal, look for extremes in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rsi.asp">relative strength index (RSI)</a> or await a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crossover.asp">crossover</a> of the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/macd.asp">moving average convergence divergence (MACD)</a>. </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"> <strong>Exit: </strong>This pattern anticipates a reversal. If it doesn't happen, get out of any trade that was taken because of this pattern. Price must follow through in the anticipated direction in order for the signal to be valid. Stop-loss orders can be placed above the high of the pattern if going short. Ride the downward momentum while it lasts. Since it is unknown how long the sell-off will last, take profits when you see a reversal signal in the opposite direction or when the selling momentum slows. </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-kicker-pattern"></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"> Kicker Pattern </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/k/kickerpattern.asp">kicker pattern</a> is one of the strongest and most reliable candlestick patterns. It is characterized by a very sharp reversal in price during the span of two candlesticks. In this example, the price is moving lower, and then the trend is reversed by a gap and large candle in the opposite direction. The first large green candle is the kicker candle. The second strong green candle shows the follow through of the powerful pattern and helps confirm that a reversal is in place. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <figure class="comp mntl-sc-block finance-sc-block-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_40-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:89.6%;"> <img alt="Kicker Pattern" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/-QCMKSwU5XVEf7lb81DuT4UM1fY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns6-850b29306d1747c1a86f63f1ba30e755.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/-QCMKSwU5XVEf7lb81DuT4UM1fY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns6-850b29306d1747c1a86f63f1ba30e755.png" data-srcset="https://www.investopedia.com/thmb/T4_elqY1seQqNIk1aAM6LFlghDY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns6-850b29306d1747c1a86f63f1ba30e755.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_6-0" width="4418"/> <noscript> <img alt="Kicker Pattern" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/-QCMKSwU5XVEf7lb81DuT4UM1fY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns6-850b29306d1747c1a86f63f1ba30e755.png" srcset="https://www.investopedia.com/thmb/T4_elqY1seQqNIk1aAM6LFlghDY=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns6-850b29306d1747c1a86f63f1ba30e755.png 750w" width="4418"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_6-0"> <span class="figure-article-caption-owner">Image by Julie Bang © Investopedia 2020</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <strong>Entry: </strong>This kind of price action tells you that one group of traders has overpowered the other and that a new trend is being established. Ideally, you should look for a gap between the first and second candles, along with high volume. Enter near the close of the kicker candle (first green candle in chart above) or near the open of the second candle. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> <strong>Exit: </strong>Place a stop-loss below the low of the kicker candle. Because kicker candles can be so large, this may mean your stop-loss is a sizable distance away from your entry point. As for a target, this pattern often results in a strong trend change, which means that traders can ride the momentum of the kicker for a short-term trade, or even potentially a medium-term one, as the price could continue in the direction for some time. </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-why-these-patterns-work"></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"> Why These Patterns Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> All of these patterns are characterized by the price moving one way, and then candles in the opposite direction appear that significantly thrust into the prior trend. Such occurrences rattle the traders who were betting on the prior trend continuing, often forcing them out of their positions as their stop-loss levels are hit. This helps fuel a continued move in the new direction. This idea comes from a simpler candlestick concept called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/thrusting-line.asp">thrusting lines</a>. For example, if there is an uptrend, if a down candle forms but stays within the upper half of the last upward candle, little damage is done to the trend. But if the down candle moves more than halfway down the last upward candle, then more than half the people who bought during that upward day are in a losing position, and that could lead to further selling. </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 patterns above are even more powerful because the sharp change in direction leaves many people in losing positions that they need to get out of. Also, as traders spot the reversal, they jump into trades in the new direction. Both these factors – prior traders getting out and new traders getting in – help propel the price in the new direction. </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"> All that said, attempting to trade reversals can be risky in any situation because you are trading against the prevailing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trend.asp">trend</a>. Keep the larger picture in mind. For example, during a strong multi-year uptrend, a reversal signal may indicate only a few days of selling before the bigger uptrend starts up again. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> These advanced candlesticks are associated with strong price moves, and often gaps, which cause sharp shifts in direction. Traders can participate by noticing these patterns and acting quickly to get in as the price moves in the new direction. Candlestick patterns do not have price targets, which means traders shouldn't get greedy. Ride the momentum for as long as it lasts, but get out if signs of trouble occur. Utilize stop-loss orders or a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trailingstop.asp">trailing stop-loss</a>. </p></div>
Candlestick patterns provide insight into [price action](https://www.investopedia.com/terms/p/price-action.asp) at a glance. While the [basic candlestick patterns](https://www.investopedia.com/trading/candlestick-charting-what-is-it/) may provide some insight into what the market is thinking, these simpler patterns often generate [false signals](https://www.investopedia.com/terms/f/false-signal.asp) because they are so common. Below, we will look at more advanced candlestick patterns that offer a higher degree of reliability. These include the island reversal, hook reversal, three gaps and kicker patterns. ## Island Reversal Pattern [Island reversals](https://www.investopedia.com/terms/i/islandreversal.asp) are strong short-term trend [reversal](https://www.investopedia.com/terms/r/reversal.asp) signals. They are identified by a gap between a reversal candlestick and two candles on either side of it. Here is a [bullish](https://www.investopedia.com/terms/b/bull.asp) example. The price is moving down, gaps lower, then gaps up and continues higher. ![Bullish Island Reversal]() ![Bullish Island Reversal](https://www.investopedia.com/thmb/_epiaxUhboyc6lAIwdpOUoBfCAY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns1-f78d8e7eec924f638fcf49fab1fc90df.png) Image by Julie Bang © Investopedia 2020 Below is a [bearish](https://www.investopedia.com/terms/b/bear.asp) example of the same pattern. ![Bearish Island Reversal]() ![Bearish Island Reversal](https://www.investopedia.com/thmb/bsOaV82YVJsN-YGyTMzHZTBm9-M=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns2-086e0cc700d54eb7bb152cf38ebd7fd8.png) Image by Julie Bang © Investopedia 2020 **Entry:** The island reversal shows indecision and a battle between bulls and bears. This is often characterized by a long-ended [doji](https://www.investopedia.com/terms/d/doji.asp) candle that has high volume occurring after an extended trend. It is after the gap and move in the opposite direction that a trade is taken. For the bearish pattern, enter [short](https://www.investopedia.com/terms/s/short.asp) after the gap and move in the opposite direction. For the bullish pattern, enter [long](https://www.investopedia.com/terms/l/long.asp) after the gap and move in the opposite direction. **Exit:** An exit refers to both the [target](https://www.investopedia.com/terms/p/profit-target.asp) and [stop-loss](https://www.investopedia.com/terms/s/stop-lossorder.asp). With this pattern, you want to capture the thrust in price that follows that pattern, but once that thrust starts to weaken, it is time to get out. If the price moves back to fill the gap, then the reversal pattern is invalidated, and you should exit right away. Therefore, a stop-loss can be placed in the gap or near the "island" candle. ## Hook Reversal Pattern [Hook reversals](https://www.investopedia.com/terms/h/hookreversal.asp) are short- to medium-term reversal patterns. They are identified by a higher low and a lower high compared with the previous day. Here are bullish and bearish examples of the patterns. ![Bullish Hook Reversal]() ![Bullish Hook Reversal](https://www.investopedia.com/thmb/VTFDdu-ipND4YBGf8Fw9kZuxSRw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns3-1db9fa747bff4181a5970961b42bde4d.png) Image by Julie Bang © Investopedia 2020 Below is a bearish example of the same pattern. ![Bearish Hook Reversal]() ![Bearish Hook Reversal](https://www.investopedia.com/thmb/_OvsM5P4TplbwovVueRAJEGzOUY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns4-fa047e5b2078456998bfc730dd6d7619.png) Image by Julie Bang © Investopedia 2020 **Entry:** On the bullish pattern, there is downtrend, followed by two up days. The first or second up day breaks the high of the last down day. It is the second up day when a long trade should be taken, as the pattern indicates that the price could continue to rally. For the bearish pattern, there is an uptrend, followed by two down days, and either the first or second down day breaks the low of the last up day. It is the second down day on which a short trade should be taken, as the pattern indicates the price could slide lower. **Exit:** Know your exit points before trading this pattern.In most cases, you will see a sharp reversal, as shown in the chart above. Anything to the contrary indicates that the pattern is not working, so exit immediately. Therefore, a stop-loss can be placed above the recent high for a bearish pattern, or below the recent low for the bullish pattern. We can't know [how long the reversal will last](https://www.investopedia.com/investing/market-reversals-and-how-spot-them/) based on the pattern alone. Therefore, maintain the trade for as long as the price is moving in the expected direction. When the move weakens or a pattern in the opposite direction occurs, take your profit. ## San-Ku (Three Gaps) Pattern The [San-ku pattern](https://www.investopedia.com/terms/s/sanku.asp) is an anticipatory trend reversal signal. The pattern does not indicate an exact point of reversal. Rather, it indicates that a reversal is likely to occur in the near future. The pattern is created by three trading sessions in a row with gaps in between. While each candle doesn't necessarily have to be large, usually at least two or three of the candles are.  Here is a three gaps pattern that signaled the end of an uptrend. The price is accelerating higher. There are three gaps higher in a row. Since such momentum can't last forever, the buyers are eventually exhausted and price moves the other way. ![San-Ku Triple Gap Pattern]() ![San-Ku Triple Gap Pattern](https://www.investopedia.com/thmb/B3aWDs06Wqym4FjxWhC9Wbv9dD4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns5-032566e8e8b1441c84e0f21234afa41e.png) Image by Julie Bang © Investopedia 2020 **Entry:** This pattern operates on the premise that the price is likely to retreat after a sharp move because traders will start taking profits. For additional evidence of the possibility of a reversal, look for extremes in the [relative strength index (RSI)](https://www.investopedia.com/terms/r/rsi.asp) or await a [crossover](https://www.investopedia.com/terms/c/crossover.asp) of the [moving average convergence divergence (MACD)](https://www.investopedia.com/terms/m/macd.asp). **Exit:** This pattern anticipates a reversal. If it doesn't happen, get out of any trade that was taken because of this pattern. Price must follow through in the anticipated direction in order for the signal to be valid. Stop-loss orders can be placed above the high of the pattern if going short. Ride the downward momentum while it lasts. Since it is unknown how long the sell-off will last, take profits when you see a reversal signal in the opposite direction or when the selling momentum slows. ## Kicker Pattern The [kicker pattern](https://www.investopedia.com/terms/k/kickerpattern.asp) is one of the strongest and most reliable candlestick patterns. It is characterized by a very sharp reversal in price during the span of two candlesticks. In this example, the price is moving lower, and then the trend is reversed by a gap and large candle in the opposite direction. The first large green candle is the kicker candle. The second strong green candle shows the follow through of the powerful pattern and helps confirm that a reversal is in place. ![Kicker Pattern]() ![Kicker Pattern](https://www.investopedia.com/thmb/-QCMKSwU5XVEf7lb81DuT4UM1fY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AdvancedCandlestickPatterns6-850b29306d1747c1a86f63f1ba30e755.png) Image by Julie Bang © Investopedia 2020 **Entry:**This kind of price action tells you that one group of traders has overpowered the other and that a new trend is being established. Ideally, you should look for a gap between the first and second candles, along with high volume. Enter near the close of the kicker candle (first green candle in chart above) or near the open of the second candle. **Exit:** Place a stop-loss below the low of the kicker candle. Because kicker candles can be so large, this may mean your stop-loss is a sizable distance away from your entry point. As for a target, this pattern often results in a strong trend change, which means that traders can ride the momentum of the kicker for a short-term trade, or even potentially a medium-term one, as the price could continue in the direction for some time. ## Why These Patterns Work All of these patterns are characterized by the price moving one way, and then candles in the opposite direction appear that significantly thrust into the prior trend. Such occurrences rattle the traders who were betting on the prior trend continuing, often forcing them out of their positions as their stop-loss levels are hit. This helps fuel a continued move in the new direction. This idea comes from a simpler candlestick concept called [thrusting lines](https://www.investopedia.com/terms/t/thrusting-line.asp). For example, if there is an uptrend, if a down candle forms but stays within the upper half of the last upward candle, little damage is done to the trend. But if the down candle moves more than halfway down the last upward candle, then more than half the people who bought during that upward day are in a losing position, and that could lead to further selling. The patterns above are even more powerful because the sharp change in direction leaves many people in losing positions that they need to get out of. Also, as traders spot the reversal, they jump into trades in the new direction. Both these factors – prior traders getting out and new traders getting in – help propel the price in the new direction. All that said, attempting to trade reversals can be risky in any situation because you are trading against the prevailing [trend](https://www.investopedia.com/terms/t/trend.asp). Keep the larger picture in mind. For example, during a strong multi-year uptrend, a reversal signal may indicate only a few days of selling before the bigger uptrend starts up again. ## The Bottom Line These advanced candlesticks are associated with strong price moves, and often gaps, which cause sharp shifts in direction. Traders can participate by noticing these patterns and acting quickly to get in as the price moves in the new direction. Candlestick patterns do not have price targets, which means traders shouldn't get greedy. Ride the momentum for as long as it lasts, but get out if signs of trouble occur. Utilize stop-loss orders or a [trailing stop-loss](https://www.investopedia.com/terms/t/trailingstop.asp).
Candlestick patterns provide insight into price action at a glance. While the basic candlestick patterns may provide some insight into what the market is thinking, these simpler patterns often generate false signals because they are so common. Below, we will look at more advanced candlestick patterns that offer a higher degree of reliability. These include the island reversal, hook reversal, three gaps and kicker patterns. Island Reversal Pattern Island reversals are strong short-term trend reversal signals. They are identified by a gap between a reversal candlestick and two candles on either side of it. Here is a bullish example. The price is moving down, gaps lower, then gaps up and continues higher. Image by Julie Bang © Investopedia 2020 Below is a bearish example of the same pattern. Image by Julie Bang © Investopedia 2020 Entry: The island reversal shows indecision and a battle between bulls and bears. This is often characterized by a long-ended doji candle that has high volume occurring after an extended trend. It is after the gap and move in the opposite direction that a trade is taken. For the bearish pattern, enter short after the gap and move in the opposite direction. For the bullish pattern, enter long after the gap and move in the opposite direction. Exit: An exit refers to both the target and stop-loss. With this pattern, you want to capture the thrust in price that follows that pattern, but once that thrust starts to weaken, it is time to get out. If the price moves back to fill the gap, then the reversal pattern is invalidated, and you should exit right away. Therefore, a stop-loss can be placed in the gap or near the "island" candle. Hook Reversal Pattern Hook reversals are short- to medium-term reversal patterns. They are identified by a higher low and a lower high compared with the previous day. Here are bullish and bearish examples of the patterns. Image by Julie Bang © Investopedia 2020 Below is a bearish example of the same pattern. Image by Julie Bang © Investopedia 2020 Entry: On the bullish pattern, there is downtrend, followed by two up days. The first or second up day breaks the high of the last down day. It is the second up day when a long trade should be taken, as the pattern indicates that the price could continue to rally. For the bearish pattern, there is an uptrend, followed by two down days, and either the first or second down day breaks the low of the last up day. It is the second down day on which a short trade should be taken, as the pattern indicates the price could slide lower. Exit: Know your exit points before trading this pattern. In most cases, you will see a sharp reversal, as shown in the chart above. Anything to the contrary indicates that the pattern is not working, so exit immediately. Therefore, a stop-loss can be placed above the recent high for a bearish pattern, or below the recent low for the bullish pattern. We can't know how long the reversal will last based on the pattern alone. Therefore, maintain the trade for as long as the price is moving in the expected direction. When the move weakens or a pattern in the opposite direction occurs, take your profit. San-Ku (Three Gaps) Pattern The San-ku pattern is an anticipatory trend reversal signal. The pattern does not indicate an exact point of reversal. Rather, it indicates that a reversal is likely to occur in the near future. The pattern is created by three trading sessions in a row with gaps in between. While each candle doesn't necessarily have to be large, usually at least two or three of the candles are.  Here is a three gaps pattern that signaled the end of an uptrend. The price is accelerating higher. There are three gaps higher in a row. Since such momentum can't last forever, the buyers are eventually exhausted and price moves the other way. Image by Julie Bang © Investopedia 2020 Entry: This pattern operates on the premise that the price is likely to retreat after a sharp move because traders will start taking profits. For additional evidence of the possibility of a reversal, look for extremes in the relative strength index (RSI) or await a crossover of the moving average convergence divergence (MACD). Exit: This pattern anticipates a reversal. If it doesn't happen, get out of any trade that was taken because of this pattern. Price must follow through in the anticipated direction in order for the signal to be valid. Stop-loss orders can be placed above the high of the pattern if going short. Ride the downward momentum while it lasts. Since it is unknown how long the sell-off will last, take profits when you see a reversal signal in the opposite direction or when the selling momentum slows. Kicker Pattern The kicker pattern is one of the strongest and most reliable candlestick patterns. It is characterized by a very sharp reversal in price during the span of two candlesticks. In this example, the price is moving lower, and then the trend is reversed by a gap and large candle in the opposite direction. The first large green candle is the kicker candle. The second strong green candle shows the follow through of the powerful pattern and helps confirm that a reversal is in place. Image by Julie Bang © Investopedia 2020 Entry: This kind of price action tells you that one group of traders has overpowered the other and that a new trend is being established. Ideally, you should look for a gap between the first and second candles, along with high volume. Enter near the close of the kicker candle (first green candle in chart above) or near the open of the second candle. Exit: Place a stop-loss below the low of the kicker candle. Because kicker candles can be so large, this may mean your stop-loss is a sizable distance away from your entry point. As for a target, this pattern often results in a strong trend change, which means that traders can ride the momentum of the kicker for a short-term trade, or even potentially a medium-term one, as the price could continue in the direction for some time. Why These Patterns Work All of these patterns are characterized by the price moving one way, and then candles in the opposite direction appear that significantly thrust into the prior trend. Such occurrences rattle the traders who were betting on the prior trend continuing, often forcing them out of their positions as their stop-loss levels are hit. This helps fuel a continued move in the new direction. This idea comes from a simpler candlestick concept called thrusting lines. For example, if there is an uptrend, if a down candle forms but stays within the upper half of the last upward candle, little damage is done to the trend. But if the down candle moves more than halfway down the last upward candle, then more than half the people who bought during that upward day are in a losing position, and that could lead to further selling. The patterns above are even more powerful because the sharp change in direction leaves many people in losing positions that they need to get out of. Also, as traders spot the reversal, they jump into trades in the new direction. Both these factors – prior traders getting out and new traders getting in – help propel the price in the new direction. All that said, attempting to trade reversals can be risky in any situation because you are trading against the prevailing trend. Keep the larger picture in mind. For example, during a strong multi-year uptrend, a reversal signal may indicate only a few days of selling before the bigger uptrend starts up again. The Bottom Line These advanced candlesticks are associated with strong price moves, and often gaps, which cause sharp shifts in direction. Traders can participate by noticing these patterns and acting quickly to get in as the price moves in the new direction. Candlestick patterns do not have price targets, which means traders shouldn't get greedy. Ride the momentum for as long as it lasts, but get out if signs of trouble occur. Utilize stop-loss orders or a trailing stop-loss.
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https://www.investopedia.com/which-companies-are-winning-and-losing-as-inflation-reignites-8643407
Which Companies Are Winning and Losing as Inflation Reignites?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Earnings reports from McDonald’s and Starbucks showed consumers may be starting to feel the pressure of high prices.</li><li>DoorDash also felt the pressure of higher restaurant prices, but it was able to blunt some of the loss by growing its grocery delivery business.</li><li>Consumers still flocked to familiar brands, as Coca-Cola, Hershey, and Procter &amp; Gamble reported stronger sales despite raising prices. </li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Despite falling last year, inflation has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-reserve-preferred-inflation-measure-heated-up-march-8639440">proved persistent in 2024</a>, and some consumers are having to carefully choose where to put their dollars. </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"> Those decisions are beginning to show up as pressure in some companies' <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-statements.asp">financial results</a> for the year’s first quarter, while it has been a boon to others. </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"> One segment feeling a negative impact is restaurants and food delivery services, which are now trying to draw in customers with tighter budgets. At the same time, some consumer goods makers showed they were able to weather the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> headwinds as people demonstrated that they are still buying their favorite brands.  </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-lower-restaurant-spending-hits-mcdonalds-starbucks-doordash"></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"> Lower Restaurant Spending Hits McDonald’s, Starbucks, DoorDash </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Famous for its affordability, McDonald’s (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MCD">MCD</a>) posted <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mcdonalds-says-it-is-feeling-the-impacts-of-inflation-as-consumers-watch-spending-8640977">slowing comparable or same-store sales</a> in the first quarter, showing that consumers may be starting to buckle under what company executives called a “pressured consumer spending environment.” </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"> “I think consumers are obviously dealing with a lot in the current macro context. Obviously, they’re getting hit across their full basket of goods and services by all the inflationary impacts,” said McDonald’s CFO Ian Borden on the company’s earnings call.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> While the fast-food chain still posted a 9% year-over-year increase in earnings per share, CEO Chris Kempczinski said the company was conscious of the pressure on its customers, and would be focusing more on advertising to promote its “value message.” </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"> Same-store sales for Starbucks (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SBUX">SBUX</a>) <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/starbucks-stock-plunges-after-declining-sale-store-sales-weaken-2024-outlook-8641618">fell 4% in its first quarter</a>, with the coffee chain saying loyal customers were still flocking to their locations, but higher prices made it harder to draw the occasional customer. </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 look at the underlying headwinds, particularly around the pressures that consumers face particularly with the occasional customer, what we're seeing is that's where the challenge is. It's a challenge with their traffic and it's a challenge with them coming into our stores,”  Starbucks CEO Laxman Narasimhan said on a company's earnings call.<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"> High prices aren’t just keeping some customers from going out, they’re also impacting whether they order in. Food delivery service DoorDash (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=dash">DASH</a>) reported a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/doordash-stock-tumbles-after-earnings-miss-amid-slower-us-restaurant-segment-8642261">bigger-than-anticipated loss</a> in the first quarter as demand for restaurant delivery slowed. However, the delivery app was able to generate more sales in the quarter, in part by expanding its service to include must-haves through grocery and retail deliveries.  </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-consumers-keep-turning-to-coca-cola-hershey-pg"></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"> Consumers Keep Turning to Coca-Cola, Hershey, P&amp;G </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> While higher prices discouraged some consumers from eating out or ordering delivery from restaurants, it didn’t stop them from buying some of their favorite items at the store. </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 Coca-Cola Company (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=KO">KO</a>) demonstrated this when it <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/coca-cola-earnings-pop-on-higher-prices-strong-demand-in-latin-america-8640956">posted a revenue boost after increasing its prices</a>, with the company also raising its revenue forecast this year due to “higher than expected inflationary pricing.” </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 U.S. consumer remains in good shape,” said Coca-Cola CEO James Quincey during the company’s earnings call.<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"> Coca-Cola executives said they see signs consumers are changing their buying patterns due to higher prices, moving to more purchasing for in-home consumption of its beverages. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> “There is some purchasing power compression in the lower income echelons. And I think it’s quite clear that there’s some behavioral shift there looking for value,” Quincey said.  </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"> Consumers also had a hard time turning away from chocolate, despite a volatile cocoa market that led Hershey (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=HSY">HSY</a>) to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/hershey-beats-earnings-estimates-as-sales-in-north-america-jump-8642919">push prices up by more than 5%</a> in the first quarter from a year ago to pull in almost 9% more revenue. Hershey CEO Michele Buck said the chocolate maker was off to a “strong start” this year as the company maintained its projection that it would grow sales by 2% to 3% this year.  </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"> Another company that continued to make sales despite higher prices was Procter &amp; Gamble (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PG">PG</a>), as the maker of Tide, Dawn, and Pampers <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/procter-and-gamble-q3-fy2024-earnings-8635880">reported that it raised its prices</a> even more than analysts expected, and still saw noteworthy sales growth. </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 * Earnings reports from McDonald’s and Starbucks showed consumers may be starting to feel the pressure of high prices. * DoorDash also felt the pressure of higher restaurant prices, but it was able to blunt some of the loss by growing its grocery delivery business. * Consumers still flocked to familiar brands, as Coca-Cola, Hershey, and Procter & Gamble reported stronger sales despite raising prices. Despite falling last year, inflation has [proved persistent in 2024](https://www.investopedia.com/federal-reserve-preferred-inflation-measure-heated-up-march-8639440), and some consumers are having to carefully choose where to put their dollars. Those decisions are beginning to show up as pressure in some companies' [financial results](https://www.investopedia.com/terms/f/financial-statements.asp) for the year’s first quarter, while it has been a boon to others. One segment feeling a negative impact is restaurants and food delivery services, which are now trying to draw in customers with tighter budgets. At the same time, some consumer goods makers showed they were able to weather the [inflation](https://www.investopedia.com/terms/i/inflation.asp) headwinds as people demonstrated that they are still buying their favorite brands.  ## Lower Restaurant Spending Hits McDonald’s, Starbucks, DoorDash Famous for its affordability, McDonald’s ([MCD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MCD)) posted [slowing comparable or same-store sales](https://www.investopedia.com/mcdonalds-says-it-is-feeling-the-impacts-of-inflation-as-consumers-watch-spending-8640977) in the first quarter, showing that consumers may be starting to buckle under what company executives called a “pressured consumer spending environment.” “I think consumers are obviously dealing with a lot in the current macro context. Obviously, they’re getting hit across their full basket of goods and services by all the inflationary impacts,” said McDonald’s CFO Ian Borden on the company’s earnings call. While the fast-food chain still posted a 9% year-over-year increase in earnings per share, CEO Chris Kempczinski said the company was conscious of the pressure on its customers, and would be focusing more on advertising to promote its “value message.” Same-store sales for Starbucks ([SBUX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SBUX)) [fell 4% in its first quarter](https://www.investopedia.com/starbucks-stock-plunges-after-declining-sale-store-sales-weaken-2024-outlook-8641618), with the coffee chain saying loyal customers were still flocking to their locations, but higher prices made it harder to draw the occasional customer. “You look at the underlying headwinds, particularly around the pressures that consumers face particularly with the occasional customer, what we're seeing is that's where the challenge is. It's a challenge with their traffic and it's a challenge with them coming into our stores,”  Starbucks CEO Laxman Narasimhan said on a company's earnings call. High prices aren’t just keeping some customers from going out, they’re also impacting whether they order in. Food delivery service DoorDash ([DASH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=dash)) reported a [bigger-than-anticipated loss](https://www.investopedia.com/doordash-stock-tumbles-after-earnings-miss-amid-slower-us-restaurant-segment-8642261) in the first quarter as demand for restaurant delivery slowed. However, the delivery app was able to generate more sales in the quarter, in part by expanding its service to include must-haves through grocery and retail deliveries.  ## Consumers Keep Turning to Coca-Cola, Hershey, P&G While higher prices discouraged some consumers from eating out or ordering delivery from restaurants, it didn’t stop them from buying some of their favorite items at the store. The Coca-Cola Company ([KO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KO)) demonstrated this when it [posted a revenue boost after increasing its prices](https://www.investopedia.com/coca-cola-earnings-pop-on-higher-prices-strong-demand-in-latin-america-8640956), with the company also raising its revenue forecast this year due to “higher than expected inflationary pricing.” “The U.S. consumer remains in good shape,” said Coca-Cola CEO James Quincey during the company’s earnings call. Coca-Cola executives said they see signs consumers are changing their buying patterns due to higher prices, moving to more purchasing for in-home consumption of its beverages. “There is some purchasing power compression in the lower income echelons. And I think it’s quite clear that there’s some behavioral shift there looking for value,” Quincey said.  Consumers also had a hard time turning away from chocolate, despite a volatile cocoa market that led Hershey ([HSY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HSY)) to [push prices up by more than 5%](https://www.investopedia.com/hershey-beats-earnings-estimates-as-sales-in-north-america-jump-8642919) in the first quarter from a year ago to pull in almost 9% more revenue. Hershey CEO Michele Buck said the chocolate maker was off to a “strong start” this year as the company maintained its projection that it would grow sales by 2% to 3% this year.  Another company that continued to make sales despite higher prices was Procter & Gamble ([PG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PG)), as the maker of Tide, Dawn, and Pampers [reported that it raised its prices](https://www.investopedia.com/procter-and-gamble-q3-fy2024-earnings-8635880) even more than analysts expected, and still saw noteworthy sales growth. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
Key Takeaways Earnings reports from McDonald’s and Starbucks showed consumers may be starting to feel the pressure of high prices.DoorDash also felt the pressure of higher restaurant prices, but it was able to blunt some of the loss by growing its grocery delivery business.Consumers still flocked to familiar brands, as Coca-Cola, Hershey, and Procter & Gamble reported stronger sales despite raising prices.  Despite falling last year, inflation has proved persistent in 2024, and some consumers are having to carefully choose where to put their dollars. Those decisions are beginning to show up as pressure in some companies' financial results for the year’s first quarter, while it has been a boon to others. One segment feeling a negative impact is restaurants and food delivery services, which are now trying to draw in customers with tighter budgets. At the same time, some consumer goods makers showed they were able to weather the inflation headwinds as people demonstrated that they are still buying their favorite brands.  Lower Restaurant Spending Hits McDonald’s, Starbucks, DoorDash Famous for its affordability, McDonald’s (MCD) posted slowing comparable or same-store sales in the first quarter, showing that consumers may be starting to buckle under what company executives called a “pressured consumer spending environment.” “I think consumers are obviously dealing with a lot in the current macro context. Obviously, they’re getting hit across their full basket of goods and services by all the inflationary impacts,” said McDonald’s CFO Ian Borden on the company’s earnings call. While the fast-food chain still posted a 9% year-over-year increase in earnings per share, CEO Chris Kempczinski said the company was conscious of the pressure on its customers, and would be focusing more on advertising to promote its “value message.” Same-store sales for Starbucks (SBUX) fell 4% in its first quarter, with the coffee chain saying loyal customers were still flocking to their locations, but higher prices made it harder to draw the occasional customer. “You look at the underlying headwinds, particularly around the pressures that consumers face particularly with the occasional customer, what we're seeing is that's where the challenge is. It's a challenge with their traffic and it's a challenge with them coming into our stores,”  Starbucks CEO Laxman Narasimhan said on a company's earnings call. High prices aren’t just keeping some customers from going out, they’re also impacting whether they order in. Food delivery service DoorDash (DASH) reported a bigger-than-anticipated loss in the first quarter as demand for restaurant delivery slowed. However, the delivery app was able to generate more sales in the quarter, in part by expanding its service to include must-haves through grocery and retail deliveries.  Consumers Keep Turning to Coca-Cola, Hershey, P&G While higher prices discouraged some consumers from eating out or ordering delivery from restaurants, it didn’t stop them from buying some of their favorite items at the store. The Coca-Cola Company (KO) demonstrated this when it posted a revenue boost after increasing its prices, with the company also raising its revenue forecast this year due to “higher than expected inflationary pricing.” “The U.S. consumer remains in good shape,” said Coca-Cola CEO James Quincey during the company’s earnings call. Coca-Cola executives said they see signs consumers are changing their buying patterns due to higher prices, moving to more purchasing for in-home consumption of its beverages. “There is some purchasing power compression in the lower income echelons. And I think it’s quite clear that there’s some behavioral shift there looking for value,” Quincey said.  Consumers also had a hard time turning away from chocolate, despite a volatile cocoa market that led Hershey (HSY) to push prices up by more than 5% in the first quarter from a year ago to pull in almost 9% more revenue. Hershey CEO Michele Buck said the chocolate maker was off to a “strong start” this year as the company maintained its projection that it would grow sales by 2% to 3% this year.  Another company that continued to make sales despite higher prices was Procter & Gamble (PG), as the maker of Tide, Dawn, and Pampers reported that it raised its prices even more than analysts expected, and still saw noteworthy sales growth. Do you have a news tip for Investopedia reporters? Please email us at [email protected]
[ [ "proved persistent in 2024", "https://www.investopedia.com/federal-reserve-preferred-inflation-measure-heated-up-march-8639440" ], [ "financial results", "https://www.investopedia.com/terms/f/financial-statements.asp" ], [ "inflation", "https://www.investopedia.com/terms/i/inflation.asp" ], [ "MCD", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=MCD" ], [ "slowing comparable or same-store sales", "https://www.investopedia.com/mcdonalds-says-it-is-feeling-the-impacts-of-inflation-as-consumers-watch-spending-8640977" ], [ "SBUX", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=SBUX" ], [ "fell 4% in its first quarter", "https://www.investopedia.com/starbucks-stock-plunges-after-declining-sale-store-sales-weaken-2024-outlook-8641618" ], [ "DASH", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=dash" ], [ "bigger-than-anticipated loss", "https://www.investopedia.com/doordash-stock-tumbles-after-earnings-miss-amid-slower-us-restaurant-segment-8642261" ], [ "KO", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=KO" ], [ "posted a revenue boost after increasing its prices", "https://www.investopedia.com/coca-cola-earnings-pop-on-higher-prices-strong-demand-in-latin-america-8640956" ], [ "HSY", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=HSY" ], [ "push prices up by more than 5%", "https://www.investopedia.com/hershey-beats-earnings-estimates-as-sales-in-north-america-jump-8642919" ], [ "PG", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=PG" ], [ "reported that it raised its prices", "https://www.investopedia.com/procter-and-gamble-q3-fy2024-earnings-8635880" ], [ "[email protected]", "mailto:[email protected]" ] ]
https://www.investopedia.com/30-year-mortgage-rates-drop-four-days-in-a-row-sink-to-a-5-week-low-8387644
30-Year Mortgage Rates Drop Four Days in a Row, Sink to 5-Week Low
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Rates on 30-year mortgages rates have plunged almost a half percentage point over the last four days, lowering the flagship average to 7.82%. That's its cheapest level since late September. Virtually every loan average—for both new purchase and refinancing—dropped by double-digit basis points Friday. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_3-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/X6XfI/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Last 90 days of 30y average "></iframe></div> <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"> Because rates vary widely across lenders, it's always smart to shop around for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">your best mortgage option</a> and compare rates regularly, no matter what type of loan you're seeking. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_7-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates</th> </tr> <tr> <th><b>Loan Type</b></th> <th><b>New Purchase</b></th> <th><b>Refinance</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-30-year-mortgage-rates-5096821">30-Year Fixed</a></td> <td>7.82%</td> <td>8.05%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-30-year-mortgage-rates-5096821">FHA 30-Year Fixed</a></td> <td>7.46%</td> <td>7.71%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-mortgage-rates-5101581">Jumbo 30-Year Fixed</a></td> <td>7.06%</td> <td>7.07%</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-15-year-mortgage-rates-5097581">15-Year Fixed</a></td> <td>7.06%</td> <td>7.34%</td> </tr> <tr> <td>5/6 ARM</td> <td>7.65%</td> <td>7.72%</td> </tr> </tbody> </table> <figcaption>National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--credible-rate-table--mortgage" id="mntl-sc-block_9-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div id="credible-block"></div> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-todays-mortgage-rate-averages-new-purchase"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> Today's Mortgage Rate Averages: New Purchase </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The 30-year mortgage rate average sank another 10 basis points Friday, for a four-day plunge of 46 basis points. That reduces the average to 7.82%, its lowest mark since Sept. 29. It also represents a significant reduction from the historic peak of 8.45% notched less than three weeks ago. That Oct. 17 reading was estimated to be the highest 30-year average in 23 years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_14-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/gNiAq/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="History of 30y average since Jun 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_17-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/mortgage-rates-5094943" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Compare the Best Mortgage Rates Today - May 21, 2024</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-whatyouneedtoknow" 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_1-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>The Freddie Mac mortgage average released Oct. 26 revealed that 30-year rates had climbed for a seventh straight week to average 7.79%—their highest level since 2000. The Freddie Mac average has since edged down a few points to 7.76%.<span class="ql-inline-citation" data-cite="4"></span></p> <p>Freddie Mac’s averages differ from those we publish here due to Freddie Mac calculating a <em>weekly</em> average that blends five previous days of rates, and which may include loans priced with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountpoints.asp">discount points</a>. In contrast, Investopedia’s averages indicate <em>daily</em> rate movement and only include zero-point loans.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Rates on 15-year mortgages also plummeted last week, with a dramatic Friday drop of 22 basis points creating a four-day decline of 50 basis points. That lowers the average to 7.06%, it's lowest point since the first day of September. Less than two weeks ago, 15-year rates notched a historic peak of 7.59%, which was the average's highest point since 2000. </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"> Jumbo 30-year rates gave up 13 basis points Friday, reducing the average to 7.06%—its lowest point since Sept. 22. Though daily jumbo rates are not published before 2009, it's estimated that the peak of 7.52% on Oct. 19 was the most expensive average for jumbo 30-year loans in more than 20 years. </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 only new purchase average to drop by just single digits Friday was the 10/6 ARM average, which dipped 7 basis points, while the biggest rate decline was seen for 20-year loans, which sank 26 basis points on average. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_27-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates - New Purchase</th> </tr> <tr> <th>Loan Type</th> <th><b>New Purchase Rates</b></th> <th><b>Daily Change</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-30-year-mortgage-rates-5096821">30-Year Fixed</a></td> <td>7.82%</td> <td>-0.10</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-30-year-mortgage-rates-5096821">FHA 30-Year Fixed</a></td> <td>7.46%</td> <td>-0.20</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-30-year-mortgage-rates-5096821">VA 30-Year Fixed</a></td> <td>7.38%</td> <td>-0.19</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-mortgage-rates-5101581">Jumbo 30-Year Fixed</a></td> <td>7.06%</td> <td>-0.13</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-20-year-mortgage-rates-5097244">20-Year Fixed</a></td> <td>7.52%</td> <td>-0.26</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-15-year-mortgage-rates-5097581">15-Year Fixed</a></td> <td>7.06%</td> <td>-0.22</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>7.28%</td> <td>-0.10</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-mortgage-rates-5101581">Jumbo 15-Year Fixed</a></td> <td>7.02%</td> <td>-0.13</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-10-year-mortgage-rates-5100979">10-Year Fixed</a></td> <td>7.03%</td> <td>-0.20</td> </tr> <tr> <td>10/6 ARM</td> <td>8.07%</td> <td>-0.07</td> </tr> <tr> <td>7/6 ARM</td> <td>7.93%</td> <td>-0.13</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-mortgage-rates-5101581">Jumbo 7/6 ARM</a></td> <td>6.71%</td> <td>-0.25</td> </tr> <tr> <td>5/6 ARM</td> <td>7.65%</td> <td>-0.14</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-mortgage-rates-5101581">Jumbo 5/6 ARM</a></td> <td>6.81%</td> <td>-0.13</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_29-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/Z5hUm/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="90-Day Ranges of Best Mortgage Rates"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-todays-mortgage-rate-averages-refinancing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Today's Mortgage Rate Averages: Refinancing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Refinancing rates also showed big declines Friday, with all but the 7/6 ARM average sinking by double-digit basis points. The 30-year refi average subtracted 15 basis points, for a four-day drop of 43 basis points. That narrows the spread between 30-year new purchase and refi rates to 23 basis points. </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 15-year refi average meanwhile lost 11 basis points Friday, and the jumbo 30-year refi average, 12 points. The largest refi declines were seen for VA 30-year loans, which plunged 30 basis points, while FHA 30-year and jumbo 7/6 ARM loans dropped 25 points. </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> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates - Refinance</th> </tr> <tr> <th>Loan Type</th> <th><b>Refinance Rates</b></th> <th><b>Daily Change</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-30-year-mortgage-rates-5096821">30-Year Fixed</a></td> <td>8.05%</td> <td>-0.15</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-30-year-mortgage-rates-5096821">FHA 30-Year Fixed</a></td> <td>7.71%</td> <td>-0.25</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-30-year-mortgage-rates-5096821">VA 30-Year Fixed</a></td> <td>7.89%</td> <td>-0.30</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-mortgage-rates-5101581">Jumbo 30-Year Fixed</a></td> <td>7.07%</td> <td>-0.12</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-20-year-mortgage-rates-5097244">20-Year Fixed</a></td> <td>7.96%</td> <td>-0.15</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-15-year-mortgage-rates-5097581">15-Year Fixed</a></td> <td>7.34%</td> <td>-0.11</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>7.38%</td> <td>-0.11</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-mortgage-rates-5101581">Jumbo 15-Year Fixed</a></td> <td>7.02%</td> <td>-0.13</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-10-year-mortgage-rates-5100979">10-Year Fixed</a></td> <td>7.30%</td> <td>-0.13</td> </tr> <tr> <td>10/6 ARM</td> <td>8.28%</td> <td>-0.11</td> </tr> <tr> <td>7/6 ARM</td> <td>8.19%</td> <td>-0.05</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-mortgage-rates-5101581">Jumbo 7/6 ARM</a></td> <td>6.81%</td> <td>-0.25</td> </tr> <tr> <td>5/6 ARM</td> <td>7.72%</td> <td>-0.15</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-mortgage-rates-5101581">Jumbo 5/6 ARM</a></td> <td>6.81%</td> <td>-0.13</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Calculate monthly payments for different loan scenarios with our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-calculator-5084794">Mortgage Calculator</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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>The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or they may be selected based on a hypothetical borrower with an ultra-high credit score or taking a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it may be higher or lower than the averages you see here.</p></div></div></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--mortgage-loan-calculator" id="mntl-sc-block_42-0"><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_43-0"></div> <span class="heading-toc" id="toc-lowest-mortgage-rates-by-state"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-heading__text"> Lowest Mortgage Rates by State </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> The states with the lowest 30-year new purchase averages Thursday were Vermont, North Carolina, Delaware, and Tennessee, while the states with the highest averages were Oregon, Nevada, Arizona, Idaho, Minnesota, and Washington. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_49-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/P15rA/1/" frameborder="0" id="mntl-sc-block-iframe__uri_4-0" title="State-by-state average minimum rates"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <span class="heading-toc" id="toc-what-causes-mortgage-rates-to-rise-or-fall"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_51-0"> <span class="mntl-sc-block-heading__text"> What Causes Mortgage Rates to Rise or Fall? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> <li>The level and direction of the bond market, especially 10-year Treasury yields</li> <li>The Federal Reserve's current monetary policy, especially as it relates to bond buying and funding government-backed mortgages</li> <li>Competition between <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-mortgage-lenders-5076852">mortgage lenders and across loan types</a></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/060115/how-do-open-market-operations-omos-affect-bond-prices.asp">bond-buying policy</a> is a major influencer of mortgage rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Since that time, the Fed has been aggressively raising the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> However, given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over the last 18 months—even the indirect influence of the fed funds rate has resulted in an upward impact on mortgage rates over the last two years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> The Fed has opted to hold rates steady at its last two meetings, which concluded Sept. 20 and Nov. 1. But Fed Chair Jerome Powell has made it clear that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-reserve-holds-interest-rate-at-22-year-high-8385747">another rate increase is still possible</a> at a future meeting. The Fed’s next rate announcement will be made Dec. 13. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <span class="heading-toc" id="toc-methodology"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loantovalue.asp">loan-to-value ratio (LTV)</a> of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></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_73-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:74.0%;"> <img alt='Custom illustration shows title "Mortgage rates for Monday 11.06.23" on a blue background with white line images of a house, buildings, graph with upward arrows, keys, and pie charts.' class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/s3dQbz_bii-OIQcDZEFyhrn_buc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/November23MortgageratesNews-06-b7aa047e159946a2920dd5cacd018a39.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/s3dQbz_bii-OIQcDZEFyhrn_buc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/November23MortgageratesNews-06-b7aa047e159946a2920dd5cacd018a39.jpg" data-srcset="https://www.investopedia.com/thmb/1JirwLFuMTX38UYkoGZOEWYHWEU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/November23MortgageratesNews-06-b7aa047e159946a2920dd5cacd018a39.jpg 750w" data-tracking-container="true" height="4168" id="mntl-sc-block-image_1-0" width="5626"/> <noscript> <img alt='Custom illustration shows title "Mortgage rates for Monday 11.06.23" on a blue background with white line images of a house, buildings, graph with upward arrows, keys, and pie charts.' class="img--noscript universal-image__image" height="4168" sizes="750px" src="https://www.investopedia.com/thmb/s3dQbz_bii-OIQcDZEFyhrn_buc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/November23MortgageratesNews-06-b7aa047e159946a2920dd5cacd018a39.jpg" srcset="https://www.investopedia.com/thmb/1JirwLFuMTX38UYkoGZOEWYHWEU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/November23MortgageratesNews-06-b7aa047e159946a2920dd5cacd018a39.jpg 750w" width="5626"/> </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 / Alice Morgan</p></span> </figcaption></figure></div>
Rates on 30-year mortgages rates have plunged almost a half percentage point over the last four days, lowering the flagship average to 7.82%. That's its cheapest level since late September. Virtually every loan average—for both new purchase and refinancing—dropped by double-digit basis points Friday. Because rates vary widely across lenders, it's always smart to shop around for [your best mortgage option](https://www.investopedia.com/mortgage-rates-5094943) and compare rates regularly, no matter what type of loan you're seeking. | National Averages of Lenders' Best Rates | | | | --- | --- | --- | | **Loan Type** | **New Purchase** | **Refinance** | | [30-Year Fixed](https://www.investopedia.com/best-30-year-mortgage-rates-5096821) | 7.82% | 8.05% | | [FHA 30-Year Fixed](https://www.investopedia.com/best-30-year-mortgage-rates-5096821) | 7.46% | 7.71% | | [Jumbo 30-Year Fixed](https://www.investopedia.com/best-jumbo-mortgage-rates-5101581) | 7.06% | 7.07% | | [15-Year Fixed](https://www.investopedia.com/best-15-year-mortgage-rates-5097581) | 7.06% | 7.34% | | 5/6 ARM | 7.65% | 7.72% | National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points. ## Today's Mortgage Rate Averages: New Purchase The 30-year mortgage rate average sank another 10 basis points Friday, for a four-day plunge of 46 basis points. That reduces the average to 7.82%, its lowest mark since Sept. 29. It also represents a significant reduction from the historic peak of 8.45% notched less than three weeks ago. That Oct. 17 reading was estimated to be the highest 30-year average in 23 years. [Compare the Best Mortgage Rates Today - May 21, 2024](https://www.investopedia.com/mortgage-rates-5094943) ### Note The Freddie Mac mortgage average released Oct. 26 revealed that 30-year rates had climbed for a seventh straight week to average 7.79%—their highest level since 2000. The Freddie Mac average has since edged down a few points to 7.76%. Freddie Mac’s averages differ from those we publish here due to Freddie Mac calculating a *weekly* average that blends five previous days of rates, and which may include loans priced with [discount points](https://www.investopedia.com/terms/d/discountpoints.asp). In contrast, Investopedia’s averages indicate *daily* rate movement and only include zero-point loans. Rates on 15-year mortgages also plummeted last week, with a dramatic Friday drop of 22 basis points creating a four-day decline of 50 basis points. That lowers the average to 7.06%, it's lowest point since the first day of September. Less than two weeks ago, 15-year rates notched a historic peak of 7.59%, which was the average's highest point since 2000. Jumbo 30-year rates gave up 13 basis points Friday, reducing the average to 7.06%—its lowest point since Sept. 22. Though daily jumbo rates are not published before 2009, it's estimated that the peak of 7.52% on Oct. 19 was the most expensive average for jumbo 30-year loans in more than 20 years. The only new purchase average to drop by just single digits Friday was the 10/6 ARM average, which dipped 7 basis points, while the biggest rate decline was seen for 20-year loans, which sank 26 basis points on average. | National Averages of Lenders' Best Rates - New Purchase | | | | --- | --- | --- | | Loan Type | **New Purchase Rates** | **Daily Change** | | [30-Year Fixed](https://www.investopedia.com/best-30-year-mortgage-rates-5096821) | 7.82% | -0.10 | | [FHA 30-Year Fixed](https://www.investopedia.com/best-30-year-mortgage-rates-5096821) | 7.46% | -0.20 | | [VA 30-Year Fixed](https://www.investopedia.com/best-30-year-mortgage-rates-5096821) | 7.38% | -0.19 | | [Jumbo 30-Year Fixed](https://www.investopedia.com/best-jumbo-mortgage-rates-5101581) | 7.06% | -0.13 | | [20-Year Fixed](https://www.investopedia.com/best-20-year-mortgage-rates-5097244) | 7.52% | -0.26 | | [15-Year Fixed](https://www.investopedia.com/best-15-year-mortgage-rates-5097581) | 7.06% | -0.22 | | FHA 15-Year Fixed | 7.28% | -0.10 | | [Jumbo 15-Year Fixed](https://www.investopedia.com/best-jumbo-mortgage-rates-5101581) | 7.02% | -0.13 | | [10-Year Fixed](https://www.investopedia.com/best-10-year-mortgage-rates-5100979) | 7.03% | -0.20 | | 10/6 ARM | 8.07% | -0.07 | | 7/6 ARM | 7.93% | -0.13 | | [Jumbo 7/6 ARM](https://www.investopedia.com/best-jumbo-mortgage-rates-5101581) | 6.71% | -0.25 | | 5/6 ARM | 7.65% | -0.14 | | [Jumbo 5/6 ARM](https://www.investopedia.com/best-jumbo-mortgage-rates-5101581) | 6.81% | -0.13 | ## Today's Mortgage Rate Averages: Refinancing Refinancing rates also showed big declines Friday, with all but the 7/6 ARM average sinking by double-digit basis points. The 30-year refi average subtracted 15 basis points, for a four-day drop of 43 basis points. That narrows the spread between 30-year new purchase and refi rates to 23 basis points. The 15-year refi average meanwhile lost 11 basis points Friday, and the jumbo 30-year refi average, 12 points. The largest refi declines were seen for VA 30-year loans, which plunged 30 basis points, while FHA 30-year and jumbo 7/6 ARM loans dropped 25 points. | National Averages of Lenders' Best Rates - Refinance | | | | --- | --- | --- | | Loan Type | **Refinance Rates** | **Daily Change** | | [30-Year Fixed](https://www.investopedia.com/best-30-year-mortgage-rates-5096821) | 8.05% | -0.15 | | [FHA 30-Year Fixed](https://www.investopedia.com/best-30-year-mortgage-rates-5096821) | 7.71% | -0.25 | | [VA 30-Year Fixed](https://www.investopedia.com/best-30-year-mortgage-rates-5096821) | 7.89% | -0.30 | | [Jumbo 30-Year Fixed](https://www.investopedia.com/best-jumbo-mortgage-rates-5101581) | 7.07% | -0.12 | | [20-Year Fixed](https://www.investopedia.com/best-20-year-mortgage-rates-5097244) | 7.96% | -0.15 | | [15-Year Fixed](https://www.investopedia.com/best-15-year-mortgage-rates-5097581) | 7.34% | -0.11 | | FHA 15-Year Fixed | 7.38% | -0.11 | | [Jumbo 15-Year Fixed](https://www.investopedia.com/best-jumbo-mortgage-rates-5101581) | 7.02% | -0.13 | | [10-Year Fixed](https://www.investopedia.com/best-10-year-mortgage-rates-5100979) | 7.30% | -0.13 | | 10/6 ARM | 8.28% | -0.11 | | 7/6 ARM | 8.19% | -0.05 | | [Jumbo 7/6 ARM](https://www.investopedia.com/best-jumbo-mortgage-rates-5101581) | 6.81% | -0.25 | | 5/6 ARM | 7.72% | -0.15 | | [Jumbo 5/6 ARM](https://www.investopedia.com/best-jumbo-mortgage-rates-5101581) | 6.81% | -0.13 | Calculate monthly payments for different loan scenarios with our [Mortgage Calculator](https://www.investopedia.com/mortgage-calculator-5084794). ### The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or they may be selected based on a hypothetical borrower with an ultra-high credit score or taking a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it may be higher or lower than the averages you see here. ## Lowest Mortgage Rates by State The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. The states with the lowest 30-year new purchase averages Thursday were Vermont, North Carolina, Delaware, and Tennessee, while the states with the highest averages were Oregon, Nevada, Arizona, Idaho, Minnesota, and Washington. ## What Causes Mortgage Rates to Rise or Fall? Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: * The level and direction of the bond market, especially 10-year Treasury yields * The Federal Reserve's current monetary policy, especially as it relates to bond buying and funding government-backed mortgages * Competition between [mortgage lenders and across loan types](https://www.investopedia.com/best-mortgage-lenders-5076852) Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This [bond-buying policy](https://www.investopedia.com/ask/answers/060115/how-do-open-market-operations-omos-affect-bond-prices.asp) is a major influencer of mortgage rates. But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022. Since that time, the Fed has been aggressively raising the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. However, given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over the last 18 months—even the indirect influence of the fed funds rate has resulted in an upward impact on mortgage rates over the last two years. The Fed has opted to hold rates steady at its last two meetings, which concluded Sept. 20 and Nov. 1. But Fed Chair Jerome Powell has made it clear that [another rate increase is still possible](https://www.investopedia.com/federal-reserve-holds-interest-rate-at-22-year-high-8385747) at a future meeting. The Fed’s next rate announcement will be made Dec. 13. ## Methodology The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a [loan-to-value ratio (LTV)](https://www.investopedia.com/terms/l/loantovalue.asp) of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760. ![Custom illustration shows title "Mortgage rates for Monday 11.06.23" on a blue background with white line images of a house, buildings, graph with upward arrows, keys, and pie charts.]() ![Custom illustration shows title "Mortgage rates for Monday 11.06.23" on a blue background with white line images of a house, buildings, graph with upward arrows, keys, and pie charts.](https://www.investopedia.com/thmb/s3dQbz_bii-OIQcDZEFyhrn_buc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/November23MortgageratesNews-06-b7aa047e159946a2920dd5cacd018a39.jpg) Investopedia / Alice Morgan
Rates on 30-year mortgages rates have plunged almost a half percentage point over the last four days, lowering the flagship average to 7.82%. That's its cheapest level since late September. Virtually every loan average—for both new purchase and refinancing—dropped by double-digit basis points Friday. Because rates vary widely across lenders, it's always smart to shop around for your best mortgage option and compare rates regularly, no matter what type of loan you're seeking. National Averages of Lenders' Best Rates Loan Type New Purchase Refinance 30-Year Fixed 7.82% 8.05% FHA 30-Year Fixed 7.46% 7.71% Jumbo 30-Year Fixed 7.06% 7.07% 15-Year Fixed 7.06% 7.34% 5/6 ARM 7.65% 7.72% National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points. Today's Mortgage Rate Averages: New Purchase The 30-year mortgage rate average sank another 10 basis points Friday, for a four-day plunge of 46 basis points. That reduces the average to 7.82%, its lowest mark since Sept. 29. It also represents a significant reduction from the historic peak of 8.45% notched less than three weeks ago. That Oct. 17 reading was estimated to be the highest 30-year average in 23 years. Compare the Best Mortgage Rates Today - May 21, 2024 Note The Freddie Mac mortgage average released Oct. 26 revealed that 30-year rates had climbed for a seventh straight week to average 7.79%—their highest level since 2000. The Freddie Mac average has since edged down a few points to 7.76%. Freddie Mac’s averages differ from those we publish here due to Freddie Mac calculating a weekly average that blends five previous days of rates, and which may include loans priced with discount points. In contrast, Investopedia’s averages indicate daily rate movement and only include zero-point loans. Rates on 15-year mortgages also plummeted last week, with a dramatic Friday drop of 22 basis points creating a four-day decline of 50 basis points. That lowers the average to 7.06%, it's lowest point since the first day of September. Less than two weeks ago, 15-year rates notched a historic peak of 7.59%, which was the average's highest point since 2000. Jumbo 30-year rates gave up 13 basis points Friday, reducing the average to 7.06%—its lowest point since Sept. 22. Though daily jumbo rates are not published before 2009, it's estimated that the peak of 7.52% on Oct. 19 was the most expensive average for jumbo 30-year loans in more than 20 years. The only new purchase average to drop by just single digits Friday was the 10/6 ARM average, which dipped 7 basis points, while the biggest rate decline was seen for 20-year loans, which sank 26 basis points on average. National Averages of Lenders' Best Rates - New Purchase Loan Type New Purchase Rates Daily Change 30-Year Fixed 7.82% -0.10 FHA 30-Year Fixed 7.46% -0.20 VA 30-Year Fixed 7.38% -0.19 Jumbo 30-Year Fixed 7.06% -0.13 20-Year Fixed 7.52% -0.26 15-Year Fixed 7.06% -0.22 FHA 15-Year Fixed 7.28% -0.10 Jumbo 15-Year Fixed 7.02% -0.13 10-Year Fixed 7.03% -0.20 10/6 ARM 8.07% -0.07 7/6 ARM 7.93% -0.13 Jumbo 7/6 ARM 6.71% -0.25 5/6 ARM 7.65% -0.14 Jumbo 5/6 ARM 6.81% -0.13 Today's Mortgage Rate Averages: Refinancing Refinancing rates also showed big declines Friday, with all but the 7/6 ARM average sinking by double-digit basis points. The 30-year refi average subtracted 15 basis points, for a four-day drop of 43 basis points. That narrows the spread between 30-year new purchase and refi rates to 23 basis points. The 15-year refi average meanwhile lost 11 basis points Friday, and the jumbo 30-year refi average, 12 points. The largest refi declines were seen for VA 30-year loans, which plunged 30 basis points, while FHA 30-year and jumbo 7/6 ARM loans dropped 25 points. National Averages of Lenders' Best Rates - Refinance Loan Type Refinance Rates Daily Change 30-Year Fixed 8.05% -0.15 FHA 30-Year Fixed 7.71% -0.25 VA 30-Year Fixed 7.89% -0.30 Jumbo 30-Year Fixed 7.07% -0.12 20-Year Fixed 7.96% -0.15 15-Year Fixed 7.34% -0.11 FHA 15-Year Fixed 7.38% -0.11 Jumbo 15-Year Fixed 7.02% -0.13 10-Year Fixed 7.30% -0.13 10/6 ARM 8.28% -0.11 7/6 ARM 8.19% -0.05 Jumbo 7/6 ARM 6.81% -0.25 5/6 ARM 7.72% -0.15 Jumbo 5/6 ARM 6.81% -0.13 Calculate monthly payments for different loan scenarios with our Mortgage Calculator. The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or they may be selected based on a hypothetical borrower with an ultra-high credit score or taking a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it may be higher or lower than the averages you see here. Lowest Mortgage Rates by State The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. The states with the lowest 30-year new purchase averages Thursday were Vermont, North Carolina, Delaware, and Tennessee, while the states with the highest averages were Oregon, Nevada, Arizona, Idaho, Minnesota, and Washington. What Causes Mortgage Rates to Rise or Fall? Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: The level and direction of the bond market, especially 10-year Treasury yields The Federal Reserve's current monetary policy, especially as it relates to bond buying and funding government-backed mortgages Competition between mortgage lenders and across loan types Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This bond-buying policy is a major influencer of mortgage rates. But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022. Since that time, the Fed has been aggressively raising the federal funds rate to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. However, given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over the last 18 months—even the indirect influence of the fed funds rate has resulted in an upward impact on mortgage rates over the last two years. The Fed has opted to hold rates steady at its last two meetings, which concluded Sept. 20 and Nov. 1. But Fed Chair Jerome Powell has made it clear that another rate increase is still possible at a future meeting. The Fed’s next rate announcement will be made Dec. 13. Methodology The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a loan-to-value ratio (LTV) of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760. Investopedia / Alice Morgan
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https://www.investopedia.com/dow-jones-today-05152024-8648735
Markets News, May 15, 2024: Stocks Close at Record Highs After Inflation Report; Meme Stocks Slump
<div class="loc article-content"><div class="comp article__primary-video-container--jw mntl-block" id="article__primary-video-container--jw_1-0"></div> <div class="comp liveblog mntl-block" id="liveblog_1-0"><div class="comp mntl-block article-content__description" id="mntl-block_12-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> U.S. stocks rose Wednesday after economic data releases showed consumers reining in spending and inflation slowing in April, feeding optimism that the Federal Reserve could be in a position to consider cutting interest rates. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp">Nasdaq Composite</a> and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&amp;P 500</a> gained 1.4% and 2%, respectively, to both close at record highs. The <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/djia.asp">Dow Jones Industrial Average</a> also closed at a record after rising 0.9%. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumerpriceindex.asp">Consumer Price Index</a> (CPI) showed <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737">prices increased 0.3%</a> in April, down slightly from March's upwardly revised 0.4% increase. The core inflation rate, which strips out volatile food and energy prices, was 0.3%, also a deceleration from March. Annual inflation slowed to 3.4%, while core inflation ticked down to 3.6%. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Retail sales data also showed spending was flat in April, suggesting consumers are pulling back after a years-long shopping spree. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Markets, on edge after <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-heated-up-in-march-8629363">three consecutive months</a> of disappointing CPI reports and yesterday's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wholesale-inflation-jump-raises-worries-over-upcoming-cpi-reading-8648227">surprising wholesale inflation numbers</a>, breathed a sigh of relief after the economic reports. Treasury yields tumbled, with the 10-year yield dropping below 4.4% for the first time in more than a month. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> GameStop (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME">GME</a>) and AMC Entertainment (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMC">AMC</a>) tumbled Wednesday after surging earlier in the week amid the revival of 2021's meme stock frenzy. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Oil futures dipped as the International Energy Administration cut its 2024 global oil demand forecast. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Stocks <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dow-jones-today-05142024-8648016">closed in the green yesterday</a> after shaking off the morning's inflation data. </p></div> <div class="comp liveblog__content mntl-sc-page mntl-block" data-bind-scroll-on-start="true" data-rail-bp="mntl-bp-md" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[1, 3, 6, 9, 12, 15, 18]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="liveblog__content_1-0"><div class="comp finance-liveblog-content mntl-liveblog-content mntl-block" id="finance-liveblog-content_1-0"><div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_1-0"><span class="heading-toc" id="toc-2024-05-15t203257788z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_1-0"><p>Equity Indexes Wrap: Tech Leads Indexes Higher; Insurers Slip as Bond Yields Retreat</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_1-0">May 15, 2024 04:32 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05152024-8648735#toc-2024-05-15t203257788z" id="mntl-blogpost__copylink_1-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <strong><u>The Dow</u></strong> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Tech stocks got a boost from Wednesday’s inflation report. Salesforce (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CRM">CRM</a>) led the index higher, rising 3.9%, while Microsoft (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>) and Apple (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL">AAPL</a>) advanced 1.8% and 1.2%, respectively.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Walt Disney (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DIS">DIS</a>) shares fell 2.5% after CEO Bob Iger said the company <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/disney-ceo-bob-iger-says-we-invested-too-much-in-streaming-8648870">had invested too much</a> in its streaming service and was taking steps to address enduring profitability challenges.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Boeing (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BA">BA</a>) fell 2.1% after the Department of Justice said the jet maker had violated a 2021 settlement stemming from two fatal 737 crashes. <br/> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> <strong><u>The S&amp;P 500</u></strong> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Shares of Super Micro Computer (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMCI">SMCI</a>) surged 15.8%, getting a boost from hopes that cooling inflation could open the door for the Federal Reserve to cut interest rates this year. Other AI beneficiaries received a similar boost; Vistra (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VST">VST</a>) climbed 6%, while Broadcom (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AVGO">AVGO</a>) advanced 4.1% and 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>) added 3.6%.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Homebuilders also advanced on hopes for lower interest rates—and thus more affordable mortgages—later this year. D.R. Horton (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DHI">DHI</a>) and Lennar (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LEN">LEN</a>), two of America’s largest homebuilders, gained 6.5% and 5.3%, respectively.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Albemarle (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ALB">ALB</a>) fell 5.8% after the lithium miner announced it had not renewed a lithium processing partnership with Australian miner Patriot Battery Metals.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Insurance stocks slipped as bond yields, a major source of insurer’s investment income, tumbled following Wednesday’s inflation print. Progressive (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PRG">PRG</a>) fell 2.1%, while Allstate (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ALL">ALL</a>) lost 1.7% and Travelers (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TRV">TRV</a>) shed 1.5%.<br/> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <strong><u>The Nasdaq 100</u></strong> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Encouraging economic data lifted key players in the artificial intelligence ecosystem, including Advanced Micro Devices (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMD">AMD</a>), up 4.3%, and Applied Materials (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMAT">AMAT</a>), up 3.7%.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Semiconductor stocks Micron (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MU">MU</a>) and Texas Instruments (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TXN">TXN</a>) each rose more than 2%.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Shares of Warner Bros. Discovery (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WBD">WBD</a>) slid 4.2% after regulatory filings revealed Billionaire Seth Klarman’s Baupost Group had <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/klarman-s-baupost-group-q124-13f-8648941">slashed its stake</a> in the entertainment company.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Food stocks retreated as investors embraced risk assets. Keurig Dr. Pepper (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=KDP">KDP</a>) slipped 1.1% and Kraft Heinz (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=KHC">KHC</a>) lost 0.9%.  </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="1" id="mntl-sc-block-adslot_1-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_2-0"><span class="heading-toc" id="toc-2024-05-15t191200098z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_2-0"><p>Petrobras ADRs Sink After Brazil Government Ousts CEO</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_2-0">May 15, 2024 03:12 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05152024-8648735#toc-2024-05-15t191200098z" id="mntl-blogpost__copylink_2-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adr.asp">American Depositary Receipts (ADRs)</a> of Petrobras (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PBR">PBR</a>) sank after the Brazilian government replaced the state-run oil giant's CEO Jean Paul Prates. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The company announced in a press release that Prates would be stepping down after a meeting of the board to consider his “early termination.”<span class="ql-inline-citation" data-cite="9"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Brazil’s President, Luiz Inacio Lula da Silva, reportedly removed Prates following a dispute over dividends. Prates and Lula clashed when the CEO refused earlier this year to go along with government-chosen board members who wanted to withhold a payment of extraordinary dividends. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Lula has been pushing for Petrobras to cut back on returning money to shareholders and instead use the cash to invest in areas that would create jobs and stimulate economic activity.<span class="ql-inline-citation" data-cite="10"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The news sent Petrobras ADRs into negative territory for the year. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <em>-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/bill-mccoll-5186338">Bill McColl</a></em> </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="2" id="mntl-sc-block-adslot_2-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_3-0"><span class="heading-toc" id="toc-2024-05-15t174620461z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_3-0"><p>Nextracker Stock Jumps as Demand for Solar Tracking Solutions Drives Earnings Beat</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_3-0">May 15, 2024 01:46 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05152024-8648735#toc-2024-05-15t174620461z" id="mntl-blogpost__copylink_3-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Nextracker (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=nxt">NXT</a>) shares <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nextracker-stock-jumps-as-demand-for-solar-tracking-solutions-drives-q4-earnings-beat-8648664">jumped more than 10%</a> to trade above $47 Wednesday after the maker of intelligent solar tracker solutions topped Wall Street’s quarterly estimates amid growing demand in U.S. and global markets.<span class="ql-inline-citation" data-cite="5"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> For the fiscal fourth quarter ending March 31, the Fremont, California-based company, which <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spinoff.asp">spun off</a> from diversified manufacturer Flex (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=flex">FLEX</a>) in January, reported <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adjusted-earnings.asp#:~:text=Adjusted%20earnings%20is%20a%20metric,to%20the%20current%20time%20period.">adjusted earnings</a> of 96 cents per share, powering past the 78-cents-a-share forecast expected by analysts.<span class="ql-inline-citation" data-cite="7"></span><span class="ql-inline-citation" data-cite="6"></span> Revenue in the period of $737 million jumped 42% from the prior year’s corresponding quarter and comfortably surpassed the FactSet view of $683.2 million.<span class="ql-inline-citation" data-cite="8"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> The company’s upbeat financial results point to a potential turnaround in the embattled solar sector which has remained under a cloud over the past 18 months due to high interest rates curbing consumer demand for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/053015/pros-and-cons-solar-energy.asp">solar energy</a> solutions.  </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_32-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:38.0%;"> <img alt="This image depicts the NXT chart." class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/eOtGR92Privg3d5pgDfBPAleVRw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NXTChart-0b9a76e6fe4146ae82abfc67e0cea66d.GIF" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/eOtGR92Privg3d5pgDfBPAleVRw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NXTChart-0b9a76e6fe4146ae82abfc67e0cea66d.GIF" data-srcset="https://www.investopedia.com/thmb/y5mW_Hdt69OZneFRiudP8I9E-cA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/NXTChart-0b9a76e6fe4146ae82abfc67e0cea66d.GIF 750w" data-tracking-container="true" height="675" id="mntl-sc-block-image_1-0" width="1772"/> <noscript> <img alt="This image depicts the NXT chart." class="img--noscript universal-image__image" height="675" sizes="750px" src="https://www.investopedia.com/thmb/eOtGR92Privg3d5pgDfBPAleVRw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NXTChart-0b9a76e6fe4146ae82abfc67e0cea66d.GIF" srcset="https://www.investopedia.com/thmb/y5mW_Hdt69OZneFRiudP8I9E-cA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/NXTChart-0b9a76e6fe4146ae82abfc67e0cea66d.GIF 750w" width="1772"/> </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-text">Source: TradingView.com.</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Nextracker shares trended mostly higher for 12 months after making their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp">Nasdaq</a> debut in early February last year. However, since March the stock has undergone a significant 30% <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/correction.asp#:~:text=In%20investing%2C%20a%20correction%20is,measuring%20a%20group%20of%20assets.">correction</a>, with the price falling below the 200-day moving average in the leadup to the company’s quarterly results. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Amid earnings-driven upside, investors should keep a close eye on the $47 level where the price encounters key overhead resistance from a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/horizontal-line.asp#:~:text=Understanding%20a%20Horizontal%20Line&amp;text=For%20a%20horizontal%20resistance%20line,considered%20to%20be%20range%2Dbound.">horizontal line</a> connecting three chart peaks over the past nine months. A convincing close above this important <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/technical-analysis-4689657">technical</a> level could see the stock close the early February <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gap.asp">gap</a> around $52. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <em>-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/contributors/54411/">Timothy Smith</a></em> </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="3" id="mntl-sc-block-adslot_3-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_4-0"><span class="heading-toc" id="toc-2024-05-15t163801520z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_4-0"><p>Monday.com Stock Soars on Earnings Beat, Customer Additions</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_4-0">May 15, 2024 12:38 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05152024-8648735#toc-2024-05-15t163801520z" id="mntl-blogpost__copylink_4-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Shares of Monday.com (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MNDY">MNDY</a>) soared Wednesday after the maker of cloud-based workflow software <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/monday-com-stock-soars-on-earnings-beat-customer-additions-8648749">reported a big gain in customers</a>, record <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/freecashflow.asp">free cash flow</a>, and a better-than-expected outlook. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The company posted first-quarter adjusted <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eps.asp">earnings per share (EPS</a>) of $0.61, more than 50% above estimates compiled by Visible Alpha. Revenue increased 33.7% year-over-year to $216.9 million, also beating forecasts. Free cash flow was $89.9 million.<span class="ql-inline-citation" data-cite="4"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> As of the end of March, the number of customers with more than $100,000 in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/recurringrevenue.asp">annual recurring revenue (ARR)</a> skyrocketed 55% to 911, and those with more than $50,000 in ARR jumped 48% to 2,491. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> The company predicted full-year revenue in the range of $942 million to $948 million, exceeding estimates. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Monday.com shares were up about 19% to $216.20 early Wednesday afternoon, lifting them into positive territory for the year. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <em>-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/bill-mccoll-5186338">Bill McColl</a></em> </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="4" id="mntl-sc-block-adslot_4-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_5-0"><span class="heading-toc" id="toc-2024-05-15t154634484z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_5-0"><p>S&amp;P On Pace For New Record Closing High</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_5-0">May 15, 2024 11:46 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05152024-8648735#toc-2024-05-15t154634484z" id="mntl-blogpost__copylink_5-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> The S&amp;P 500 blew past its all-time intraday high Wednesday morning following the economic data releases and is on track to surpass it's record closing mark, which was set in late March. </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-square figure-high-res" id="mntl-sc-block_43-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:82.1%;"> <img alt="S&amp;P 500 Chart over past 12 months" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/F__BNUDo3jMUsY6jfh_7oTDnx1g=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/SPX_2024-05-15_11-35-45-4fa67134755e4f68b6a8e036d98ed5e1.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/F__BNUDo3jMUsY6jfh_7oTDnx1g=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/SPX_2024-05-15_11-35-45-4fa67134755e4f68b6a8e036d98ed5e1.png" data-srcset="https://www.investopedia.com/thmb/SlYuAkbmvz9xLiJefQEmGPLez48=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/SPX_2024-05-15_11-35-45-4fa67134755e4f68b6a8e036d98ed5e1.png 750w" data-tracking-container="true" height="1472" id="mntl-sc-block-image_2-0" width="1792"/> <noscript> <img alt="S&amp;P 500 Chart over past 12 months" class="img--noscript universal-image__image" height="1472" sizes="750px" src="https://www.investopedia.com/thmb/F__BNUDo3jMUsY6jfh_7oTDnx1g=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/SPX_2024-05-15_11-35-45-4fa67134755e4f68b6a8e036d98ed5e1.png" srcset="https://www.investopedia.com/thmb/SlYuAkbmvz9xLiJefQEmGPLez48=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/SPX_2024-05-15_11-35-45-4fa67134755e4f68b6a8e036d98ed5e1.png 750w" width="1792"/> </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>TradingView</p></span> </figcaption></figure></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="5" id="mntl-sc-block-adslot_5-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_6-0"><span class="heading-toc" id="toc-2024-05-15t142318809z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_6-0"><p>Meme Stocks Slide Amid Cryptic 'Roaring Kitty' Posts</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_6-0">May 15, 2024 10:23 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05152024-8648735#toc-2024-05-15t142318809z" id="mntl-blogpost__copylink_6-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Shares of meme stocks GameStop (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME">GME</a>) and AMC Entertainment (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMC">AMC</a>) tumbled in early trading on Wednesday as the meme stock revival that sent their share prices soaring fizzled after two days.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Shares of GameStop were down 31% about 50 minutes into Wednesday’s session, giving up much of the 180% they gained on Monday and Tuesday. AMC was down 23% after rising 135% in the first two days of the week.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> The slide coincided with a series of social media posts from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/keith-gill-roaring-kitty-8303143">Keith Gill</a>, whose post to X as “Roaring Kitty” sparked <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-you-need-to-know-now-that-meme-stocks-are-back-8648108">Monday’s meme stock rally</a>, including one containing the image of the grim reaper knocking on a door bearing the GameStop logo.<span class="ql-inline-citation" data-cite="1"></span> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> In the first half hour of the session alone, trading of GameStop stock was halted four times and 28 million shares changed hands, more than twice the stock’s 65-day average.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="2"></span>  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Other meme stocks followed GameStop and AMC lower. Sunpower (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPWR">SPWR</a>), which surged about 60% yesterday, traded nearly 30% lower. Koss Corp (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=KOSS">KOSS</a>), which makes headphones, slid 25% and Tupperware (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TUP">TUP</a>) slumped 15%. </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="6" id="mntl-sc-block-adslot_6-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_7-0"><span class="heading-toc" id="toc-2024-05-15t133445980z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_7-0"><p>Stocks Making the Biggest Moves Premarket</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_7-0">May 15, 2024 09:34 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05152024-8648735#toc-2024-05-15t133445980z" id="mntl-blogpost__copylink_7-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> <strong>Gains:</strong> </p> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> <li>monday.com (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MNDY">MNDY</a>): Shares of the enterprise software company surged 20% after its first-quarter earnings blew past analysts’ expectations amid strong demand. </li> <li>Nextracker (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NXT">NXT</a>): Shares of the solar power equipment and software company jumped 13% after it reported better-than-expected earnings after a 42% surge in revenue. </li> <li>Dell Technologies (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DELL">DELL</a>): Shares of the computer hardware company rose more than 3% after analysts at Morgan Stanley raised their price target on the stock and called it “the best way to play” AI server demand and the improving personal computing market. <br/></li> </ul> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> <strong>Losses:</strong> </p> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> <li>GameStop (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME">GME</a>): Shares of the video game retailer and legacy meme stock slid 13% as traders pulled out of the stock after it surged about 180% in the last two days. </li> <li>Petrobras (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PBR">PBR</a>): Shares of the Brazilian state-owned oil company fell 7% amid reports President Luiz Inacio Lula da Silva had fired CEO Jean Paul Prates after a dispute over dividend payments. </li> <li>Kenvue (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=KVUE">KVUE</a>): Shares of the Johnson &amp; Johnson spin-off fell 2% after announcing JNJ would offload its nearly 10% stake in a $3.6 billion secondary offering. </li> </ul></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="7" id="mntl-sc-block-adslot_7-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_8-0"><span class="heading-toc" id="toc-2024-05-15t122759214z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_8-0"><p>Stock Futures Little Changed Ahead of CPI</p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_8-0">May 15, 2024 08:27 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/dow-jones-today-05152024-8648735#toc-2024-05-15t122759214z" id="mntl-blogpost__copylink_8-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Futures contracts connected to the Dow Jones Industrial Average were down less than 0.1%. </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_54-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:29.8%;"> <img alt="Dow futures (May 15, 2024)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/6V_cAy0Qy2Ot_UFg2GKGC0AjWPo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-15_08-25-43-0302ad51ce4b4d7599a6378667e4c791.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/6V_cAy0Qy2Ot_UFg2GKGC0AjWPo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-15_08-25-43-0302ad51ce4b4d7599a6378667e4c791.png" data-srcset="https://www.investopedia.com/thmb/MCc-j36HNY8igqC0lYO4SkA6fk4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-15_08-25-43-0302ad51ce4b4d7599a6378667e4c791.png 750w" data-tracking-container="true" height="764" id="mntl-sc-block-image_3-0" width="2556"/> <noscript> <img alt="Dow futures (May 15, 2024)" class="img--noscript universal-image__image" height="764" sizes="750px" src="https://www.investopedia.com/thmb/6V_cAy0Qy2Ot_UFg2GKGC0AjWPo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-15_08-25-43-0302ad51ce4b4d7599a6378667e4c791.png" srcset="https://www.investopedia.com/thmb/MCc-j36HNY8igqC0lYO4SkA6fk4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-15_08-25-43-0302ad51ce4b4d7599a6378667e4c791.png 750w" width="2556"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> S&amp;P 500 futures were also off less than 0.1%. </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_56-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:29.8%;"> <img alt="S&amp;P 500 futures (May 15, 2024)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/uLT4BGoeCSlalr5SZml_uA1qU08=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-15_08-25-46-1900d77eac644781bcb7bde11d0daf0b.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/uLT4BGoeCSlalr5SZml_uA1qU08=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-15_08-25-46-1900d77eac644781bcb7bde11d0daf0b.png" data-srcset="https://www.investopedia.com/thmb/mCpqqDKaYf7qQPMjAqHZvy9wd0E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-15_08-25-46-1900d77eac644781bcb7bde11d0daf0b.png 750w" data-tracking-container="true" height="764" id="mntl-sc-block-image_4-0" width="2556"/> <noscript> <img alt="S&amp;P 500 futures (May 15, 2024)" class="img--noscript universal-image__image" height="764" sizes="750px" src="https://www.investopedia.com/thmb/uLT4BGoeCSlalr5SZml_uA1qU08=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-15_08-25-46-1900d77eac644781bcb7bde11d0daf0b.png" srcset="https://www.investopedia.com/thmb/mCpqqDKaYf7qQPMjAqHZvy9wd0E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-15_08-25-46-1900d77eac644781bcb7bde11d0daf0b.png 750w" width="2556"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Nasdaq 100 futures were only slightly lower than the other indexes. </p> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_58-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:29.8%;"> <img alt="Nasdaq 100 futures (May 15, 2024)" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/6PJYtmjloRbW1FHBkAX4ZKJIeIY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-15_08-25-49-b0a77cde1ac145d5b37c89135967153c.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/6PJYtmjloRbW1FHBkAX4ZKJIeIY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-15_08-25-49-b0a77cde1ac145d5b37c89135967153c.png" data-srcset="https://www.investopedia.com/thmb/7YI8U9jwOYi_W9Y149cdzTJBqQI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-15_08-25-49-b0a77cde1ac145d5b37c89135967153c.png 750w" data-tracking-container="true" height="764" id="mntl-sc-block-image_5-0" width="2556"/> <noscript> <img alt="Nasdaq 100 futures (May 15, 2024)" class="img--noscript universal-image__image" height="764" sizes="750px" src="https://www.investopedia.com/thmb/6PJYtmjloRbW1FHBkAX4ZKJIeIY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-15_08-25-49-b0a77cde1ac145d5b37c89135967153c.png" srcset="https://www.investopedia.com/thmb/7YI8U9jwOYi_W9Y149cdzTJBqQI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-15_08-25-49-b0a77cde1ac145d5b37c89135967153c.png 750w" width="2556"/> </noscript> </div> </div> </figure></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="8" id="mntl-sc-block-adslot_8-0"></div></div></div></div> <div class="comp textnote-placeholder mntl-block" id="textnote-placeholder_1-0"></div> <div class="comp textnote mm-ads-gpt-adunit gpt textnote" id="textnote_1-0"> <div class="wrapper" id="textnote"></div> </div> </div>
U.S. stocks rose Wednesday after economic data releases showed consumers reining in spending and inflation slowing in April, feeding optimism that the Federal Reserve could be in a position to consider cutting interest rates. The [Nasdaq Composite](https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp) and the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) gained 1.4% and 2%, respectively, to both close at record highs. The [Dow Jones Industrial Average](https://www.investopedia.com/terms/d/djia.asp) also closed at a record after rising 0.9%. The [Consumer Price Index](https://www.investopedia.com/terms/c/consumerpriceindex.asp) (CPI) showed [prices increased 0.3%](https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737) in April, down slightly from March's upwardly revised 0.4% increase. The core inflation rate, which strips out volatile food and energy prices, was 0.3%, also a deceleration from March. Annual inflation slowed to 3.4%, while core inflation ticked down to 3.6%. Retail sales data also showed spending was flat in April, suggesting consumers are pulling back after a years-long shopping spree. Markets, on edge after [three consecutive months](https://www.investopedia.com/inflation-heated-up-in-march-8629363) of disappointing CPI reports and yesterday's [surprising wholesale inflation numbers](https://www.investopedia.com/wholesale-inflation-jump-raises-worries-over-upcoming-cpi-reading-8648227), breathed a sigh of relief after the economic reports. Treasury yields tumbled, with the 10-year yield dropping below 4.4% for the first time in more than a month. GameStop ([GME](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME)) and AMC Entertainment ([AMC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMC)) tumbled Wednesday after surging earlier in the week amid the revival of 2021's meme stock frenzy. Oil futures dipped as the International Energy Administration cut its 2024 global oil demand forecast. Stocks [closed in the green yesterday](https://www.investopedia.com/dow-jones-today-05142024-8648016) after shaking off the morning's inflation data. ## Equity Indexes Wrap: Tech Leads Indexes Higher; Insurers Slip as Bond Yields Retreat May 15, 2024 04:32 PM EDT **The Dow** Tech stocks got a boost from Wednesday’s inflation report. Salesforce ([CRM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CRM)) led the index higher, rising 3.9%, while Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) and Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) advanced 1.8% and 1.2%, respectively.  Walt Disney ([DIS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DIS)) shares fell 2.5% after CEO Bob Iger said the company [had invested too much](https://www.investopedia.com/disney-ceo-bob-iger-says-we-invested-too-much-in-streaming-8648870) in its streaming service and was taking steps to address enduring profitability challenges.  Boeing ([BA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BA)) fell 2.1% after the Department of Justice said the jet maker had violated a 2021 settlement stemming from two fatal 737 crashes.  **The S&P 500** Shares of Super Micro Computer ([SMCI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMCI)) surged 15.8%, getting a boost from hopes that cooling inflation could open the door for the Federal Reserve to cut interest rates this year. Other AI beneficiaries received a similar boost; Vistra ([VST](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VST)) climbed 6%, while Broadcom ([AVGO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AVGO)) advanced 4.1% and Nvidia ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)) added 3.6%.  Homebuilders also advanced on hopes for lower interest rates—and thus more affordable mortgages—later this year. D.R. Horton ([DHI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DHI)) and Lennar ([LEN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LEN)), two of America’s largest homebuilders, gained 6.5% and 5.3%, respectively.  Albemarle ([ALB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ALB)) fell 5.8% after the lithium miner announced it had not renewed a lithium processing partnership with Australian miner Patriot Battery Metals.  Insurance stocks slipped as bond yields, a major source of insurer’s investment income, tumbled following Wednesday’s inflation print. Progressive ([PRG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PRG)) fell 2.1%, while Allstate ([ALL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ALL)) lost 1.7% and Travelers ([TRV](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TRV)) shed 1.5%. **The Nasdaq 100** Encouraging economic data lifted key players in the artificial intelligence ecosystem, including Advanced Micro Devices ([AMD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMD)), up 4.3%, and Applied Materials ([AMAT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMAT)), up 3.7%.  Semiconductor stocks Micron ([MU](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MU)) and Texas Instruments ([TXN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TXN)) each rose more than 2%.  Shares of Warner Bros. Discovery ([WBD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WBD)) slid 4.2% after regulatory filings revealed Billionaire Seth Klarman’s Baupost Group had [slashed its stake](https://www.investopedia.com/klarman-s-baupost-group-q124-13f-8648941) in the entertainment company.  Food stocks retreated as investors embraced risk assets. Keurig Dr. Pepper ([KDP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KDP)) slipped 1.1% and Kraft Heinz ([KHC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KHC)) lost 0.9%.  ## Petrobras ADRs Sink After Brazil Government Ousts CEO May 15, 2024 03:12 PM EDT [American Depositary Receipts (ADRs)](https://www.investopedia.com/terms/a/adr.asp) of Petrobras ([PBR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PBR)) sank after the Brazilian government replaced the state-run oil giant's CEO Jean Paul Prates. The company announced in a press release that Prates would be stepping down after a meeting of the board to consider his “early termination.” Brazil’s President, Luiz Inacio Lula da Silva, reportedly removed Prates following a dispute over dividends. Prates and Lula clashed when the CEO refused earlier this year to go along with government-chosen board members who wanted to withhold a payment of extraordinary dividends. Lula has been pushing for Petrobras to cut back on returning money to shareholders and instead use the cash to invest in areas that would create jobs and stimulate economic activity. The news sent Petrobras ADRs into negative territory for the year. *-[Bill McColl](https://www.investopedia.com/bill-mccoll-5186338)* ## Nextracker Stock Jumps as Demand for Solar Tracking Solutions Drives Earnings Beat May 15, 2024 01:46 PM EDT Nextracker ([NXT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=nxt)) shares [jumped more than 10%](https://www.investopedia.com/nextracker-stock-jumps-as-demand-for-solar-tracking-solutions-drives-q4-earnings-beat-8648664) to trade above $47 Wednesday after the maker of intelligent solar tracker solutions topped Wall Street’s quarterly estimates amid growing demand in U.S. and global markets. For the fiscal fourth quarter ending March 31, the Fremont, California-based company, which [spun off](https://www.investopedia.com/terms/s/spinoff.asp) from diversified manufacturer Flex ([FLEX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=flex)) in January, reported [adjusted earnings](https://www.investopedia.com/terms/a/adjusted-earnings.asp#:~:text=Adjusted%20earnings%20is%20a%20metric,to%20the%20current%20time%20period.) of 96 cents per share, powering past the 78-cents-a-share forecast expected by analysts. Revenue in the period of $737 million jumped 42% from the prior year’s corresponding quarter and comfortably surpassed the FactSet view of $683.2 million. The company’s upbeat financial results point to a potential turnaround in the embattled solar sector which has remained under a cloud over the past 18 months due to high interest rates curbing consumer demand for [solar energy](https://www.investopedia.com/articles/investing/053015/pros-and-cons-solar-energy.asp) solutions.  ![This image depicts the NXT chart.]() ![This image depicts the NXT chart.](https://www.investopedia.com/thmb/eOtGR92Privg3d5pgDfBPAleVRw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NXTChart-0b9a76e6fe4146ae82abfc67e0cea66d.GIF) Source: TradingView.com. Nextracker shares trended mostly higher for 12 months after making their [Nasdaq](https://www.investopedia.com/terms/n/nasdaq.asp) debut in early February last year. However, since March the stock has undergone a significant 30% [correction](https://www.investopedia.com/terms/c/correction.asp#:~:text=In%20investing%2C%20a%20correction%20is,measuring%20a%20group%20of%20assets.), with the price falling below the 200-day moving average in the leadup to the company’s quarterly results. Amid earnings-driven upside, investors should keep a close eye on the $47 level where the price encounters key overhead resistance from a [horizontal line](https://www.investopedia.com/terms/h/horizontal-line.asp#:~:text=Understanding%20a%20Horizontal%20Line&text=For%20a%20horizontal%20resistance%20line,considered%20to%20be%20range%2Dbound.) connecting three chart peaks over the past nine months. A convincing close above this important [technical](https://www.investopedia.com/technical-analysis-4689657) level could see the stock close the early February [gap](https://www.investopedia.com/terms/g/gap.asp) around $52. *-[Timothy Smith](https://www.investopedia.com/contributors/54411/)* ## Monday.com Stock Soars on Earnings Beat, Customer Additions May 15, 2024 12:38 PM EDT Shares of Monday.com ([MNDY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MNDY)) soared Wednesday after the maker of cloud-based workflow software [reported a big gain in customers](https://www.investopedia.com/monday-com-stock-soars-on-earnings-beat-customer-additions-8648749), record [free cash flow](https://www.investopedia.com/terms/f/freecashflow.asp), and a better-than-expected outlook. The company posted first-quarter adjusted [earnings per share (EPS](https://www.investopedia.com/terms/e/eps.asp)) of $0.61, more than 50% above estimates compiled by Visible Alpha. Revenue increased 33.7% year-over-year to $216.9 million, also beating forecasts. Free cash flow was $89.9 million. As of the end of March, the number of customers with more than $100,000 in [annual recurring revenue (ARR)](https://www.investopedia.com/terms/r/recurringrevenue.asp) skyrocketed 55% to 911, and those with more than $50,000 in ARR jumped 48% to 2,491. The company predicted full-year revenue in the range of $942 million to $948 million, exceeding estimates. Monday.com shares were up about 19% to $216.20 early Wednesday afternoon, lifting them into positive territory for the year. *-[Bill McColl](https://www.investopedia.com/bill-mccoll-5186338)* ## S&P On Pace For New Record Closing High May 15, 2024 11:46 AM EDT The S&P 500 blew past its all-time intraday high Wednesday morning following the economic data releases and is on track to surpass it's record closing mark, which was set in late March. ![S&P 500 Chart over past 12 months]() ![S&P 500 Chart over past 12 months](https://www.investopedia.com/thmb/F__BNUDo3jMUsY6jfh_7oTDnx1g=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/SPX_2024-05-15_11-35-45-4fa67134755e4f68b6a8e036d98ed5e1.png) TradingView ## Meme Stocks Slide Amid Cryptic 'Roaring Kitty' Posts May 15, 2024 10:23 AM EDT Shares of meme stocks GameStop ([GME](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME)) and AMC Entertainment ([AMC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMC)) tumbled in early trading on Wednesday as the meme stock revival that sent their share prices soaring fizzled after two days.  Shares of GameStop were down 31% about 50 minutes into Wednesday’s session, giving up much of the 180% they gained on Monday and Tuesday. AMC was down 23% after rising 135% in the first two days of the week.  The slide coincided with a series of social media posts from [Keith Gill](https://www.investopedia.com/keith-gill-roaring-kitty-8303143), whose post to X as “Roaring Kitty” sparked [Monday’s meme stock rally](https://www.investopedia.com/what-you-need-to-know-now-that-meme-stocks-are-back-8648108), including one containing the image of the grim reaper knocking on a door bearing the GameStop logo. In the first half hour of the session alone, trading of GameStop stock was halted four times and 28 million shares changed hands, more than twice the stock’s 65-day average.  Other meme stocks followed GameStop and AMC lower. Sunpower ([SPWR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPWR)), which surged about 60% yesterday, traded nearly 30% lower. Koss Corp ([KOSS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KOSS)), which makes headphones, slid 25% and Tupperware ([TUP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TUP)) slumped 15%. ## Stocks Making the Biggest Moves Premarket May 15, 2024 09:34 AM EDT **Gains:** * monday.com ([MNDY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MNDY)): Shares of the enterprise software company surged 20% after its first-quarter earnings blew past analysts’ expectations amid strong demand. * Nextracker ([NXT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NXT)): Shares of the solar power equipment and software company jumped 13% after it reported better-than-expected earnings after a 42% surge in revenue. * Dell Technologies ([DELL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DELL)): Shares of the computer hardware company rose more than 3% after analysts at Morgan Stanley raised their price target on the stock and called it “the best way to play” AI server demand and the improving personal computing market. **Losses:** * GameStop ([GME](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME)): Shares of the video game retailer and legacy meme stock slid 13% as traders pulled out of the stock after it surged about 180% in the last two days. * Petrobras ([PBR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PBR)): Shares of the Brazilian state-owned oil company fell 7% amid reports President Luiz Inacio Lula da Silva had fired CEO Jean Paul Prates after a dispute over dividend payments. * Kenvue ([KVUE](https://www.investopedia.com/markets/quote?tvwidgetsymbol=KVUE)): Shares of the Johnson & Johnson spin-off fell 2% after announcing JNJ would offload its nearly 10% stake in a $3.6 billion secondary offering. ## Stock Futures Little Changed Ahead of CPI May 15, 2024 08:27 AM EDT Futures contracts connected to the Dow Jones Industrial Average were down less than 0.1%. ![Dow futures (May 15, 2024)]() ![Dow futures (May 15, 2024)](https://www.investopedia.com/thmb/6V_cAy0Qy2Ot_UFg2GKGC0AjWPo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YM1_2024-05-15_08-25-43-0302ad51ce4b4d7599a6378667e4c791.png) S&P 500 futures were also off less than 0.1%. ![S&P 500 futures (May 15, 2024)]() ![S&P 500 futures (May 15, 2024)](https://www.investopedia.com/thmb/uLT4BGoeCSlalr5SZml_uA1qU08=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ES1_2024-05-15_08-25-46-1900d77eac644781bcb7bde11d0daf0b.png) Nasdaq 100 futures were only slightly lower than the other indexes. ![Nasdaq 100 futures (May 15, 2024)]() ![Nasdaq 100 futures (May 15, 2024)](https://www.investopedia.com/thmb/6PJYtmjloRbW1FHBkAX4ZKJIeIY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NQ1_2024-05-15_08-25-49-b0a77cde1ac145d5b37c89135967153c.png)
U.S. stocks rose Wednesday after economic data releases showed consumers reining in spending and inflation slowing in April, feeding optimism that the Federal Reserve could be in a position to consider cutting interest rates. The Nasdaq Composite and the S&P 500 gained 1.4% and 2%, respectively, to both close at record highs. The Dow Jones Industrial Average also closed at a record after rising 0.9%. The Consumer Price Index (CPI) showed prices increased 0.3% in April, down slightly from March's upwardly revised 0.4% increase. The core inflation rate, which strips out volatile food and energy prices, was 0.3%, also a deceleration from March. Annual inflation slowed to 3.4%, while core inflation ticked down to 3.6%. Retail sales data also showed spending was flat in April, suggesting consumers are pulling back after a years-long shopping spree. Markets, on edge after three consecutive months of disappointing CPI reports and yesterday's surprising wholesale inflation numbers, breathed a sigh of relief after the economic reports. Treasury yields tumbled, with the 10-year yield dropping below 4.4% for the first time in more than a month. GameStop (GME) and AMC Entertainment (AMC) tumbled Wednesday after surging earlier in the week amid the revival of 2021's meme stock frenzy. Oil futures dipped as the International Energy Administration cut its 2024 global oil demand forecast. Stocks closed in the green yesterday after shaking off the morning's inflation data. Equity Indexes Wrap: Tech Leads Indexes Higher; Insurers Slip as Bond Yields Retreat May 15, 2024 04:32 PM EDT The Dow Tech stocks got a boost from Wednesday’s inflation report. Salesforce (CRM) led the index higher, rising 3.9%, while Microsoft (MSFT) and Apple (AAPL) advanced 1.8% and 1.2%, respectively.  Walt Disney (DIS) shares fell 2.5% after CEO Bob Iger said the company had invested too much in its streaming service and was taking steps to address enduring profitability challenges.  Boeing (BA) fell 2.1% after the Department of Justice said the jet maker had violated a 2021 settlement stemming from two fatal 737 crashes.  The S&P 500 Shares of Super Micro Computer (SMCI) surged 15.8%, getting a boost from hopes that cooling inflation could open the door for the Federal Reserve to cut interest rates this year. Other AI beneficiaries received a similar boost; Vistra (VST) climbed 6%, while Broadcom (AVGO) advanced 4.1% and Nvidia (NVDA) added 3.6%.  Homebuilders also advanced on hopes for lower interest rates—and thus more affordable mortgages—later this year. D.R. Horton (DHI) and Lennar (LEN), two of America’s largest homebuilders, gained 6.5% and 5.3%, respectively.  Albemarle (ALB) fell 5.8% after the lithium miner announced it had not renewed a lithium processing partnership with Australian miner Patriot Battery Metals.  Insurance stocks slipped as bond yields, a major source of insurer’s investment income, tumbled following Wednesday’s inflation print. Progressive (PRG) fell 2.1%, while Allstate (ALL) lost 1.7% and Travelers (TRV) shed 1.5%. The Nasdaq 100 Encouraging economic data lifted key players in the artificial intelligence ecosystem, including Advanced Micro Devices (AMD), up 4.3%, and Applied Materials (AMAT), up 3.7%.  Semiconductor stocks Micron (MU) and Texas Instruments (TXN) each rose more than 2%.  Shares of Warner Bros. Discovery (WBD) slid 4.2% after regulatory filings revealed Billionaire Seth Klarman’s Baupost Group had slashed its stake in the entertainment company.  Food stocks retreated as investors embraced risk assets. Keurig Dr. Pepper (KDP) slipped 1.1% and Kraft Heinz (KHC) lost 0.9%.  Petrobras ADRs Sink After Brazil Government Ousts CEO May 15, 2024 03:12 PM EDT American Depositary Receipts (ADRs) of Petrobras (PBR) sank after the Brazilian government replaced the state-run oil giant's CEO Jean Paul Prates. The company announced in a press release that Prates would be stepping down after a meeting of the board to consider his “early termination.” Brazil’s President, Luiz Inacio Lula da Silva, reportedly removed Prates following a dispute over dividends. Prates and Lula clashed when the CEO refused earlier this year to go along with government-chosen board members who wanted to withhold a payment of extraordinary dividends. Lula has been pushing for Petrobras to cut back on returning money to shareholders and instead use the cash to invest in areas that would create jobs and stimulate economic activity. The news sent Petrobras ADRs into negative territory for the year. -Bill McColl Nextracker Stock Jumps as Demand for Solar Tracking Solutions Drives Earnings Beat May 15, 2024 01:46 PM EDT Nextracker (NXT) shares jumped more than 10% to trade above $47 Wednesday after the maker of intelligent solar tracker solutions topped Wall Street’s quarterly estimates amid growing demand in U.S. and global markets. For the fiscal fourth quarter ending March 31, the Fremont, California-based company, which spun off from diversified manufacturer Flex (FLEX) in January, reported adjusted earnings of 96 cents per share, powering past the 78-cents-a-share forecast expected by analysts. Revenue in the period of $737 million jumped 42% from the prior year’s corresponding quarter and comfortably surpassed the FactSet view of $683.2 million. The company’s upbeat financial results point to a potential turnaround in the embattled solar sector which has remained under a cloud over the past 18 months due to high interest rates curbing consumer demand for solar energy solutions.  Source: TradingView.com. Nextracker shares trended mostly higher for 12 months after making their Nasdaq debut in early February last year. However, since March the stock has undergone a significant 30% correction, with the price falling below the 200-day moving average in the leadup to the company’s quarterly results. Amid earnings-driven upside, investors should keep a close eye on the $47 level where the price encounters key overhead resistance from a horizontal line connecting three chart peaks over the past nine months. A convincing close above this important technical level could see the stock close the early February gap around $52. -Timothy Smith Monday.com Stock Soars on Earnings Beat, Customer Additions May 15, 2024 12:38 PM EDT Shares of Monday.com (MNDY) soared Wednesday after the maker of cloud-based workflow software reported a big gain in customers, record free cash flow, and a better-than-expected outlook. The company posted first-quarter adjusted earnings per share (EPS) of $0.61, more than 50% above estimates compiled by Visible Alpha. Revenue increased 33.7% year-over-year to $216.9 million, also beating forecasts. Free cash flow was $89.9 million. As of the end of March, the number of customers with more than $100,000 in annual recurring revenue (ARR) skyrocketed 55% to 911, and those with more than $50,000 in ARR jumped 48% to 2,491. The company predicted full-year revenue in the range of $942 million to $948 million, exceeding estimates. Monday.com shares were up about 19% to $216.20 early Wednesday afternoon, lifting them into positive territory for the year. -Bill McColl S&P On Pace For New Record Closing High May 15, 2024 11:46 AM EDT The S&P 500 blew past its all-time intraday high Wednesday morning following the economic data releases and is on track to surpass it's record closing mark, which was set in late March. TradingView Meme Stocks Slide Amid Cryptic 'Roaring Kitty' Posts May 15, 2024 10:23 AM EDT Shares of meme stocks GameStop (GME) and AMC Entertainment (AMC) tumbled in early trading on Wednesday as the meme stock revival that sent their share prices soaring fizzled after two days.  Shares of GameStop were down 31% about 50 minutes into Wednesday’s session, giving up much of the 180% they gained on Monday and Tuesday. AMC was down 23% after rising 135% in the first two days of the week.  The slide coincided with a series of social media posts from Keith Gill, whose post to X as “Roaring Kitty” sparked Monday’s meme stock rally, including one containing the image of the grim reaper knocking on a door bearing the GameStop logo. In the first half hour of the session alone, trading of GameStop stock was halted four times and 28 million shares changed hands, more than twice the stock’s 65-day average.  Other meme stocks followed GameStop and AMC lower. Sunpower (SPWR), which surged about 60% yesterday, traded nearly 30% lower. Koss Corp (KOSS), which makes headphones, slid 25% and Tupperware (TUP) slumped 15%. Stocks Making the Biggest Moves Premarket May 15, 2024 09:34 AM EDT Gains: monday.com (MNDY): Shares of the enterprise software company surged 20% after its first-quarter earnings blew past analysts’ expectations amid strong demand.  Nextracker (NXT): Shares of the solar power equipment and software company jumped 13% after it reported better-than-expected earnings after a 42% surge in revenue.  Dell Technologies (DELL): Shares of the computer hardware company rose more than 3% after analysts at Morgan Stanley raised their price target on the stock and called it “the best way to play” AI server demand and the improving personal computing market.  Losses: GameStop (GME): Shares of the video game retailer and legacy meme stock slid 13% as traders pulled out of the stock after it surged about 180% in the last two days.  Petrobras (PBR): Shares of the Brazilian state-owned oil company fell 7% amid reports President Luiz Inacio Lula da Silva had fired CEO Jean Paul Prates after a dispute over dividend payments.  Kenvue (KVUE): Shares of the Johnson & Johnson spin-off fell 2% after announcing JNJ would offload its nearly 10% stake in a $3.6 billion secondary offering.  Stock Futures Little Changed Ahead of CPI May 15, 2024 08:27 AM EDT Futures contracts connected to the Dow Jones Industrial Average were down less than 0.1%. S&P 500 futures were also off less than 0.1%. Nasdaq 100 futures were only slightly lower than the other indexes.
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https://www.investopedia.com/popular-direct-bank-review-5072550
Popular Direct Bank Review
<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="comp product-review-content product-review-content--finance product-review--base" id="product-review-content--finance_1-0"> <div class="comp js-toc-appear article-container article-intro mntl-block" id="article-intro_1-0"> <div class="comp product-card" data-tracking-container="true" data-tracking-id="product-card" id="product-card_1-0" style="--imgWidth: 0px"> <div class="product-card__content"> <div class="product-card__intro expert-content"> <figure class="comp figure-article figure-2x1 product-card__image litho-figure-article mntl-universal-primary-image primary-image" id="product-card__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Popular Direct" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/Khp6zR2eNZ_CACjyxm1VUSNtaCo=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Popular_Direct-b4cbeb408f8f4ba8ac88d2dc83803515.jpg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhGAADAPIAACAlV+8cG//9/v7+/v///yAlVyAlVyAlVywAAAAAGAADAEIIKAABABgAgEBBgwUTFgxAoKFDgw0PQhSIcOFDhwIlRjyYkQBDAgIkBgQAOw==')" width="1500"/> <noscript> <img alt="Popular Direct" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/Khp6zR2eNZ_CACjyxm1VUSNtaCo=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Popular_Direct-b4cbeb408f8f4ba8ac88d2dc83803515.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_1-0"> <span class="figure-article-caption-owner"><p> Popular Direct</p> </span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-article figure-2x1 product-card__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp js-sticky-riser-show product-card__cta commerce-block mntl-block" id="product-card__cta_1-0"> <a class="commerce-button mntl-text-link" data-tracking-container="false" href="https://www.populardirect.com/" id="commerce-button_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp js-sticky-riser-show product-card__cta commerce-block mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> Popular Direct is an online-only bank. It is a subsidiary of Popular Bank, a full-service financial services provider that was founded more nearly 130 years ago.<span class="ql-inline-citation" data-cite="11"></span> Popular Direct was launched in 2016 and offers high yield online savings accounts and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificates of deposit (CDs)</a>.<span class="ql-inline-citation" data-cite="10"></span> This in-depth review can help you decide if its deposit accounts are right for your banking needs. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block" data-click-action="Product Tab Click" data-tracking-container="true" data-tracking-id="Full Product Review"> <ul class="tabbed-sc-block__tabs"> <li class="tabbed-sc-block__tab js-tabbed-tab is-active is-initial-load" data-tab-index="1"><span class="tabbed-sc-block__title">Pros &amp; Cons</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="2"><span class="tabbed-sc-block__title">Company Overview</span></li> </ul> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content is-active is-initial-load" data-tab-index="1"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_1-0-2"> <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 monthly fees on savings account</p></li> <li><p>Competitive rates on savings and CDs</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>No ATM card access to savings</p></li> <li><p>High minimum deposit requirements</p></li> <li><p>Fee may apply if you close an account</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Company Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="2"> <div class="comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block" id="mntl-sc-block_1-0-4"> <div class="comp product-spec-tool definition-list" id="product-spec-tool_1-0"> <ul class="definition-list__container"> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Year Founded</span> <span class="definition-list__item-content definition-list__item-content-0"> 2016 </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Official Website</span> <span class="definition-list__item-content definition-list__item-content-1"> www.populardirect.com </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Banking Products Offered</span> <span class="definition-list__item-content definition-list__item-content-2"> Savings, CDs </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Customer Service</span> <span class="definition-list__item-content definition-list__item-content-3"> 24/7 Phone: 1-800-274-5696 </span> </span> </li> </ul> </div><!-- end: comp product-spec-tool definition-list --> </div><!-- end: comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block --> </div> </div> </div> </div><!-- end: comp product-card --> </div><!-- end: comp js-toc-appear article-container article-intro mntl-block --> <div class="loc body-content article-container"> <div class="comp article-body article-content mntl-block" id="article-content_1-0"> <div class="comp left-nav js-sticky-container product-review__left-nav mntl-block" id="product-review__left-nav_1-0"> <div class="comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block" data-desktop-bp="54em" data-tracking-container="true" id="product-review__toc_1-0"> <div class="comp sticky-toc-widget__product-container mntl-block" id="sticky-toc-widget__product-container_1-0"> <figure class="comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image" id="sticky-toc-widget__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Popular Direct" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/Khp6zR2eNZ_CACjyxm1VUSNtaCo=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Popular_Direct-b4cbeb408f8f4ba8ac88d2dc83803515.jpg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhGAADAPIAACAlV+8cG//9/v7+/v///yAlVyAlVyAlVywAAAAAGAADAEIIKAABABgAgEBBgwUTFgxAoKFDgw0PQhSIcOFDhwIlRjyYkQBDAgIkBgQAOw==')" width="1500"/> <noscript> <img alt="Popular Direct" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/Khp6zR2eNZ_CACjyxm1VUSNtaCo=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Popular_Direct-b4cbeb408f8f4ba8ac88d2dc83803515.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_2-0"> <span class="figure-article-caption-owner"><p> Popular Direct</p> </span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp sticky-toc-widget__cta commerce-block mntl-block" id="sticky-toc-widget__cta_1-0"> <a class="commerce-button mntl-text-link" data-tracking-container="false" href="https://www.populardirect.com/" id="commerce-button_2-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp sticky-toc-widget__cta commerce-block mntl-block --> </div><!-- end: comp sticky-toc-widget__product-container mntl-block --> <div class="comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="sticky-toc-widget__toc_3-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_3-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_3-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_5-0"> Table of Contents</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_3-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="View All" id="mntl-toc-toggle__btn_3-0"> View All</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-Popular Direct Bank Review" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_6-0"> Popular Direct Bank Review</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_3-0"> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Pros Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pros-explained" id="mntl-toc__list-item-link_3-0" rel="nocaes"><span class="link__wrapper">Pros Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Cons Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-cons-explained" id="mntl-toc__list-item-link_3-0-1" rel="nocaes"><span class="link__wrapper">Cons Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Best For" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-who-is-popular-direct-best-for" id="mntl-toc__list-item-link_3-0-2" rel="nocaes"><span class="link__wrapper">Best For</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Bank Offerings" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-what-does-popular-direct-offer" id="mntl-toc__list-item-link_3-0-3" rel="nocaes"><span class="link__wrapper">Bank Offerings</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Service" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-popular-direct-customer-service" id="mntl-toc__list-item-link_3-0-4" rel="nocaes"><span class="link__wrapper">Customer Service</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-5"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How to Bank" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-bank-with-popular-direct" id="mntl-toc__list-item-link_3-0-5" rel="nocaes"><span class="link__wrapper">How to Bank</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-6"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-6"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_3-0-6" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block --> </div><!-- end: comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block --> </div><!-- end: comp left-nav js-sticky-container product-review__left-nav mntl-block --> <div class="comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block" data-tracking-container="true" id="product-review__content_1-0"> <span class="heading-toc" id="toc-pros-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0"> <span class="mntl-sc-block-heading__text"> Pros Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-1"> <li><strong>No monthly fees on savings account:</strong> Although the savings account has a minimum opening deposit requirement, there are no monthly fees or minimum balance requirements once the account is open.<span class="ql-inline-citation" data-cite="5"></span></li><li><strong>Competitive rates on savings and CDs:</strong> Popular Direct offers competitive rates on both savings accounts and CDs.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-cons-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-2"> <span class="mntl-sc-block-heading__text"> Cons Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-3"> <li><strong>No ATM card access to savings:</strong> Popular Direct does not offer ATM cards for its savings accounts. To gain access to your funds, you'll need to initiate an electronic transfer and wait for it to complete.</li><li><strong>High minimum deposit requirement:.</strong> The high minimum deposit requirements may prevent some potential customers from being able to open an account. You must have $100 for a savings account and $10,000 for a CD.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="6"></span></li><li><strong>Fee may apply if you close an account:</strong> If you close your savings account within 180 days, you may be charged a $25 fee. Additionally, early withdrawal penalties apply to CDs.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="7"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-who-is-popular-direct-best-for"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-4"> <span class="mntl-sc-block-heading__text"> Who Is Popular Direct Best For? </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-5"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.populardirect.com/" rel="sponsored nofollow">Popular Direct</a> is best for customers who want an online bank account to complement their existing banking relationship. It may be a good fit if you: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-6"> <li>Are at least 18 years or older<span class="ql-inline-citation" data-cite="9"></span></li><li>Have a checking account at another bank</li><li>Are not looking to have one bank handle all of your deposit and lending needs</li><li>Have larger balances to meet the minimum opening deposit requirement</li><li>Are looking for a high-yield online savings account or CD</li><li>Do not need immediate access to your funds</li><li>Are able to deposit money electronically</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-what-does-popular-direct-offer"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-7"> <span class="mntl-sc-block-heading__text"> What Does Popular Direct Offer? </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-8"> As an online-only bank, Popular Direct has a limited selection of deposit products. Its accounts are not meant to replace your existing bank for daily transactions but can supplement your primary account with high-yield deposit products. It only offers: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-9"> <li>Savings accounts</li><li>CDs</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-10"> <span class="mntl-sc-block-subheading__text"> Savings Accounts </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-11"> The Popular Direct Select Savings account offers a high <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> with no monthly fees. To open an account, the minimum deposit is $100. There is no minimum balance required to earn interest. Once your account is opened, it must remain open for at least 180 days or you may incur a $25 fee. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-12"> Savings accounts are entitled to a combination of six transfers or withdrawals per month. Each additional withdrawal will cost $5.<span class="ql-inline-citation" data-cite="5"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-13"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">POPULAR DIRECT SAVINGS ACCOUNTS</th> </tr> <tr> <th>ACCOUNT NAME</th> <th>MIN OPENING DEPOSIT</th> <th>MONTHLY FEE</th> <th>APY</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Select Savings</td> <td>$100</td> <td>$0</td> <td>5.15%</td> </tr> </tbody> </table> <figcaption>as of May 17, 2024</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <div class="comp theme-note 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_2-0-14"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>The standard statement period is quarterly. However, if there is account activity, you will receive a statement for that month.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-note mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-15"> <span class="mntl-sc-block-subheading__text"> CDs </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-16"> CDs from Popular Bank have terms ranging from three months to five years. There is a minimum deposit of $10,000 required for all CDs.<span class="ql-inline-citation" data-cite="7"></span> The bank does not offer higher rates for larger balances. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-17"> <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">POPULAR DIRECT CD RATES</th> </tr> <tr> <th>TERM</th> <th>APY</th> </tr> </thead> <tbody data-check="0"> <tr> <td>3 months</td> <td>5.30%</td> </tr> <tr> <td>6 months</td> <td>5.30%</td> </tr> <tr> <td>12 months</td> <td>5.15%</td> </tr> <tr> <td>18 months</td> <td>4.80%</td> </tr> <tr> <td>24 months</td> <td>4.70%</td> </tr> <tr> <td>36 months</td> <td>4.55%</td> </tr> <tr> <td>48 months</td> <td>4.25%</td> </tr> <tr> <td>60 months</td> <td>4.30%</td> </tr> </tbody> </table> <figcaption>as of May 17, 2024</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-18"> CDs automatically renew at maturity at the prevailing rate. However, customers have a 10-day grace period after maturity where they can withdraw money without being charged a penalty. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-19"> If you need to terminate your CD before maturity, you will pay a penalty depending on the term length of the CD.<span class="ql-inline-citation" data-cite="7"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-20"> <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">POPULAR BANK CD EARLY WITHDRAWAL PENALTIES</th> </tr> <tr> <th>TERM</th> <th>PENALTY</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Less than 91 days</td> <td>89 days simple interest</td> </tr> <tr> <td>From 91 days to less than 12 months</td> <td>120 days simple interest</td> </tr> <tr> <td>From 12 months to less than 36 months</td> <td>270 days simple interest</td> </tr> <tr> <td>From 36 months to less than 60 months</td> <td>365 days simple interest</td> </tr> <tr> <td>Equal to or greater than 60 months</td> <td>730 days simple interest</td> </tr> </tbody> </table> <figcaption>as of May 17, 2024</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <span class="heading-toc" id="toc-popular-direct-customer-service"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-21"> <span class="mntl-sc-block-heading__text"> Popular Direct Customer Service </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-22"> Popular Direct customer service by phone is available Monday-Friday, 7:30 a.m. to 12 a.m. (EST), and Saturday-Sunday 9:00 a.m. to 6 p.m. (EST) by calling 800-274-5696. Live customer service is not available on Federal Reserve Bank holidays. It is also possible to mail a letter to Popular Direct at its Florida address. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-23"> Customers can also access their account through the Popular Bank mobile app. It is available for both <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://apps.apple.com/us/app/popular-direct/id1090098205?ls=1" rel="sponsored nofollow">Apple</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://play.google.com/store/apps/details?id=com.mfoundry.mb.android.mb_513" rel="sponsored nofollow">Android</a> devices. Through the mobile app, you can see an overview of your accounts, review your account history, make mobile deposits, and transfer between eligible accounts. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-bank-with-popular-direct"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-24"> <span class="mntl-sc-block-heading__text"> How to Bank With Popular Direct </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-25"> Because Popular Direct does not have any physical branches, the best way to open an account is through its website. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-26"> Once your account is open, you can access your accounts by telephone, online, or mobile banking. Popular Direct does not issue ATM cards, so you'll need to request a transfer to your deposit account at another bank to withdraw money. To deposit money, you can initiate a transfer from your existing bank account or perform a mobile deposit through its app. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-finalverdict 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_2-0-27"> <span class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"> Verdict</span><!-- end: comp mntl-sc-block-callout-heading mntl-text-block --> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>Popular Direct offers competitive rates for its savings accounts and CDs if you can meet its minimum deposit requirements. These accounts should be used to complement your existing banking relationship in order to earn higher rates of interest than your current bank offers.</p><p>Be careful if you need to close your savings account or withdraw from your CD early. Popular Direct charges an early closure fee on savings accounts if closed within 180 days. CD early withdrawal penalties apply when making a withdrawal before the CD matures.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-finalverdict mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-28"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-29"> Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks including products available, interest rates, fees, and accessibility to ensure that our content helps users make the right decision for their savings and banking needs. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-link-closest-header="false" data-tracking-container="true" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_2-0-30"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="none" data-tracking-container="true" href="https://www.populardirect.com/" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div><!-- end: comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block --> </div><!-- end: comp article-body article-content mntl-block --> </div> </div><!-- end: comp product-review-content product-review-content--finance product-review--base --> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-5"><p>Popular Direct, “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.populardirect.com/terms/savings-disclosure.pdf" rel="nofollow sponsored">Popular Bank Product Guide for Popular Direct High-Rise Savings Account</a>,” Page 1.</p></li> <li class="mntl-sources__source" id="citation-6"><p>Popular Direct, “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.populardirect.com/terms/cd-disclosure.pdf" rel="nofollow sponsored">Popular Product Guide for Popular Direct Certificates of Deposit</a>.”</p></li> <li class="mntl-sources__source" id="citation-8"><p>Popular Direct, “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.populardirect.com/terms/schedule-of-fees.pdf" rel="nofollow sponsored">Popular Bank Schedule of Fees for Popular Direct Accounts</a>.”</p></li> <li class="mntl-sources__source" id="citation-7"><p>Popular Direct, “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.populardirect.com/terms/cd-disclosure.pdf" rel="nofollow sponsored">Popular Product Guide for Popular Direct Certificates of Deposit</a>,” Page 1.</p></li> <li class="mntl-sources__source" id="citation-9"><p>Popular Direct, “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.populardirect.com/terms/online-agreement" rel="nofollow sponsored">Popular Direct Online Banking Service Agreement</a>.”</p></li> </ol> </div> </div></div> <div class="comp prm-recirc related-recirc-section--articles mntl-block" data-tracking-container="true" id="prm-recirc_1-0"><section class="comp related-articles" data-tracking-container="true" id="related-articles_1-0"> <span class="related-articles__header type--camel"> Related Articles </span> <div class="loc recirc-content"><div class="comp related-articles__card-list-1 card-list--related-articles mntl-document-card-list mntl-card-list mntl-block" data-chunk="36" id="related-articles__card-list-1_1-0"><a class="comp mntl-card-list-items mntl-document-card mntl-card related-articles__link card" data-cta="Read Now ▸" data-doc-id="8644041" data-ordinal="1" data-tax-levels="" 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![Popular Direct](https://www.investopedia.com/thmb/Khp6zR2eNZ_CACjyxm1VUSNtaCo=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Popular_Direct-b4cbeb408f8f4ba8ac88d2dc83803515.jpg) ![Popular Direct](https://www.investopedia.com/thmb/Khp6zR2eNZ_CACjyxm1VUSNtaCo=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Popular_Direct-b4cbeb408f8f4ba8ac88d2dc83803515.jpg)  Popular Direct [Open Account](https://www.populardirect.com/) Popular Direct is an online-only bank. It is a subsidiary of Popular Bank, a full-service financial services provider that was founded more nearly 130 years ago. Popular Direct was launched in 2016 and offers high yield online savings accounts and [certificates of deposit (CDs)](https://www.investopedia.com/terms/c/certificateofdeposit.asp). This in-depth review can help you decide if its deposit accounts are right for your banking needs. * Pros & Cons * Company Overview Pros & Cons Pros * No monthly fees on savings account * Competitive rates on savings and CDs Cons * No ATM card access to savings * High minimum deposit requirements * Fee may apply if you close an account Company Overview * Year Founded 2016 * Official Website www.populardirect.com * Banking Products Offered Savings, CDs * Customer Service 24/7 Phone: 1-800-274-5696 ![Popular Direct](https://www.investopedia.com/thmb/Khp6zR2eNZ_CACjyxm1VUSNtaCo=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Popular_Direct-b4cbeb408f8f4ba8ac88d2dc83803515.jpg) ![Popular Direct](https://www.investopedia.com/thmb/Khp6zR2eNZ_CACjyxm1VUSNtaCo=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Popular_Direct-b4cbeb408f8f4ba8ac88d2dc83803515.jpg)  Popular Direct [Open Account](https://www.populardirect.com/) Table of Contents View All Popular Direct Bank Review * [Pros Explained](#toc-pros-explained) * [Cons Explained](#toc-cons-explained) * [Best For](#toc-who-is-popular-direct-best-for) * [Bank Offerings](#toc-what-does-popular-direct-offer) * [Customer Service](#toc-popular-direct-customer-service) * [How to Bank](#toc-how-to-bank-with-popular-direct) * [Methodology](#toc-methodology) ## Pros Explained * **No monthly fees on savings account:** Although the savings account has a minimum opening deposit requirement, there are no monthly fees or minimum balance requirements once the account is open. * **Competitive rates on savings and CDs:** Popular Direct offers competitive rates on both savings accounts and CDs. ## Cons Explained * **No ATM card access to savings:** Popular Direct does not offer ATM cards for its savings accounts. To gain access to your funds, you'll need to initiate an electronic transfer and wait for it to complete. * **High minimum deposit requirement:.** The high minimum deposit requirements may prevent some potential customers from being able to open an account. You must have $100 for a savings account and $10,000 for a CD. * **Fee may apply if you close an account:** If you close your savings account within 180 days, you may be charged a $25 fee. Additionally, early withdrawal penalties apply to CDs. ## Who Is Popular Direct Best For? [Popular Direct](https://www.populardirect.com/) is best for customers who want an online bank account to complement their existing banking relationship. It may be a good fit if you: * Are at least 18 years or older * Have a checking account at another bank * Are not looking to have one bank handle all of your deposit and lending needs * Have larger balances to meet the minimum opening deposit requirement * Are looking for a high-yield online savings account or CD * Do not need immediate access to your funds * Are able to deposit money electronically ## What Does Popular Direct Offer? As an online-only bank, Popular Direct has a limited selection of deposit products. Its accounts are not meant to replace your existing bank for daily transactions but can supplement your primary account with high-yield deposit products. It only offers: * Savings accounts * CDs ### Savings Accounts The Popular Direct Select Savings account offers a high [annual percentage yield (APY)](https://www.investopedia.com/terms/a/apy.asp) with no monthly fees. To open an account, the minimum deposit is $100. There is no minimum balance required to earn interest. Once your account is opened, it must remain open for at least 180 days or you may incur a $25 fee. Savings accounts are entitled to a combination of six transfers or withdrawals per month. Each additional withdrawal will cost $5. | POPULAR DIRECT SAVINGS ACCOUNTS | | | | | --- | --- | --- | --- | | ACCOUNT NAME | MIN OPENING DEPOSIT | MONTHLY FEE | APY | | Select Savings | $100 | $0 | 5.15% | as of May 17, 2024 The standard statement period is quarterly. However, if there is account activity, you will receive a statement for that month. ### CDs CDs from Popular Bank have terms ranging from three months to five years. There is a minimum deposit of $10,000 required for all CDs. The bank does not offer higher rates for larger balances. | POPULAR DIRECT CD RATES | | | --- | --- | | TERM | APY | | 3 months | 5.30% | | 6 months | 5.30% | | 12 months | 5.15% | | 18 months | 4.80% | | 24 months | 4.70% | | 36 months | 4.55% | | 48 months | 4.25% | | 60 months | 4.30% | as of May 17, 2024 CDs automatically renew at maturity at the prevailing rate. However, customers have a 10-day grace period after maturity where they can withdraw money without being charged a penalty. If you need to terminate your CD before maturity, you will pay a penalty depending on the term length of the CD. | POPULAR BANK CD EARLY WITHDRAWAL PENALTIES | | | --- | --- | | TERM | PENALTY | | Less than 91 days | 89 days simple interest | | From 91 days to less than 12 months | 120 days simple interest | | From 12 months to less than 36 months | 270 days simple interest | | From 36 months to less than 60 months | 365 days simple interest | | Equal to or greater than 60 months | 730 days simple interest | as of May 17, 2024 ## Popular Direct Customer Service Popular Direct customer service by phone is available Monday-Friday, 7:30 a.m. to 12 a.m. (EST), and Saturday-Sunday 9:00 a.m. to 6 p.m. (EST) by calling 800-274-5696. Live customer service is not available on Federal Reserve Bank holidays. It is also possible to mail a letter to Popular Direct at its Florida address. Customers can also access their account through the Popular Bank mobile app. It is available for both [Apple](https://apps.apple.com/us/app/popular-direct/id1090098205?ls=1) and [Android](https://play.google.com/store/apps/details?id=com.mfoundry.mb.android.mb_513) devices. Through the mobile app, you can see an overview of your accounts, review your account history, make mobile deposits, and transfer between eligible accounts. ## How to Bank With Popular Direct Because Popular Direct does not have any physical branches, the best way to open an account is through its website. Once your account is open, you can access your accounts by telephone, online, or mobile banking. Popular Direct does not issue ATM cards, so you'll need to request a transfer to your deposit account at another bank to withdraw money. To deposit money, you can initiate a transfer from your existing bank account or perform a mobile deposit through its app. Verdict Popular Direct offers competitive rates for its savings accounts and CDs if you can meet its minimum deposit requirements. These accounts should be used to complement your existing banking relationship in order to earn higher rates of interest than your current bank offers. Be careful if you need to close your savings account or withdraw from your CD early. Popular Direct charges an early closure fee on savings accounts if closed within 180 days. CD early withdrawal penalties apply when making a withdrawal before the CD matures. ## Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks including products available, interest rates, fees, and accessibility to ensure that our content helps users make the right decision for their savings and banking needs. [Open Account](https://www.populardirect.com/) 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. Popular Direct, “[Popular Bank Product Guide for Popular Direct High-Rise Savings Account](https://www.populardirect.com/terms/savings-disclosure.pdf),” Page 1. 2. Popular Direct, “[Popular Product Guide for Popular Direct Certificates of Deposit](https://www.populardirect.com/terms/cd-disclosure.pdf).” 3. Popular Direct, “[Popular Bank Schedule of Fees for Popular Direct Accounts](https://www.populardirect.com/terms/schedule-of-fees.pdf).” 4. Popular Direct, “[Popular Product Guide for Popular Direct Certificates of Deposit](https://www.populardirect.com/terms/cd-disclosure.pdf),” Page 1. 5. Popular Direct, “[Popular Direct Online Banking Service Agreement](https://www.populardirect.com/terms/online-agreement).” Related Articles [![Regions Bank]() ![Regions Bank](https://www.investopedia.com/thmb/fz1sSXiMmH9ArRgLiyhXpUz_2Ec=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/regions-bank-260ece120ed749a2a89d384e566304dd.jpg) Regions Bank Review 2024](https://www.investopedia.com/regions-bank-review-8644041) [![KeyBank]() ![KeyBank](https://www.investopedia.com/thmb/18XifhlpmzK1gbxk75JCDuxZUDA=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Key_Bank-4e1550638a7b42548bcad15989a517a5.jpg) KeyBank Review 2024](https://www.investopedia.com/keybank-review-8638216) [![M&T Bank]() ![M&T Bank](https://www.investopedia.com/thmb/6f-v2HZzRp0Np0aCBdxyfa-2llI=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/MT_Bank-7840092bc5e1499aad776f1203f5eb56.jpg) M&T Bank Review 2024](https://www.investopedia.com/m-and-t-bank-review-8639263) [![Barclays Bank Review]() ![Barclays Bank Review](https://www.investopedia.com/thmb/_Eg92xUD55M7U2EwSbgvfHgJr1o=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Barclays_Bank_Recirccopy-430271e887c141a19d8d7ca4860d58ad.jpg) Barclays Bank Review](https://www.investopedia.com/barclays-bank-review-5069903) [![Synchrony]() ![Synchrony](https://www.investopedia.com/thmb/70oQLYHplJ7kOnenS2tu1csvTUs=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/synchrony_Recirc-0f27b5708a2d4b449774b03b129020e3.jpg) Synchrony Bank Review](https://www.investopedia.com/synchrony-bank-review-4846433) [![BrioDirect]() ![BrioDirect](https://www.investopedia.com/thmb/sXhjQZ8-iUnGMvKt5FPGvuBhEiA=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/Brio_Direct_Recirccopy-92f9c83f14b04365b1a6e71a759dcddf.jpg) BrioDirect Bank Review](https://www.investopedia.com/briodirect-bank-review-5069892)
 Popular Direct Open Account Popular Direct is an online-only bank. It is a subsidiary of Popular Bank, a full-service financial services provider that was founded more nearly 130 years ago. Popular Direct was launched in 2016 and offers high yield online savings accounts and certificates of deposit (CDs). This in-depth review can help you decide if its deposit accounts are right for your banking needs. Pros & Cons Company Overview Pros & Cons Pros No monthly fees on savings account Competitive rates on savings and CDs Cons No ATM card access to savings High minimum deposit requirements Fee may apply if you close an account Company Overview Year Founded 2016 Official Website www.populardirect.com Banking Products Offered Savings, CDs Customer Service 24/7 Phone: 1-800-274-5696  Popular Direct Open Account Table of Contents View All Popular Direct Bank Review Pros Explained Cons Explained Best For Bank Offerings Customer Service How to Bank Methodology Pros Explained No monthly fees on savings account: Although the savings account has a minimum opening deposit requirement, there are no monthly fees or minimum balance requirements once the account is open.Competitive rates on savings and CDs: Popular Direct offers competitive rates on both savings accounts and CDs. Cons Explained No ATM card access to savings: Popular Direct does not offer ATM cards for its savings accounts. To gain access to your funds, you'll need to initiate an electronic transfer and wait for it to complete.High minimum deposit requirement:. The high minimum deposit requirements may prevent some potential customers from being able to open an account. You must have $100 for a savings account and $10,000 for a CD.Fee may apply if you close an account: If you close your savings account within 180 days, you may be charged a $25 fee. Additionally, early withdrawal penalties apply to CDs. Who Is Popular Direct Best For? Popular Direct is best for customers who want an online bank account to complement their existing banking relationship. It may be a good fit if you: Are at least 18 years or olderHave a checking account at another bankAre not looking to have one bank handle all of your deposit and lending needsHave larger balances to meet the minimum opening deposit requirementAre looking for a high-yield online savings account or CDDo not need immediate access to your fundsAre able to deposit money electronically What Does Popular Direct Offer? As an online-only bank, Popular Direct has a limited selection of deposit products. Its accounts are not meant to replace your existing bank for daily transactions but can supplement your primary account with high-yield deposit products. It only offers: Savings accountsCDs Savings Accounts The Popular Direct Select Savings account offers a high annual percentage yield (APY) with no monthly fees. To open an account, the minimum deposit is $100. There is no minimum balance required to earn interest. Once your account is opened, it must remain open for at least 180 days or you may incur a $25 fee. Savings accounts are entitled to a combination of six transfers or withdrawals per month. Each additional withdrawal will cost $5. POPULAR DIRECT SAVINGS ACCOUNTS ACCOUNT NAME MIN OPENING DEPOSIT MONTHLY FEE APY Select Savings $100 $0 5.15% as of May 17, 2024 The standard statement period is quarterly. However, if there is account activity, you will receive a statement for that month. CDs CDs from Popular Bank have terms ranging from three months to five years. There is a minimum deposit of $10,000 required for all CDs. The bank does not offer higher rates for larger balances. POPULAR DIRECT CD RATES TERM APY 3 months 5.30% 6 months 5.30% 12 months 5.15% 18 months 4.80% 24 months 4.70% 36 months 4.55% 48 months 4.25% 60 months 4.30% as of May 17, 2024 CDs automatically renew at maturity at the prevailing rate. However, customers have a 10-day grace period after maturity where they can withdraw money without being charged a penalty. If you need to terminate your CD before maturity, you will pay a penalty depending on the term length of the CD. POPULAR BANK CD EARLY WITHDRAWAL PENALTIES TERM PENALTY Less than 91 days 89 days simple interest From 91 days to less than 12 months 120 days simple interest From 12 months to less than 36 months 270 days simple interest From 36 months to less than 60 months 365 days simple interest Equal to or greater than 60 months 730 days simple interest as of May 17, 2024 Popular Direct Customer Service Popular Direct customer service by phone is available Monday-Friday, 7:30 a.m. to 12 a.m. (EST), and Saturday-Sunday 9:00 a.m. to 6 p.m. (EST) by calling 800-274-5696. Live customer service is not available on Federal Reserve Bank holidays. It is also possible to mail a letter to Popular Direct at its Florida address. Customers can also access their account through the Popular Bank mobile app. It is available for both Apple and Android devices. Through the mobile app, you can see an overview of your accounts, review your account history, make mobile deposits, and transfer between eligible accounts. How to Bank With Popular Direct Because Popular Direct does not have any physical branches, the best way to open an account is through its website. Once your account is open, you can access your accounts by telephone, online, or mobile banking. Popular Direct does not issue ATM cards, so you'll need to request a transfer to your deposit account at another bank to withdraw money. To deposit money, you can initiate a transfer from your existing bank account or perform a mobile deposit through its app. Verdict Popular Direct offers competitive rates for its savings accounts and CDs if you can meet its minimum deposit requirements. These accounts should be used to complement your existing banking relationship in order to earn higher rates of interest than your current bank offers.Be careful if you need to close your savings account or withdraw from your CD early. Popular Direct charges an early closure fee on savings accounts if closed within 180 days. CD early withdrawal penalties apply when making a withdrawal before the CD matures. Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks including products available, interest rates, fees, and accessibility to ensure that our content helps users make the right decision for their savings and banking needs. Open Account 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. Popular Direct, “Popular Bank Product Guide for Popular Direct High-Rise Savings Account,” Page 1. Popular Direct, “Popular Product Guide for Popular Direct Certificates of Deposit.” Popular Direct, “Popular Bank Schedule of Fees for Popular Direct Accounts.” Popular Direct, “Popular Product Guide for Popular Direct Certificates of Deposit,” Page 1. Popular Direct, “Popular Direct Online Banking Service Agreement.” Related Articles Regions Bank Review 2024 KeyBank Review 2024 M&T Bank Review 2024 Barclays Bank Review Synchrony Bank Review BrioDirect Bank Review
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https://www.investopedia.com/terms/a/atr.asp
Average True Range (ATR) Formula, What It Means, and How to Use It
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-average-true-range-atr"></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 Average True Range (ATR)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The average true range (ATR) is a technical analysis indicator introduced by market technician J. Welles Wilder Jr. in his book <em>New Concepts in Technical Trading Systems </em>that measures market volatility by decomposing the entire range of an asset price for that period. </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 true range indicator is taken as the greatest of the following: current high less the current low; the absolute value of the current high less the previous close; and the absolute value of the current low less the previous close. The ATR is then a moving average, generally using 14 days, of the true ranges.<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_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Traders can use shorter periods than 14 days to generate more trading signals, while longer periods have a higher probability to generate fewer trading signals. </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 average true range (ATR) is a market volatility indicator used in technical analysis.</li><li>It is typically derived from the 14-day simple moving average of a series of true range indicators.</li><li>The ATR was initially developed for use in commodities markets but has since been applied to all types of securities.</li><li>ATR shows investors the average range prices swing for an investment over a specified period.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-average-true-range-atr-formula"></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 Average True Range (ATR) Formula </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The formula to calculate ATR for an investment with a previous ATR calculation is : </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"> <span data-value="\begin{aligned}&amp;\frac{ \text{Previous ATR} ( n - 1 ) + \text{TR} }{ n } \\&amp;\textbf{where:} \\&amp;n = \text{Number of periods} \\&amp;\text{TR} = \text{True range} \\\end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mfrac> <mrow> <mtext> Previous ATR </mtext> <mo> ( </mo> <mi> n </mi> <mo> − </mo> <mn> 1 </mn> <mo> ) </mo> <mo> + </mo> <mtext> TR </mtext> </mrow> <mi> n </mi> </mfrac> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> where: </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> n </mi> <mo> = </mo> <mtext> Number of periods </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> TR </mtext> <mo> = </mo> <mtext> True range </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned}&amp;\frac{ \text{Previous ATR} ( n - 1 ) + \text{TR} }{ n } \\&amp;\textbf{where:} \\&amp;n = \text{Number of periods} \\&amp;\text{TR} = \text{True range} \\\end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord mathnormal">n</span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord text"><span class="mord">Previous ATR</span></span><span class="mopen">(</span><span class="mord mathnormal">n</span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord">1</span><span class="mclose">)</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord text"><span class="mord">TR</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord textbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathnormal">n</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Number of periods</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">TR</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">True range</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> If there is not a previous ATR calculated, you must use: </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"> <span data-value="\begin{aligned}&amp;\Big ( \frac{ 1 }{ n } \Big ) \sum_{i}^{n} \text{TR}_i \\&amp;\textbf{where:} \\&amp;\text{TR}_i = \text{Particular true range, such as first day's TR,} \\&amp;\text{then second, then third} \\&amp;n = \text{Number of periods} \\\end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mo> ( </mo> <mfrac> <mn> 1 </mn> <mi> n </mi> </mfrac> <mo> ) </mo> <munderover> <mo> ∑ </mo> <mi> i </mi> <mi> n </mi> </munderover> <msub> <mtext> TR </mtext> <mi> i </mi> </msub> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> where: </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mtext> TR </mtext> <mi> i </mi> </msub> <mo> = </mo> <mtext> Particular true range, such as first day’s TR, </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> then second, then third </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> n </mi> <mo> = </mo> <mtext> Number of periods </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned}&amp;\Big ( \frac{ 1 }{ n } \Big ) \sum_{i}^{n} \text{TR}_i \\&amp;\textbf{where:} \\&amp;\text{TR}_i = \text{Particular true range, such as first day's TR,} \\&amp;\text{then second, then third} \\&amp;n = \text{Number of periods} \\\end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="delimsizing size2">(</span></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord mathnormal">n</span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mord"><span class="delimsizing size2">)</span></span><span class="mspace"></span><span class="mop op-limits"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mathnormal mtight">i</span></span></span></span><span class=""><span class="pstrut"></span><span class=""><span class="mop op-symbol large-op">∑</span></span></span><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mathnormal mtight">n</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mspace"></span><span class="mord"><span class="mord text"><span class="mord">TR</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">i</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord textbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord text"><span class="mord">TR</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">i</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Particular true range, such as first day’s TR,</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">then second, then third</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathnormal">n</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Number of periods</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The capital sigma symbol (Σ) represents the summation of all of the terms for <em>n</em> periods starting at <em>i</em>, or the period specified. If there is no number following <em>i</em>, it is assumed the starting point is the first period (you may see <em>i=1</em>, noting to start summing at the first term).<em> </em></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> You must first use the following formula to calculate the true range:<span class="ql-inline-citation" data-cite="3"></span></p> <p><span data-value="\begin{aligned}&amp;\text{ TR } = \text{ Max } [ ( \text{H} - \text{L} ), | \text{H} - \text{C}_p |, | \text{L} - \text{C}_p | ] \\&amp;\textbf{where:} \\&amp;\text{H} = \text{Today's high} \\&amp;\text{L} = \text{Today's low} \\&amp;\text{C}_p = \text{Yesterday's closing price} \\&amp;\text{Max} = \text{Highest value of the three terms} \\&amp;\textbf{so that:} \\&amp;( \text{H} - \text{L} ) = \text{Today's high minus the low} \\&amp;| \text{H} - \text{C}_p | = \text{Absolute value of today's high minus} \\&amp;\text{yesterday's closing price} \\&amp;| \text{L} - \text{C}_p | = \text{Absolute value of today's low minus} \\&amp;\text{yesterday's closing price} \\\end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext>  TR  </mtext> <mo> = </mo> <mtext>  Max  </mtext> <mo> [ </mo> <mo> ( </mo> <mtext> H </mtext> <mo> − </mo> <mtext> L </mtext> <mo> ) </mo> <mo> , </mo> <mi> ∣ </mi> <mtext> H </mtext> <mo> − </mo> <msub> <mtext> C </mtext> <mi> p </mi> </msub> <mi> ∣ </mi> <mo> , </mo> <mi> ∣ </mi> <mtext> L </mtext> <mo> − </mo> <msub> <mtext> C </mtext> <mi> p </mi> </msub> <mi> ∣ </mi> <mo> ] </mo> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> where: </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> H </mtext> <mo> = </mo> <mtext> Today’s high </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> L </mtext> <mo> = </mo> <mtext> Today’s low </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mtext> C </mtext> <mi> p </mi> </msub> <mo> = </mo> <mtext> Yesterday’s closing price </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> Max </mtext> <mo> = </mo> <mtext> Highest value of the three terms </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mrow> <mtext> so </mtext> <mtext>   </mtext> <mtext> that: </mtext> </mrow> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mo> ( </mo> <mtext> H </mtext> <mo> − </mo> <mtext> L </mtext> <mo> ) </mo> <mo> = </mo> <mtext> Today’s high minus the low </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> ∣ </mi> <mtext> H </mtext> <mo> − </mo> <msub> <mtext> C </mtext> <mi> p </mi> </msub> <mi> ∣ </mi> <mo> = </mo> <mtext> Absolute value of today’s high minus </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> yesterday’s closing price </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> ∣ </mi> <mtext> L </mtext> <mo> − </mo> <msub> <mtext> C </mtext> <mi> p </mi> </msub> <mi> ∣ </mi> <mo> = </mo> <mtext> Absolute value of today’s low minus </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> yesterday’s closing price </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned}&amp;\text{ TR } = \text{ Max } [ ( \text{H} - \text{L} ), | \text{H} - \text{C}_p |, | \text{L} - \text{C}_p | ] \\&amp;\textbf{where:} \\&amp;\text{H} = \text{Today's high} \\&amp;\text{L} = \text{Today's low} \\&amp;\text{C}_p = \text{Yesterday's closing price} \\&amp;\text{Max} = \text{Highest value of the three terms} \\&amp;\textbf{so that:} \\&amp;( \text{H} - \text{L} ) = \text{Today's high minus the low} \\&amp;| \text{H} - \text{C}_p | = \text{Absolute value of today's high minus} \\&amp;\text{yesterday's closing price} \\&amp;| \text{L} - \text{C}_p | = \text{Absolute value of today's low minus} \\&amp;\text{yesterday's closing price} \\\end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord"> TR </span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord"> Max </span></span><span class="mopen">[(</span><span class="mord text"><span class="mord">H</span></span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord text"><span class="mord">L</span></span><span class="mclose">)</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">∣</span><span class="mord text"><span class="mord">H</span></span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord"><span class="mord text"><span class="mord">C</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mord">∣</span><span class="mpunct">,</span><span class="mspace"></span><span class="mord">∣</span><span class="mord text"><span class="mord">L</span></span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord"><span class="mord text"><span class="mord">C</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mord">∣</span><span class="mclose">]</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord textbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">H</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Today’s high</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">L</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Today’s low</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord text"><span class="mord">C</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Yesterday’s closing price</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">Max</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Highest value of the three terms</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord textbf">so that:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mopen">(</span><span class="mord text"><span class="mord">H</span></span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord text"><span class="mord">L</span></span><span class="mclose">)</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Today’s high minus the low</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord">∣</span><span class="mord text"><span class="mord">H</span></span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord"><span class="mord text"><span class="mord">C</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mord">∣</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Absolute value of today’s high minus</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">yesterday’s closing price</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord">∣</span><span class="mord text"><span class="mord">L</span></span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord"><span class="mord text"><span class="mord">C</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mord">∣</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Absolute value of today’s low minus</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">yesterday’s closing price</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span><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-how-to-calculate-the-atr"></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"> How to Calculate the ATR </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The first step in calculating ATR is to find a series of true range values for a security. The price range of an asset for a given trading day is its high minus its low. To find an asset's true range value, you first determine the three terms from the formula. </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"> Suppose that XYZ's stock had a trading high today of $21.95 and a low of $20.22. It closed yesterday at $21.51. Using the three terms, we use the highest result: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <span data-value="( \text{H} - \text{L}) = \$21.95 - \$20.22 = \$1.73"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mo> ( </mo> <mtext> H </mtext> <mo> − </mo> <mtext> L </mtext> <mo> ) </mo> <mo> = </mo> <mi> $ </mi> <mn> 21.95 </mn> <mo> − </mo> <mi> $ </mi> <mn> 20.22 </mn> <mo> = </mo> <mi> $ </mi> <mn> 1.73 </mn> </mrow> <annotation encoding="application/x-tex"> ( \text{H} - \text{L}) = \$21.95 - \$20.22 = \$1.73 </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mopen">(</span><span class="mord text"><span class="mord">H</span></span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord text"><span class="mord">L</span></span><span class="mclose">)</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">$21.95</span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">$20.22</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">$1.73</span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <span data-value="| ( \text{H} - \text{C}_p ) | = | \$21.95 - \$21.51 | = \$0.44"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mi> ∣ </mi> <mo> ( </mo> <mtext> H </mtext> <mo> − </mo> <msub> <mtext> C </mtext> <mi> p </mi> </msub> <mo> ) </mo> <mi> ∣ </mi> <mo> = </mo> <mi> ∣ </mi> <mi> $ </mi> <mn> 21.95 </mn> <mo> − </mo> <mi> $ </mi> <mn> 21.51 </mn> <mi> ∣ </mi> <mo> = </mo> <mi> $ </mi> <mn> 0.44 </mn> </mrow> <annotation encoding="application/x-tex"> | ( \text{H} - \text{C}_p ) | = | \$21.95 - \$21.51 | = \$0.44 </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord">∣</span><span class="mopen">(</span><span class="mord text"><span class="mord">H</span></span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord"><span class="mord text"><span class="mord">C</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mclose">)</span><span class="mord">∣</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">∣$21.95</span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">$21.51∣</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">$0.44</span></span></span></span></span><br/> </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"> <span data-value="| ( \text{L} - \text{C}_p ) | = | \$20.22 - \$21.51 | = \$1.29"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mi> ∣ </mi> <mo> ( </mo> <mtext> L </mtext> <mo> − </mo> <msub> <mtext> C </mtext> <mi> p </mi> </msub> <mo> ) </mo> <mi> ∣ </mi> <mo> = </mo> <mi> ∣ </mi> <mi> $ </mi> <mn> 20.22 </mn> <mo> − </mo> <mi> $ </mi> <mn> 21.51 </mn> <mi> ∣ </mi> <mo> = </mo> <mi> $ </mi> <mn> 1.29 </mn> </mrow> <annotation encoding="application/x-tex"> | ( \text{L} - \text{C}_p ) | = | \$20.22 - \$21.51 | = \$1.29 </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord">∣</span><span class="mopen">(</span><span class="mord text"><span class="mord">L</span></span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord"><span class="mord text"><span class="mord">C</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mclose">)</span><span class="mord">∣</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">∣$20.22</span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">$21.51∣</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span></span><span class="base"><span class="strut"></span><span class="mord">$1.29</span></span></span></span></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"> The number you'd use would be $1.73 because it is the highest value. </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"> Because you don't have a previous ATR, you need to use the ATR formula: </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"> <span data-value="\begin{aligned}\Big ( \frac{ 1 }{ n } \Big ) \sum_{i}^{n} \text{TR}_i\end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow> <mo> ( </mo> <mfrac> <mn> 1 </mn> <mi> n </mi> </mfrac> <mo> ) </mo> <munderover> <mo> ∑ </mo> <mi> i </mi> <mi> n </mi> </munderover> <msub> <mtext> TR </mtext> <mi> i </mi> </msub> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned}\Big ( \frac{ 1 }{ n } \Big ) \sum_{i}^{n} \text{TR}_i\end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"><span class="delimsizing size2">(</span></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord mathnormal">n</span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mord"><span class="delimsizing size2">)</span></span><span class="mspace"></span><span class="mop op-limits"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mathnormal mtight">i</span></span></span></span><span class=""><span class="pstrut"></span><span class=""><span class="mop op-symbol large-op">∑</span></span></span><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mathnormal mtight">n</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mspace"></span><span class="mord"><span class="mord text"><span class="mord">TR</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathnormal mtight">i</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Using 14 days as the number of periods, you'd calculate the TR for each of the 14 days. Assume the following prices from the table. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_42-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 95px;"></colgroup> <colgroup span="1" style="width: 112px;"></colgroup> <colgroup span="1" style="width: 114px;"></colgroup> <colgroup span="1" style="width: 79px;"></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Daily Values</th> </tr> <tr> <th> </th> <th> High</th> <th>Low </th> <th>Yesterday's Close</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Day 1</td> <td>$ 21.95</td> <td>$ 20.22</td> <td>$ 21.51</td> </tr> <tr> <td>Day 2</td> <td>$ 22.25</td> <td>$ 21.10</td> <td>$ 21.61</td> </tr> <tr> <td>Day 3</td> <td>$ 21.50</td> <td>$ 20.34</td> <td>$ 20.83</td> </tr> <tr> <td>Day 4</td> <td>$ 23.25</td> <td>$ 22.13</td> <td>$ 22.65</td> </tr> <tr> <td>Day 5</td> <td>$ 23.03</td> <td>$ 21.87</td> <td>$ 22.41</td> </tr> <tr> <td>Day 6</td> <td>$ 23.34</td> <td>$ 22.18</td> <td>$ 22.67</td> </tr> <tr> <td>Day 7</td> <td>$ 23.66</td> <td>$ 22.57</td> <td>$ 23.05</td> </tr> <tr> <td>Day 8</td> <td>$ 23.97</td> <td>$ 22.80</td> <td>$ 23.31</td> </tr> <tr> <td>Day 9</td> <td>$ 24.29</td> <td>$ 23.15</td> <td>$ 23.68</td> </tr> <tr> <td>Day 10</td> <td>$ 24.60</td> <td>$ 23.45</td> <td>$ 23.97</td> </tr> <tr> <td>Day 11</td> <td>$ 24.92</td> <td>$ 23.76</td> <td>$ 24.31</td> </tr> <tr> <td>Day 12</td> <td>$ 25.23</td> <td>$ 24.09</td> <td>$ 24.60</td> </tr> <tr> <td>Day 13</td> <td>$ 25.55</td> <td>$ 24.39</td> <td>$ 24.89</td> </tr> <tr> <td>Day 14</td> <td>$ 25.86</td> <td>$ 24.69</td> <td>$ 25.20</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> You'd use these prices to calculate the TR for each day. </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=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Trading Range</th> </tr> </thead> <tbody data-check="-1"> <tr> <td></td> <td>H-L</td> <td>H-C<sub>p</sub></td> <td>L-C<sub>p</sub></td> </tr> <tr> <td>Day 1</td> <td>$ 1.73</td> <td>$ 0.44</td> <td>$ (1.29)</td> </tr> <tr> <td>Day 2</td> <td>$ 1.15</td> <td>$ 0.64</td> <td>$ (0.51)</td> </tr> <tr> <td>Day 3</td> <td>$ 1.16</td> <td>$ 0.67</td> <td>$ (0.49)</td> </tr> <tr> <td>Day 4</td> <td>$ 1.12</td> <td>$ 0.60</td> <td>$ (0.52)</td> </tr> <tr> <td>Day 5</td> <td>$ 1.15</td> <td>$ 0.61</td> <td>$ (0.54)</td> </tr> <tr> <td>Day 6</td> <td>$ 1.16</td> <td>$ 0.67</td> <td>$ (0.49)</td> </tr> <tr> <td>Day 7</td> <td>$ 1.09</td> <td>$ 0.61</td> <td>$ (0.48)</td> </tr> <tr> <td>Day 8</td> <td>$ 1.17</td> <td>$ 0.66</td> <td>$ (0.51)</td> </tr> <tr> <td>Day 9</td> <td>$ 1.14</td> <td>$ 0.61</td> <td>$ (0.53)</td> </tr> <tr> <td>Day 10</td> <td>$ 1.15</td> <td>$ 0.63</td> <td>$ (0.52)</td> </tr> <tr> <td>Day 11</td> <td>$ 1.16</td> <td>$ 0.61</td> <td>$ (0.55)</td> </tr> <tr> <td>Day 12</td> <td>$ 1.14</td> <td>$ 0.63</td> <td>$ (0.51)</td> </tr> <tr> <td>Day 13</td> <td>$ 1.16</td> <td>$ 0.66</td> <td>$ (0.50)</td> </tr> <tr> <td>Day 14</td> <td>$ 1.17</td> <td>$ 0.66</td> <td>$ (0.51)</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"> You find that the highest values for each day are from the (H - L) column, so you'd add up all of the results from the (H - L) column and multiply the result by 1/n, per the formula. </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"> <span data-value="\begin{aligned}\$1.73 &amp;+ \$1.15 + \$1.16 + \$1.12 + \$1.15 + \$1.16 + \$1.09 \\&amp;+ \$1.17 + \$1.14 + \$1.15 + \$1.16 + \$1.14 + \$1.16 \\&amp;+ \$1.17 = \$16.65 \\\end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow> <mi> $ </mi> <mn> 1.73 </mn> </mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mo> + </mo> <mi> $ </mi> <mn> 1.15 </mn> <mo> + </mo> <mi> $ </mi> <mn> 1.16 </mn> <mo> + </mo> <mi> $ </mi> <mn> 1.12 </mn> <mo> + </mo> <mi> $ </mi> <mn> 1.15 </mn> <mo> + </mo> <mi> $ </mi> <mn> 1.16 </mn> <mo> + </mo> <mi> $ </mi> <mn> 1.09 </mn> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mo> + </mo> <mi> $ </mi> <mn> 1.17 </mn> <mo> + </mo> <mi> $ </mi> <mn> 1.14 </mn> <mo> + </mo> <mi> $ </mi> <mn> 1.15 </mn> <mo> + </mo> <mi> $ </mi> <mn> 1.16 </mn> <mo> + </mo> <mi> $ </mi> <mn> 1.14 </mn> <mo> + </mo> <mi> $ </mi> <mn> 1.16 </mn> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mo> + </mo> <mi> $ </mi> <mn> 1.17 </mn> <mo> = </mo> <mi> $ </mi> <mn> 16.65 </mn> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned}\$1.73 &amp;+ \$1.15 + \$1.16 + \$1.12 + \$1.15 + \$1.16 + \$1.09 \\&amp;+ \$1.17 + \$1.14 + \$1.15 + \$1.16 + \$1.14 + \$1.16 \\&amp;+ \$1.17 = \$16.65 \\\end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">$1.73</span></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.15</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.16</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.12</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.15</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.16</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.09</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.17</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.14</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.15</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.16</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.14</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.16</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.17</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">$16.65</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span><br/> </p> <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"> <span data-value="\begin{aligned}\frac{ 1 }{ n } (\$16.65) = \frac{ 1 }{ 14 } (\$16.65)\end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow> <mfrac> <mn> 1 </mn> <mi> n </mi> </mfrac> <mo> ( </mo> <mi> $ </mi> <mn> 16.65 </mn> <mo> ) </mo> <mo> = </mo> <mfrac> <mn> 1 </mn> <mn> 14 </mn> </mfrac> <mo> ( </mo> <mi> $ </mi> <mn> 16.65 </mn> <mo> ) </mo> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned}\frac{ 1 }{ n } (\$16.65) = \frac{ 1 }{ 14 } (\$16.65)\end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord mathnormal">n</span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mopen">(</span><span class="mord">$16.65</span><span class="mclose">)</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">14</span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">1</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mopen">(</span><span class="mord">$16.65</span><span class="mclose">)</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> <span data-value="\begin{aligned}0.714 \times \$16.65 = \$1.18\end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow> <mn> 0.714 </mn> <mo> × </mo> <mi> $ </mi> <mn> 16.65 </mn> <mo> = </mo> <mi> $ </mi> <mn> 1.18 </mn> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned}0.714 \times \$16.65 = \$1.18\end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">0.714</span><span class="mspace"></span><span class="mbin">×</span><span class="mspace"></span><span class="mord">$16.65</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">$1.18</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> So, the average volatility for this asset is $1.18. </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"> Now that you have the ATR for the previous period, you can use it to determine the ATR for the current period using the following: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> <span data-value="\begin{aligned}\frac{ \text{Previous ATR} ( n - 1 ) + \text{TR} }{ n }\end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mfrac> <mrow> <mtext> Previous ATR </mtext> <mo> ( </mo> <mi> n </mi> <mo> − </mo> <mn> 1 </mn> <mo> ) </mo> <mo> + </mo> <mtext> TR </mtext> </mrow> <mi> n </mi> </mfrac> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned}\frac{ \text{Previous ATR} ( n - 1 ) + \text{TR} }{ n }\end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord mathnormal">n</span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord text"><span class="mord">Previous ATR</span></span><span class="mopen">(</span><span class="mord mathnormal">n</span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord">1</span><span class="mclose">)</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord text"><span class="mord">TR</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> This formula is much simpler because you only need to calculate the TR for one day. Assuming on Day 15, the asset has a high of $25.55, a low of $24.37, and closed the previous day at $24.87; its TR works out to $1.18: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> <span data-value="\begin{aligned}\frac{ \$1.18 ( 14 - 1 ) + \$1.18 }{ 14 }\end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mfrac> <mrow> <mi> $ </mi> <mn> 1.18 </mn> <mo> ( </mo> <mn> 14 </mn> <mo> − </mo> <mn> 1 </mn> <mo> ) </mo> <mo> + </mo> <mi> $ </mi> <mn> 1.18 </mn> </mrow> <mn> 14 </mn> </mfrac> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned}\frac{ \$1.18 ( 14 - 1 ) + \$1.18 }{ 14 }\end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">14</span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">$1.18</span><span class="mopen">(</span><span class="mord">14</span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"></span><span class="mord">1</span><span class="mclose">)</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.18</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> <span data-value="\begin{aligned}\frac{ \$1.18 ( 13 ) + \$1.18 }{ 14 }\end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mfrac> <mrow> <mi> $ </mi> <mn> 1.18 </mn> <mo> ( </mo> <mn> 13 </mn> <mo> ) </mo> <mo> + </mo> <mi> $ </mi> <mn> 1.18 </mn> </mrow> <mn> 14 </mn> </mfrac> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned}\frac{ \$1.18 ( 13 ) + \$1.18 }{ 14 }\end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">14</span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">$1.18</span><span class="mopen">(</span><span class="mord">13</span><span class="mclose">)</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.18</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span><br/> </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"> <span data-value="\begin{aligned}\frac{ \$15.34 + \$1.18 }{ 14 }\end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mfrac> <mrow> <mi> $ </mi> <mn> 15.34 </mn> <mo> + </mo> <mi> $ </mi> <mn> 1.18 </mn> </mrow> <mn> 14 </mn> </mfrac> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned}\frac{ \$15.34 + \$1.18 }{ 14 }\end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">14</span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">$15.34</span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord">$1.18</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> <span data-value="\begin{aligned}\frac{ \$16.52 }{ 14 } = \$1.18\end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow> <mfrac> <mrow> <mi> $ </mi> <mn> 16.52 </mn> </mrow> <mn> 14 </mn> </mfrac> <mo> = </mo> <mi> $ </mi> <mn> 1.18 </mn> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned}\frac{ \$16.52 }{ 14 } = \$1.18\end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">14</span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord">$16.52</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord">$1.18</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> The stock closed the day again with an average volatility (ATR) of $1.18.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></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_74-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:78.7%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" 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sizes="750px" src="https://www.investopedia.com/thmb/AN2wdB9Ec2C4VGW4EPtmBbaOM-4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-01-cdd2be9718e1407a8d58e3f306585c7c.jpg" srcset="https://www.investopedia.com/thmb/MUcvKpDH9QR4S_ymegeDA2w3-Eg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-01-cdd2be9718e1407a8d58e3f306585c7c.jpg 750w" width="4501"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Image by Sabrina Jiang © Investopedia 2020</p></span> </figcaption></figure> <span class="heading-toc" id="toc-what-does-the-atr-tell-you"></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"> What Does the ATR Tell You? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> Wilder originally developed the ATR for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodity.asp">commodities</a>, although the indicator can also be used for stocks and indices.<span class="ql-inline-citation" data-cite="1"></span> Simply put, a stock experiencing a high level of volatility has a higher ATR, and a lower ATR indicates lower volatility for the period evaluated. </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 ATR may be used by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technical-analyst.asp">market technicians</a> to enter and exit trades and is a useful tool to add to a trading system. It was created to allow traders to more accurately measure the daily volatility of an asset by using simple calculations. The indicator does not indicate the price direction; instead, it is used primarily to measure volatility caused by gaps and limit up or down moves. The ATR is relatively simple to calculate, and only needs historical price data. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> The ATR is commonly used as an exit method that can be applied no matter how the entry decision is made. One popular technique is known as the "chandelier exit" and was developed by Chuck LeBeau. The chandelier exit places a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trailingstop.asp">trailing stop</a> under the highest high the stock has reached since you entered the trade. The distance between the highest high and the stop level is defined as some multiple multiplied by the ATR.<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_81-0"></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_82-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:78.6%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/pey7U-tmjbx-yQJ4IihA_UZPndQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-02-84a21a371dd74b5aa0646d070ee15662.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/pey7U-tmjbx-yQJ4IihA_UZPndQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-02-84a21a371dd74b5aa0646d070ee15662.jpg" data-srcset="https://www.investopedia.com/thmb/gE0bKZCudbcc2U1jZoy0bwy6V38=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-02-84a21a371dd74b5aa0646d070ee15662.jpg 750w" data-tracking-container="true" height="3538" id="mntl-sc-block-image_2-0" width="4501"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3538" sizes="750px" src="https://www.investopedia.com/thmb/pey7U-tmjbx-yQJ4IihA_UZPndQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-02-84a21a371dd74b5aa0646d070ee15662.jpg" srcset="https://www.investopedia.com/thmb/gE0bKZCudbcc2U1jZoy0bwy6V38=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-02-84a21a371dd74b5aa0646d070ee15662.jpg 750w" width="4501"/> </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 2020</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> The ATR can also give a trader an indication of what size trade to use in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp">derivatives</a> markets. It is possible to use the ATR approach to position sizing that accounts for an individual trader's willingness to accept risk and the volatility of the underlying market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <span class="heading-toc" id="toc-example-of-how-to-use-the-atr"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_85-0"> <span class="mntl-sc-block-heading__text"> Example of How to Use the ATR </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> As a hypothetical example, assume the first value of a five-day ATR is calculated at 1.41, and the sixth day has a true range of 1.09. The sequential ATR value could be estimated by multiplying the previous value of the ATR by the number of days less one and then adding the true range for the current period to the product. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_88-0"> Next, divide the sum by the selected timeframe. For example, the second value of the ATR is estimated to be 1.35, or (1.41 * (5 - 1) + (1.09)) / 5. The formula could then be repeated over the entire period. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> While the ATR doesn't tell us in which direction the breakout will occur, it can be added to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closingprice.asp">closing price</a>, and the trader can buy whenever the next day's price trades above that value. This idea is shown below. Trading signals occur relatively infrequently but usually <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/08/atr.asp">indicate significant breakout points</a>. The logic behind these signals is that whenever a price closes more than an ATR above the most recent close, a change in volatility has occurred.<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_91-0"></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_92-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:78.6%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/c1feQmUtc0KegJztcpPeLVgQKR0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-03-9c06897a966f400291db7781a295779a.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/c1feQmUtc0KegJztcpPeLVgQKR0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-03-9c06897a966f400291db7781a295779a.jpg" data-srcset="https://www.investopedia.com/thmb/ijljIqLxHuKsgtD6nGB7xEcUorg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-03-9c06897a966f400291db7781a295779a.jpg 750w" data-tracking-container="true" height="3541" id="mntl-sc-block-image_3-0" width="4501"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3541" sizes="750px" src="https://www.investopedia.com/thmb/c1feQmUtc0KegJztcpPeLVgQKR0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-03-9c06897a966f400291db7781a295779a.jpg" srcset="https://www.investopedia.com/thmb/ijljIqLxHuKsgtD6nGB7xEcUorg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-03-9c06897a966f400291db7781a295779a.jpg 750w" width="4501"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_3-0"> <span class="figure-article-caption-owner"><p>Image by Sabrina Jiang © Investopedia 2020 </p></span> </figcaption></figure> <span class="heading-toc" id="toc-limitations-of-the-atr"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_93-0"> <span class="mntl-sc-block-heading__text"> Limitations of the ATR </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> There are two main limitations to using the ATR indicator. The first is that ATR is a subjective measure, meaning that it is open to interpretation. No single ATR value will tell you with any certainty that a trend is about to reverse or not. Instead, ATR readings should always be compared against earlier readings to get a feel of a trend's strength or weakness. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_95-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> Second, ATR only measures volatility and not <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/032715/what-difference-between-assetprice-inflation-and-economic-growth.asp">the direction of an asset's price</a>.<span class="ql-inline-citation" data-cite="3"></span> This can sometimes result in mixed signals, particularly when markets are experiencing pivots or when trends are at turning points. For instance, a sudden increase in the ATR following a large move counter to the prevailing trend may lead some traders to think the ATR is confirming the old trend; however, this may not be the case. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_97-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_98-0"><span class="heading-toc" id="toc-how-do-you-use-atr-indicator-in-trading"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Use ATR Indicator in Trading?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Average true range is used to evaluate an investment's price volatility. It is used in conjunction with other indicators and tools to enter and exit trades or decide whether to purchase an asset.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_99-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_100-0"><span class="heading-toc" id="toc-how-do-you-read-atr-values"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Read ATR Values?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An average true range value is the average price range of an investment over a period. So if the ATR for an asset is $1.18, its price has an average range of movement of $1.18 per trading day.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_101-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_102-0"><span class="heading-toc" id="toc-what-is-a-good-average-true-range"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Good Average True Range?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A good ATR depends on the asset. If it generally has an ATR of close to $1.18, it is performing in a way that can be interpreted as normal. If the same asset suddenly has an ATR of more than $1.18, it might indicate that further investigation is required. Likewise, if it has a much lower ATR, you should determine why it is happening before taking action.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></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_104-0"> <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_105-0"> The average true range is an indicator of the price volatility of an asset. It is best used to determine how much an investment's price has been moving in the period being evaluated rather than an indication of a trend. Calculating an investment's ATR is relatively straightforward, only requiring you to use price data for the period you're investigating.<br> </br></p></div>
## What Is the Average True Range (ATR)? The average true range (ATR) is a technical analysis indicator introduced by market technician J. Welles Wilder Jr. in his book *New Concepts in Technical Trading Systems* that measures market volatility by decomposing the entire range of an asset price for that period. The true range indicator is taken as the greatest of the following: current high less the current low; the absolute value of the current high less the previous close; and the absolute value of the current low less the previous close. The ATR is then a moving average, generally using 14 days, of the true ranges. Traders can use shorter periods than 14 days to generate more trading signals, while longer periods have a higher probability to generate fewer trading signals. ### Key Takeaways * The average true range (ATR) is a market volatility indicator used in technical analysis. * It is typically derived from the 14-day simple moving average of a series of true range indicators. * The ATR was initially developed for use in commodities markets but has since been applied to all types of securities. * ATR shows investors the average range prices swing for an investment over a specified period. ## The Average True Range (ATR) Formula The formula to calculate ATR for an investment with a previous ATR calculation is : Previous ATR ( n − 1 ) + TR n where: n = Number of periods TR = True range \begin{aligned}&\frac{ \text{Previous ATR} ( n - 1 ) + \text{TR} }{ n } \\&\textbf{where:} \\&n = \text{Number of periods} \\&\text{TR} = \text{True range} \\\end{aligned} ​nPrevious ATR(n−1)+TR​where:n=Number of periodsTR=True range​ If there is not a previous ATR calculated, you must use: ( 1 n ) ∑ i n TR i where: TR i = Particular true range, such as first day’s TR, then second, then third n = Number of periods \begin{aligned}&\Big ( \frac{ 1 }{ n } \Big ) \sum\_{i}^{n} \text{TR}\_i \\&\textbf{where:} \\&\text{TR}\_i = \text{Particular true range, such as first day's TR,} \\&\text{then second, then third} \\&n = \text{Number of periods} \\\end{aligned} ​(n1​)i∑n​TRi​where:TRi​=Particular true range, such as first day’s TR,then second, then thirdn=Number of periods​ ### The capital sigma symbol (Σ) represents the summation of all of the terms for *n* periods starting at *i*, or the period specified. If there is no number following *i*, it is assumed the starting point is the first period (you may see *i=1*, noting to start summing at the first term). You must first use the following formula to calculate the true range:  TR  =  Max  [ ( H − L ) , ∣ H − C p ∣ , ∣ L − C p ∣ ] where: H = Today’s high L = Today’s low C p = Yesterday’s closing price Max = Highest value of the three terms so   that: ( H − L ) = Today’s high minus the low ∣ H − C p ∣ = Absolute value of today’s high minus yesterday’s closing price ∣ L − C p ∣ = Absolute value of today’s low minus yesterday’s closing price \begin{aligned}&\text{ TR } = \text{ Max } [ ( \text{H} - \text{L} ), | \text{H} - \text{C}\_p |, | \text{L} - \text{C}\_p | ] \\&\textbf{where:} \\&\text{H} = \text{Today's high} \\&\text{L} = \text{Today's low} \\&\text{C}\_p = \text{Yesterday's closing price} \\&\text{Max} = \text{Highest value of the three terms} \\&\textbf{so that:} \\&( \text{H} - \text{L} ) = \text{Today's high minus the low} \\&| \text{H} - \text{C}\_p | = \text{Absolute value of today's high minus} \\&\text{yesterday's closing price} \\&| \text{L} - \text{C}\_p | = \text{Absolute value of today's low minus} \\&\text{yesterday's closing price} \\\end{aligned} ​ TR = Max [(H−L),∣H−Cp​∣,∣L−Cp​∣]where:H=Today’s highL=Today’s lowCp​=Yesterday’s closing priceMax=Highest value of the three termsso that:(H−L)=Today’s high minus the low∣H−Cp​∣=Absolute value of today’s high minusyesterday’s closing price∣L−Cp​∣=Absolute value of today’s low minusyesterday’s closing price​ ## How to Calculate the ATR The first step in calculating ATR is to find a series of true range values for a security. The price range of an asset for a given trading day is its high minus its low. To find an asset's true range value, you first determine the three terms from the formula. Suppose that XYZ's stock had a trading high today of $21.95 and a low of $20.22. It closed yesterday at $21.51. Using the three terms, we use the highest result: ( H − L ) = $ 21.95 − $ 20.22 = $ 1.73 ( \text{H} - \text{L}) = \$21.95 - \$20.22 = \$1.73 (H−L)=$21.95−$20.22=$1.73 ∣ ( H − C p ) ∣ = ∣ $ 21.95 − $ 21.51 ∣ = $ 0.44 | ( \text{H} - \text{C}\_p ) | = | \$21.95 - \$21.51 | = \$0.44 ∣(H−Cp​)∣=∣$21.95−$21.51∣=$0.44 ∣ ( L − C p ) ∣ = ∣ $ 20.22 − $ 21.51 ∣ = $ 1.29 | ( \text{L} - \text{C}\_p ) | = | \$20.22 - \$21.51 | = \$1.29 ∣(L−Cp​)∣=∣$20.22−$21.51∣=$1.29 The number you'd use would be $1.73 because it is the highest value. Because you don't have a previous ATR, you need to use the ATR formula: ( 1 n ) ∑ i n TR i \begin{aligned}\Big ( \frac{ 1 }{ n } \Big ) \sum\_{i}^{n} \text{TR}\_i\end{aligned} (n1​)i∑n​TRi​​ Using 14 days as the number of periods, you'd calculate the TR for each of the 14 days. Assume the following prices from the table. | Daily Values | | | | | --- | --- | --- | --- | | | High | Low | Yesterday's Close | | Day 1 | $ 21.95 | $ 20.22 | $ 21.51 | | Day 2 | $ 22.25 | $ 21.10 | $ 21.61 | | Day 3 | $ 21.50 | $ 20.34 | $ 20.83 | | Day 4 | $ 23.25 | $ 22.13 | $ 22.65 | | Day 5 | $ 23.03 | $ 21.87 | $ 22.41 | | Day 6 | $ 23.34 | $ 22.18 | $ 22.67 | | Day 7 | $ 23.66 | $ 22.57 | $ 23.05 | | Day 8 | $ 23.97 | $ 22.80 | $ 23.31 | | Day 9 | $ 24.29 | $ 23.15 | $ 23.68 | | Day 10 | $ 24.60 | $ 23.45 | $ 23.97 | | Day 11 | $ 24.92 | $ 23.76 | $ 24.31 | | Day 12 | $ 25.23 | $ 24.09 | $ 24.60 | | Day 13 | $ 25.55 | $ 24.39 | $ 24.89 | | Day 14 | $ 25.86 | $ 24.69 | $ 25.20 | You'd use these prices to calculate the TR for each day. | Trading Range | | | | | --- | --- | --- | --- | | | H-L | H-Cp | L-Cp | | Day 1 | $ 1.73 | $ 0.44 | $ (1.29) | | Day 2 | $ 1.15 | $ 0.64 | $ (0.51) | | Day 3 | $ 1.16 | $ 0.67 | $ (0.49) | | Day 4 | $ 1.12 | $ 0.60 | $ (0.52) | | Day 5 | $ 1.15 | $ 0.61 | $ (0.54) | | Day 6 | $ 1.16 | $ 0.67 | $ (0.49) | | Day 7 | $ 1.09 | $ 0.61 | $ (0.48) | | Day 8 | $ 1.17 | $ 0.66 | $ (0.51) | | Day 9 | $ 1.14 | $ 0.61 | $ (0.53) | | Day 10 | $ 1.15 | $ 0.63 | $ (0.52) | | Day 11 | $ 1.16 | $ 0.61 | $ (0.55) | | Day 12 | $ 1.14 | $ 0.63 | $ (0.51) | | Day 13 | $ 1.16 | $ 0.66 | $ (0.50) | | Day 14 | $ 1.17 | $ 0.66 | $ (0.51) | You find that the highest values for each day are from the (H - L) column, so you'd add up all of the results from the (H - L) column and multiply the result by 1/n, per the formula. $ 1.73 + $ 1.15 + $ 1.16 + $ 1.12 + $ 1.15 + $ 1.16 + $ 1.09 + $ 1.17 + $ 1.14 + $ 1.15 + $ 1.16 + $ 1.14 + $ 1.16 + $ 1.17 = $ 16.65 \begin{aligned}\$1.73 &+ \$1.15 + \$1.16 + \$1.12 + \$1.15 + \$1.16 + \$1.09 \\&+ \$1.17 + \$1.14 + \$1.15 + \$1.16 + \$1.14 + \$1.16 \\&+ \$1.17 = \$16.65 \\\end{aligned} $1.73​+$1.15+$1.16+$1.12+$1.15+$1.16+$1.09+$1.17+$1.14+$1.15+$1.16+$1.14+$1.16+$1.17=$16.65​ 1 n ( $ 16.65 ) = 1 14 ( $ 16.65 ) \begin{aligned}\frac{ 1 }{ n } (\$16.65) = \frac{ 1 }{ 14 } (\$16.65)\end{aligned} n1​($16.65)=141​($16.65)​ 0.714 × $ 16.65 = $ 1.18 \begin{aligned}0.714 \times \$16.65 = \$1.18\end{aligned} 0.714×$16.65=$1.18​ So, the average volatility for this asset is $1.18. Now that you have the ATR for the previous period, you can use it to determine the ATR for the current period using the following: Previous ATR ( n − 1 ) + TR n \begin{aligned}\frac{ \text{Previous ATR} ( n - 1 ) + \text{TR} }{ n }\end{aligned} nPrevious ATR(n−1)+TR​​ This formula is much simpler because you only need to calculate the TR for one day. Assuming on Day 15, the asset has a high of $25.55, a low of $24.37, and closed the previous day at $24.87; its TR works out to $1.18: $ 1.18 ( 14 − 1 ) + $ 1.18 14 \begin{aligned}\frac{ \$1.18 ( 14 - 1 ) + \$1.18 }{ 14 }\end{aligned} 14$1.18(14−1)+$1.18​​ $ 1.18 ( 13 ) + $ 1.18 14 \begin{aligned}\frac{ \$1.18 ( 13 ) + \$1.18 }{ 14 }\end{aligned} 14$1.18(13)+$1.18​​ $ 15.34 + $ 1.18 14 \begin{aligned}\frac{ \$15.34 + \$1.18 }{ 14 }\end{aligned} 14$15.34+$1.18​​ $ 16.52 14 = $ 1.18 \begin{aligned}\frac{ \$16.52 }{ 14 } = \$1.18\end{aligned} 14$16.52​=$1.18​ The stock closed the day again with an average volatility (ATR) of $1.18. ![Image]() ![Image](https://www.investopedia.com/thmb/AN2wdB9Ec2C4VGW4EPtmBbaOM-4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-01-cdd2be9718e1407a8d58e3f306585c7c.jpg) Image by Sabrina Jiang © Investopedia 2020 ## What Does the ATR Tell You? Wilder originally developed the ATR for [commodities](https://www.investopedia.com/terms/c/commodity.asp), although the indicator can also be used for stocks and indices. Simply put, a stock experiencing a high level of volatility has a higher ATR, and a lower ATR indicates lower volatility for the period evaluated. The ATR may be used by [market technicians](https://www.investopedia.com/terms/t/technical-analyst.asp) to enter and exit trades and is a useful tool to add to a trading system. It was created to allow traders to more accurately measure the daily volatility of an asset by using simple calculations. The indicator does not indicate the price direction; instead, it is used primarily to measure volatility caused by gaps and limit up or down moves. The ATR is relatively simple to calculate, and only needs historical price data. The ATR is commonly used as an exit method that can be applied no matter how the entry decision is made. One popular technique is known as the "chandelier exit" and was developed by Chuck LeBeau. The chandelier exit places a [trailing stop](https://www.investopedia.com/terms/t/trailingstop.asp) under the highest high the stock has reached since you entered the trade. The distance between the highest high and the stop level is defined as some multiple multiplied by the ATR. ![Image]() ![Image](https://www.investopedia.com/thmb/pey7U-tmjbx-yQJ4IihA_UZPndQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-02-84a21a371dd74b5aa0646d070ee15662.jpg) Image by Sabrina Jiang © Investopedia 2020 The ATR can also give a trader an indication of what size trade to use in the [derivatives](https://www.investopedia.com/terms/d/derivative.asp) markets. It is possible to use the ATR approach to position sizing that accounts for an individual trader's willingness to accept risk and the volatility of the underlying market. ## Example of How to Use the ATR As a hypothetical example, assume the first value of a five-day ATR is calculated at 1.41, and the sixth day has a true range of 1.09. The sequential ATR value could be estimated by multiplying the previous value of the ATR by the number of days less one and then adding the true range for the current period to the product. Next, divide the sum by the selected timeframe. For example, the second value of the ATR is estimated to be 1.35, or (1.41 \* (5 - 1) + (1.09)) / 5. The formula could then be repeated over the entire period. While the ATR doesn't tell us in which direction the breakout will occur, it can be added to the [closing price](https://www.investopedia.com/terms/c/closingprice.asp), and the trader can buy whenever the next day's price trades above that value. This idea is shown below. Trading signals occur relatively infrequently but usually [indicate significant breakout points](https://www.investopedia.com/articles/trading/08/atr.asp). The logic behind these signals is that whenever a price closes more than an ATR above the most recent close, a change in volatility has occurred. ![Image]() ![Image](https://www.investopedia.com/thmb/c1feQmUtc0KegJztcpPeLVgQKR0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Enter_Profitable_Territory_With_Average_True_Range_Jun_2020-03-9c06897a966f400291db7781a295779a.jpg) Image by Sabrina Jiang © Investopedia 2020  ## Limitations of the ATR There are two main limitations to using the ATR indicator. The first is that ATR is a subjective measure, meaning that it is open to interpretation. No single ATR value will tell you with any certainty that a trend is about to reverse or not. Instead, ATR readings should always be compared against earlier readings to get a feel of a trend's strength or weakness. Second, ATR only measures volatility and not [the direction of an asset's price](https://www.investopedia.com/ask/answers/032715/what-difference-between-assetprice-inflation-and-economic-growth.asp). This can sometimes result in mixed signals, particularly when markets are experiencing pivots or when trends are at turning points. For instance, a sudden increase in the ATR following a large move counter to the prevailing trend may lead some traders to think the ATR is confirming the old trend; however, this may not be the case. ## How Do You Use ATR Indicator in Trading? Average true range is used to evaluate an investment's price volatility. It is used in conjunction with other indicators and tools to enter and exit trades or decide whether to purchase an asset. ## How Do You Read ATR Values? An average true range value is the average price range of an investment over a period. So if the ATR for an asset is $1.18, its price has an average range of movement of $1.18 per trading day. ## What Is a Good Average True Range? A good ATR depends on the asset. If it generally has an ATR of close to $1.18, it is performing in a way that can be interpreted as normal. If the same asset suddenly has an ATR of more than $1.18, it might indicate that further investigation is required. Likewise, if it has a much lower ATR, you should determine why it is happening before taking action. ## The Bottom Line The average true range is an indicator of the price volatility of an asset. It is best used to determine how much an investment's price has been moving in the period being evaluated rather than an indication of a trend. Calculating an investment's ATR is relatively straightforward, only requiring you to use price data for the period you're investigating.
What Is the Average True Range (ATR)? The average true range (ATR) is a technical analysis indicator introduced by market technician J. Welles Wilder Jr. in his book New Concepts in Technical Trading Systems that measures market volatility by decomposing the entire range of an asset price for that period. The true range indicator is taken as the greatest of the following: current high less the current low; the absolute value of the current high less the previous close; and the absolute value of the current low less the previous close. The ATR is then a moving average, generally using 14 days, of the true ranges. Traders can use shorter periods than 14 days to generate more trading signals, while longer periods have a higher probability to generate fewer trading signals. Key Takeaways The average true range (ATR) is a market volatility indicator used in technical analysis.It is typically derived from the 14-day simple moving average of a series of true range indicators.The ATR was initially developed for use in commodities markets but has since been applied to all types of securities.ATR shows investors the average range prices swing for an investment over a specified period. The Average True Range (ATR) Formula The formula to calculate ATR for an investment with a previous ATR calculation is : Previous ATR ( n − 1 ) + TR n where: n = Number of periods TR = True range \begin{aligned}&\frac{ \text{Previous ATR} ( n - 1 ) + \text{TR} }{ n } \\&\textbf{where:} \\&n = \text{Number of periods} \\&\text{TR} = \text{True range} \\\end{aligned} ​nPrevious ATR(n−1)+TR​where:n=Number of periodsTR=True range​ If there is not a previous ATR calculated, you must use: ( 1 n ) ∑ i n TR i where: TR i = Particular true range, such as first day’s TR, then second, then third n = Number of periods \begin{aligned}&\Big ( \frac{ 1 }{ n } \Big ) \sum_{i}^{n} \text{TR}_i \\&\textbf{where:} \\&\text{TR}_i = \text{Particular true range, such as first day's TR,} \\&\text{then second, then third} \\&n = \text{Number of periods} \\\end{aligned} ​(n1​)i∑n​TRi​where:TRi​=Particular true range, such as first day’s TR,then second, then thirdn=Number of periods​ The capital sigma symbol (Σ) represents the summation of all of the terms for n periods starting at i, or the period specified. If there is no number following i, it is assumed the starting point is the first period (you may see i=1, noting to start summing at the first term). You must first use the following formula to calculate the true range:  TR  =  Max  [ ( H − L ) , ∣ H − C p ∣ , ∣ L − C p ∣ ] where: H = Today’s high L = Today’s low C p = Yesterday’s closing price Max = Highest value of the three terms so   that: ( H − L ) = Today’s high minus the low ∣ H − C p ∣ = Absolute value of today’s high minus yesterday’s closing price ∣ L − C p ∣ = Absolute value of today’s low minus yesterday’s closing price \begin{aligned}&\text{ TR } = \text{ Max } [ ( \text{H} - \text{L} ), | \text{H} - \text{C}_p |, | \text{L} - \text{C}_p | ] \\&\textbf{where:} \\&\text{H} = \text{Today's high} \\&\text{L} = \text{Today's low} \\&\text{C}_p = \text{Yesterday's closing price} \\&\text{Max} = \text{Highest value of the three terms} \\&\textbf{so that:} \\&( \text{H} - \text{L} ) = \text{Today's high minus the low} \\&| \text{H} - \text{C}_p | = \text{Absolute value of today's high minus} \\&\text{yesterday's closing price} \\&| \text{L} - \text{C}_p | = \text{Absolute value of today's low minus} \\&\text{yesterday's closing price} \\\end{aligned} ​ TR = Max [(H−L),∣H−Cp​∣,∣L−Cp​∣]where:H=Today’s highL=Today’s lowCp​=Yesterday’s closing priceMax=Highest value of the three termsso that:(H−L)=Today’s high minus the low∣H−Cp​∣=Absolute value of today’s high minusyesterday’s closing price∣L−Cp​∣=Absolute value of today’s low minusyesterday’s closing price​ How to Calculate the ATR The first step in calculating ATR is to find a series of true range values for a security. The price range of an asset for a given trading day is its high minus its low. To find an asset's true range value, you first determine the three terms from the formula. Suppose that XYZ's stock had a trading high today of $21.95 and a low of $20.22. It closed yesterday at $21.51. Using the three terms, we use the highest result: ( H − L ) = $ 21.95 − $ 20.22 = $ 1.73 ( \text{H} - \text{L}) = \$21.95 - \$20.22 = \$1.73 (H−L)=$21.95−$20.22=$1.73 ∣ ( H − C p ) ∣ = ∣ $ 21.95 − $ 21.51 ∣ = $ 0.44 | ( \text{H} - \text{C}_p ) | = | \$21.95 - \$21.51 | = \$0.44 ∣(H−Cp​)∣=∣$21.95−$21.51∣=$0.44 ∣ ( L − C p ) ∣ = ∣ $ 20.22 − $ 21.51 ∣ = $ 1.29 | ( \text{L} - \text{C}_p ) | = | \$20.22 - \$21.51 | = \$1.29 ∣(L−Cp​)∣=∣$20.22−$21.51∣=$1.29 The number you'd use would be $1.73 because it is the highest value. Because you don't have a previous ATR, you need to use the ATR formula: ( 1 n ) ∑ i n TR i \begin{aligned}\Big ( \frac{ 1 }{ n } \Big ) \sum_{i}^{n} \text{TR}_i\end{aligned} (n1​)i∑n​TRi​​ Using 14 days as the number of periods, you'd calculate the TR for each of the 14 days. Assume the following prices from the table. Daily Values    High Low  Yesterday's Close Day 1 $ 21.95 $ 20.22 $ 21.51 Day 2 $ 22.25 $ 21.10 $ 21.61 Day 3 $ 21.50 $ 20.34 $ 20.83 Day 4 $ 23.25 $ 22.13 $ 22.65 Day 5 $ 23.03 $ 21.87 $ 22.41 Day 6 $ 23.34 $ 22.18 $ 22.67 Day 7 $ 23.66 $ 22.57 $ 23.05 Day 8 $ 23.97 $ 22.80 $ 23.31 Day 9 $ 24.29 $ 23.15 $ 23.68 Day 10 $ 24.60 $ 23.45 $ 23.97 Day 11 $ 24.92 $ 23.76 $ 24.31 Day 12 $ 25.23 $ 24.09 $ 24.60 Day 13 $ 25.55 $ 24.39 $ 24.89 Day 14 $ 25.86 $ 24.69 $ 25.20 You'd use these prices to calculate the TR for each day. Trading Range H-L H-Cp L-Cp Day 1 $ 1.73 $ 0.44 $ (1.29) Day 2 $ 1.15 $ 0.64 $ (0.51) Day 3 $ 1.16 $ 0.67 $ (0.49) Day 4 $ 1.12 $ 0.60 $ (0.52) Day 5 $ 1.15 $ 0.61 $ (0.54) Day 6 $ 1.16 $ 0.67 $ (0.49) Day 7 $ 1.09 $ 0.61 $ (0.48) Day 8 $ 1.17 $ 0.66 $ (0.51) Day 9 $ 1.14 $ 0.61 $ (0.53) Day 10 $ 1.15 $ 0.63 $ (0.52) Day 11 $ 1.16 $ 0.61 $ (0.55) Day 12 $ 1.14 $ 0.63 $ (0.51) Day 13 $ 1.16 $ 0.66 $ (0.50) Day 14 $ 1.17 $ 0.66 $ (0.51) You find that the highest values for each day are from the (H - L) column, so you'd add up all of the results from the (H - L) column and multiply the result by 1/n, per the formula. $ 1.73 + $ 1.15 + $ 1.16 + $ 1.12 + $ 1.15 + $ 1.16 + $ 1.09 + $ 1.17 + $ 1.14 + $ 1.15 + $ 1.16 + $ 1.14 + $ 1.16 + $ 1.17 = $ 16.65 \begin{aligned}\$1.73 &+ \$1.15 + \$1.16 + \$1.12 + \$1.15 + \$1.16 + \$1.09 \\&+ \$1.17 + \$1.14 + \$1.15 + \$1.16 + \$1.14 + \$1.16 \\&+ \$1.17 = \$16.65 \\\end{aligned} $1.73​+$1.15+$1.16+$1.12+$1.15+$1.16+$1.09+$1.17+$1.14+$1.15+$1.16+$1.14+$1.16+$1.17=$16.65​ 1 n ( $ 16.65 ) = 1 14 ( $ 16.65 ) \begin{aligned}\frac{ 1 }{ n } (\$16.65) = \frac{ 1 }{ 14 } (\$16.65)\end{aligned} n1​($16.65)=141​($16.65)​ 0.714 × $ 16.65 = $ 1.18 \begin{aligned}0.714 \times \$16.65 = \$1.18\end{aligned} 0.714×$16.65=$1.18​ So, the average volatility for this asset is $1.18. Now that you have the ATR for the previous period, you can use it to determine the ATR for the current period using the following: Previous ATR ( n − 1 ) + TR n \begin{aligned}\frac{ \text{Previous ATR} ( n - 1 ) + \text{TR} }{ n }\end{aligned} nPrevious ATR(n−1)+TR​​ This formula is much simpler because you only need to calculate the TR for one day. Assuming on Day 15, the asset has a high of $25.55, a low of $24.37, and closed the previous day at $24.87; its TR works out to $1.18: $ 1.18 ( 14 − 1 ) + $ 1.18 14 \begin{aligned}\frac{ \$1.18 ( 14 - 1 ) + \$1.18 }{ 14 }\end{aligned} 14$1.18(14−1)+$1.18​​ $ 1.18 ( 13 ) + $ 1.18 14 \begin{aligned}\frac{ \$1.18 ( 13 ) + \$1.18 }{ 14 }\end{aligned} 14$1.18(13)+$1.18​​ $ 15.34 + $ 1.18 14 \begin{aligned}\frac{ \$15.34 + \$1.18 }{ 14 }\end{aligned} 14$15.34+$1.18​​ $ 16.52 14 = $ 1.18 \begin{aligned}\frac{ \$16.52 }{ 14 } = \$1.18\end{aligned} 14$16.52​=$1.18​ The stock closed the day again with an average volatility (ATR) of $1.18. Image by Sabrina Jiang © Investopedia 2020 What Does the ATR Tell You? Wilder originally developed the ATR for commodities, although the indicator can also be used for stocks and indices. Simply put, a stock experiencing a high level of volatility has a higher ATR, and a lower ATR indicates lower volatility for the period evaluated. The ATR may be used by market technicians to enter and exit trades and is a useful tool to add to a trading system. It was created to allow traders to more accurately measure the daily volatility of an asset by using simple calculations. The indicator does not indicate the price direction; instead, it is used primarily to measure volatility caused by gaps and limit up or down moves. The ATR is relatively simple to calculate, and only needs historical price data. The ATR is commonly used as an exit method that can be applied no matter how the entry decision is made. One popular technique is known as the "chandelier exit" and was developed by Chuck LeBeau. The chandelier exit places a trailing stop under the highest high the stock has reached since you entered the trade. The distance between the highest high and the stop level is defined as some multiple multiplied by the ATR. Image by Sabrina Jiang © Investopedia 2020 The ATR can also give a trader an indication of what size trade to use in the derivatives markets. It is possible to use the ATR approach to position sizing that accounts for an individual trader's willingness to accept risk and the volatility of the underlying market. Example of How to Use the ATR As a hypothetical example, assume the first value of a five-day ATR is calculated at 1.41, and the sixth day has a true range of 1.09. The sequential ATR value could be estimated by multiplying the previous value of the ATR by the number of days less one and then adding the true range for the current period to the product. Next, divide the sum by the selected timeframe. For example, the second value of the ATR is estimated to be 1.35, or (1.41 * (5 - 1) + (1.09)) / 5. The formula could then be repeated over the entire period. While the ATR doesn't tell us in which direction the breakout will occur, it can be added to the closing price, and the trader can buy whenever the next day's price trades above that value. This idea is shown below. Trading signals occur relatively infrequently but usually indicate significant breakout points. The logic behind these signals is that whenever a price closes more than an ATR above the most recent close, a change in volatility has occurred. Image by Sabrina Jiang © Investopedia 2020  Limitations of the ATR There are two main limitations to using the ATR indicator. The first is that ATR is a subjective measure, meaning that it is open to interpretation. No single ATR value will tell you with any certainty that a trend is about to reverse or not. Instead, ATR readings should always be compared against earlier readings to get a feel of a trend's strength or weakness. Second, ATR only measures volatility and not the direction of an asset's price. This can sometimes result in mixed signals, particularly when markets are experiencing pivots or when trends are at turning points. For instance, a sudden increase in the ATR following a large move counter to the prevailing trend may lead some traders to think the ATR is confirming the old trend; however, this may not be the case. How Do You Use ATR Indicator in Trading? Average true range is used to evaluate an investment's price volatility. It is used in conjunction with other indicators and tools to enter and exit trades or decide whether to purchase an asset. How Do You Read ATR Values? An average true range value is the average price range of an investment over a period. So if the ATR for an asset is $1.18, its price has an average range of movement of $1.18 per trading day. What Is a Good Average True Range? A good ATR depends on the asset. If it generally has an ATR of close to $1.18, it is performing in a way that can be interpreted as normal. If the same asset suddenly has an ATR of more than $1.18, it might indicate that further investigation is required. Likewise, if it has a much lower ATR, you should determine why it is happening before taking action. The Bottom Line The average true range is an indicator of the price volatility of an asset. It is best used to determine how much an investment's price has been moving in the period being evaluated rather than an indication of a trend. Calculating an investment's ATR is relatively straightforward, only requiring you to use price data for the period you're investigating.
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https://www.investopedia.com/financial-edge/0312/how-to-invest-if-youre-broke.aspx
How to Invest When You're Broke
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 old saying that it takes money to make money is true. For those living <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/paycheck-to-paycheck.asp">paycheck to paycheck</a>, there often isn't enough money left over to put toward investing. When you need the money now, thinking about an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">individual retirement account</a> (IRA) and the stock market might be far down on your priority list. However, by reading this article and gaining knowledge, you are taking one of the necessary first steps in building a retirement nest egg. </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>Setting aside small amounts of money can help you save even if the idea of investing is daunting.</li><li>Dividend reinvestment plans allow you to buy small amounts of dividend-paying stocks straight from the company while reinvesting the dividends.</li><li>You can buy one ETF share at a time through a broker.</li><li>Although target-date funds divvy up your investment based on your target retirement date, they often have large minimums to initially invest and may have substantial fees.</li><li>A 401(k) with matching funds is essentially free money and therefore should take priority over outside investments.</li><li>Investors who are in debt need to understand what kind of debt they are in and may need to prioritize paying off the debt over investing for a period of time.</li></ul></div></div></div> <span class="heading-toc" id="toc-you-need-money"></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"> You Need Money </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The fact remains that you must <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0810/the-7-best-places-to-put-your-savings.aspx">put money away</a> for later years or face a possible catastrophic situation. Someday, you won't be able to work and Social Security won't be enough to live on—assuming the fund is around in 20 or 30 years. You can start investing now with less money than you think it will take. </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"> First, we have to solve the problem of limited funds and the advice isn't new or revolutionary. Something in your life has to go, but it doesn't have to be a big life change. Simple changes that save $1 here and $5 there can add up to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/123115/best-ways-invest-500-5000.asp">make a big impact</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"> We've put together a few ideas for those people who don't see any available funds for investing. </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">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>As with anything else, make sure you consult a financial professional about your investment options. This is especially important if you're trying to juggle saving while paying off your debts.</p></div></div></div> <span class="heading-toc" id="toc-dividend-reinvestment-plans-drips"></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"> Dividend Reinvestment Plans (DRIPS) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividendreinvestmentplan.asp">Dividend reinvestment plans</a> (DRIPS) allow you to invest small amounts of money into a dividend-paying stock, by purchasing directly from the company. </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"> Companies like GE, Coca-Cola, Verizon, Home Depot, and Johnson &amp; Johnson are just a few of the companies that allow you to make regular purchases of very small amounts of stock, and reinvest the dividends.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="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"> This can add up to a big investment over time and, as you gain a larger balance, you may consider diverting some of these funds into other investments. </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-exchange-traded-funds-etfs"></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"> Exchange-Traded Funds (ETFs) </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/terms/e/etf.asp">Exchange-traded funds</a> (ETFs) are financial products that track the performance of a certain sector of the investment market. You can buy as little as one share of an ETF through a broker, and some of these ETFs track the performance of the total stock market, the bond market, and many others. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Many ETFs also pay a dividend, so purchasing a fund like the Vanguard Total Stock Market ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.tradingview.com/symbols/AMEX-VTI/" rel="sponsored nofollow">VTI</a>) will bring exposure to an instantly diversified portfolio that also pays a dividend.<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_25-0"></div> <span class="heading-toc" id="toc-target-date-funds"></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"> Target-Date Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/target-date_fund.asp">Target-date funds</a>, as the name implies, target your retirement date by changing the percentage of stocks and bonds to ensure that your money remains safe as you approach retirement age. </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"> Some of these funds require a minimum investment of $1,000, but they may serve as great products for investors who don't want to manage their portfolios on their own. But make sure you use caution when picking a target-date fund because of the high fees that some of these vehicles charge.<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> <span class="heading-toc" id="toc-the-401k"></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"> The 401(k) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The <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> is an employer-sponsored retirement savings plan that allows you to put away a portion of your paycheck into an investment account. The plan comes with tax savings depending on the type of plan you have: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> <li>If you invest in a traditional 401(k), you can set aside pre-tax dollars, which lowers your taxable income and, therefore, your tax liability.</li> <li>If you invest in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/roth401k.asp">Roth 401(k)</a>, any withdrawals you make during retirement are tax-free.</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"> If you have a 401(k) that will match your contributions, invest there first. Since your company is giving you free money to invest, you should consider funding your 401(k) before outside investments. </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-investing-while-in-debt"></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"> Investing While in Debt </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> If you have some money saved or invested, you want to see it grow over time. Many factors can prevent this from happening. Debt is one of the biggest obstacles for some people. If you have a sizable amount of debt to deal with, whether it's a mortgage, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lineofcredit.asp">line of credit (LOC)</a>, student loan, or credit card, you can still learn how to balance your debt with saving and investing. </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"> Having debt can make it very difficult for investors to make money. In some cases, investing while in debt is like trying to bail out a sinking ship with a coffee cup. For instance, if you owe money on a LOC with 7% interest, the money you put aside will have to make more than 7% (after taxes and fees) to make it more profitable than paying down the debt. Some investments deliver such high returns, but you have to be able to find them, knowing you are under the burden of debt. </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"> It is important to briefly distinguish between the different kinds of debt that may be incurred. </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"> High-Interest Debt </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> High interest is relative, but anything above 10% is a good candidate for this category. Having said that, you can probably count your credit card as a high-interest debt. Carrying any kind of balance on your credit card or similar high-interest vehicle makes paying it down a priority before starting to invest. </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"> Low-Interest Debt </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> This type of low-interest debt may often be a car loan, a line of credit, or a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">personal loan</a> from a bank. </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 interest rates are usually described as a prime plus or minus a certain percentage, so there is still some performance pressure from investing with this type of debt. It is, however, much less daunting to make a portfolio that returns 12% than one that has to return 25%. </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"> One thing to keep in mind, though, is that 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> determines your interest rate. The better your score, the lower your rate. But if you have a less-than-stellar credit history, the chance of obtaining a low-interest loan may be small. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_55-0"> <span class="mntl-sc-block-subheading__text"> Tax-Deductible Debt </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> If there is such a thing as good debt, this is it. Tax-deductible debts include mortgages, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loans-4689727">student loans</a>, business loans, investment loans, and all the other loans in which interest paid is returned to you in the form of tax deductions. Since this debt is generally low interest as well, you can easily build a portfolio while paying it down. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> The types of debt we focus on here are long-term low-interest and tax-deductible debt, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/mortgage-rates/payment-structure/">mortgage payments</a>. If you do have high-interest debt, you'll likely want to focus on paying it off before you begin your investing adventure. </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-callout mntl-block" id="mntl-sc-block_60-0"><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_61-0"><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>Not all interest-bearing loans are tax-deductible. Be sure to check with your lender or a financial professional whether you can deduct the interest on your loan.</p></div></div></div> <span class="heading-toc" id="toc-compounding-to-grow-money"></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"> Compounding to Grow Money </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Debt elimination, particularly of something like a loan that will take long-term capital, robs you of time and money. In the long term, the time (in terms of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compounding.asp">compounding</a> time of your investment) that you lose is worth more to you than the money you actually pay (in terms of the money and interest that you are paying to your lender). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> You want to give your money as much time as possible to compound. This is one of the reasons to start a portfolio despite carrying debt, but not the only one. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/twenty-five-dollar-investment.asp">Your investments may be small</a>, but they will pay off more than investments you would make later in life because these small investments will have more time to mature. </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-creating-a-plan-to-invest"></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"> Creating a Plan to Invest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> Instead of making a traditional portfolio with high- and low-risk investments that are adjusted according to your tolerance and age, the idea is to make your loan payments in place of low-risk and/or fixed-income investments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> This means that you will be seeing returns from decreasing your debt load and interest payments rather than the 2% to 8% return on a bond or similar investment. </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"> The rest of your portfolio should focus on higher-risk, high-return investments like stocks. If your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risktolerance.asp">risk tolerance</a> is very low, the bulk of your investing money will still be going toward loan payments, but there will be a percentage that does make it into the market to produce returns for you. </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"> Even if you have a high-risk tolerance, you may not be able to put as much as you'd like into your investment portfolio because, unlike bonds, loans require a certain amount in monthly payments. Your debt load may force you to create a conservative portfolio with most of your money being invested in your loans and only a little going into your high-risk and return investments. As the debt gets smaller, you can adjust your distributions accordingly. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_76-0"><span class="heading-toc" id="toc-how-do-you-invest-with-little-money"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Invest With Little Money?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Before you start investing, it is wise to have your finances in as much order as possible. The first step would be to save up cash in an emergency fund, usually three to six months of your salary. The next would be to start paying down high-interest debt, such as credit card debt. Once that is resolved, it is wise to start putting money in a retirement plan, such as a 401(k) at work or an IRA. This should be a monthly contribution and is investing. From there, you can start investing outside of retirement plans, even if it is a small amount of money. A simple way to start investing is to choose an ETF, such as one that tracks the S&amp;P 500, which will give you exposure to the broad market.</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-much-do-you-need-to-start-investing"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Do You Need to Start Investing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You do not need a lot of money to start investing. You can start investing in a retirement plan with any amount of money. If you have a 401(k) at work or your own IRA, putting any amount of money into the accounts will count as investing. If you want to invest in the stock market, having enough money to buy one share of a company's stock that you like will also be enough to get you started.</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-should-a-beginner-invest"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Should a Beginner Invest?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A beginner should start investing with contributions to a retirement plan. They should then choose index funds or exchange-traded funds (ETFs). A good way to start is also by choosing a robo-advisor that will make investment decisions for you based on the criteria you decide.</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"> You can invest despite debt. The important question is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/why-should-i-invest/">whether or not you should</a>. The answer to this question is personalized to your financial situation and risk tolerance. There are certainly benefits from getting your money into the market as soon as possible, but there is also no guarantee that your portfolio will perform as expected. These things depend on your investing strategy and market timing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> The biggest benefit of investing while in debt is psychological. Paying down long-term debts can be tedious and disheartening if you are not the type of person who puts your shoulder into a task and keeps pushing until it is done. For many people who are servicing debt, it seems like they are struggling to get to the point where their regular financial life—that of saving and investing—can begin. </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"> Debt becomes like a limbo state where things seem to be happening in slow motion. By having even a modest portfolio to track, you can keep your enthusiasm about the growth of your personal finances from ebbing. For some people, building a portfolio while in debt provides a much-needed ray of light. </p></div>
The old saying that it takes money to make money is true. For those living [paycheck to paycheck](https://www.investopedia.com/terms/p/paycheck-to-paycheck.asp), there often isn't enough money left over to put toward investing. When you need the money now, thinking about an [individual retirement account](https://www.investopedia.com/terms/i/ira.asp) (IRA) and the stock market might be far down on your priority list. However, by reading this article and gaining knowledge, you are taking one of the necessary first steps in building a retirement nest egg. ### Key Takeaways * Setting aside small amounts of money can help you save even if the idea of investing is daunting. * Dividend reinvestment plans allow you to buy small amounts of dividend-paying stocks straight from the company while reinvesting the dividends. * You can buy one ETF share at a time through a broker. * Although target-date funds divvy up your investment based on your target retirement date, they often have large minimums to initially invest and may have substantial fees. * A 401(k) with matching funds is essentially free money and therefore should take priority over outside investments. * Investors who are in debt need to understand what kind of debt they are in and may need to prioritize paying off the debt over investing for a period of time. ## You Need Money The fact remains that you must [put money away](https://www.investopedia.com/financial-edge/0810/the-7-best-places-to-put-your-savings.aspx) for later years or face a possible catastrophic situation. Someday, you won't be able to work and Social Security won't be enough to live on—assuming the fund is around in 20 or 30 years. You can start investing now with less money than you think it will take. First, we have to solve the problem of limited funds and the advice isn't new or revolutionary. Something in your life has to go, but it doesn't have to be a big life change. Simple changes that save $1 here and $5 there can add up to [make a big impact](https://www.investopedia.com/articles/personal-finance/123115/best-ways-invest-500-5000.asp). We've put together a few ideas for those people who don't see any available funds for investing. ### Note As with anything else, make sure you consult a financial professional about your investment options. This is especially important if you're trying to juggle saving while paying off your debts. ## Dividend Reinvestment Plans (DRIPS) [Dividend reinvestment plans](https://www.investopedia.com/terms/d/dividendreinvestmentplan.asp) (DRIPS) allow you to invest small amounts of money into a dividend-paying stock, by purchasing directly from the company. Companies like GE, Coca-Cola, Verizon, Home Depot, and Johnson & Johnson are just a few of the companies that allow you to make regular purchases of very small amounts of stock, and reinvest the dividends. This can add up to a big investment over time and, as you gain a larger balance, you may consider diverting some of these funds into other investments. ## Exchange-Traded Funds (ETFs) [Exchange-traded funds](https://www.investopedia.com/terms/e/etf.asp) (ETFs) are financial products that track the performance of a certain sector of the investment market. You can buy as little as one share of an ETF through a broker, and some of these ETFs track the performance of the total stock market, the bond market, and many others. Many ETFs also pay a dividend, so purchasing a fund like the Vanguard Total Stock Market ETF ([VTI](https://www.tradingview.com/symbols/AMEX-VTI/)) will bring exposure to an instantly diversified portfolio that also pays a dividend. ## Target-Date Funds [Target-date funds](https://www.investopedia.com/terms/t/target-date_fund.asp), as the name implies, target your retirement date by changing the percentage of stocks and bonds to ensure that your money remains safe as you approach retirement age. Some of these funds require a minimum investment of $1,000, but they may serve as great products for investors who don't want to manage their portfolios on their own. But make sure you use caution when picking a target-date fund because of the high fees that some of these vehicles charge. ## The 401(k) The [401(k)](https://www.investopedia.com/terms/1/401kplan.asp) is an employer-sponsored retirement savings plan that allows you to put away a portion of your paycheck into an investment account. The plan comes with tax savings depending on the type of plan you have: * If you invest in a traditional 401(k), you can set aside pre-tax dollars, which lowers your taxable income and, therefore, your tax liability. * If you invest in a [Roth 401(k)](https://www.investopedia.com/terms/r/roth401k.asp), any withdrawals you make during retirement are tax-free. If you have a 401(k) that will match your contributions, invest there first. Since your company is giving you free money to invest, you should consider funding your 401(k) before outside investments. ## Investing While in Debt If you have some money saved or invested, you want to see it grow over time. Many factors can prevent this from happening. Debt is one of the biggest obstacles for some people. If you have a sizable amount of debt to deal with, whether it's a mortgage, [line of credit (LOC)](https://www.investopedia.com/terms/l/lineofcredit.asp), student loan, or credit card, you can still learn how to balance your debt with saving and investing. Having debt can make it very difficult for investors to make money. In some cases, investing while in debt is like trying to bail out a sinking ship with a coffee cup. For instance, if you owe money on a LOC with 7% interest, the money you put aside will have to make more than 7% (after taxes and fees) to make it more profitable than paying down the debt. Some investments deliver such high returns, but you have to be able to find them, knowing you are under the burden of debt. It is important to briefly distinguish between the different kinds of debt that may be incurred. ### High-Interest Debt High interest is relative, but anything above 10% is a good candidate for this category. Having said that, you can probably count your credit card as a high-interest debt. Carrying any kind of balance on your credit card or similar high-interest vehicle makes paying it down a priority before starting to invest. ### Low-Interest Debt This type of low-interest debt may often be a car loan, a line of credit, or a [personal loan](https://www.investopedia.com/best-personal-loans-4773300) from a bank. The interest rates are usually described as a prime plus or minus a certain percentage, so there is still some performance pressure from investing with this type of debt. It is, however, much less daunting to make a portfolio that returns 12% than one that has to return 25%. One thing to keep in mind, though, is that your [credit score](https://www.investopedia.com/terms/c/credit_score.asp) determines your interest rate. The better your score, the lower your rate. But if you have a less-than-stellar credit history, the chance of obtaining a low-interest loan may be small. ### Tax-Deductible Debt If there is such a thing as good debt, this is it. Tax-deductible debts include mortgages, [student loans](https://www.investopedia.com/student-loans-4689727), business loans, investment loans, and all the other loans in which interest paid is returned to you in the form of tax deductions. Since this debt is generally low interest as well, you can easily build a portfolio while paying it down. The types of debt we focus on here are long-term low-interest and tax-deductible debt, such as [mortgage payments](https://www.investopedia.com/mortgage/mortgage-rates/payment-structure/). If you do have high-interest debt, you'll likely want to focus on paying it off before you begin your investing adventure. ### Not all interest-bearing loans are tax-deductible. Be sure to check with your lender or a financial professional whether you can deduct the interest on your loan. ## Compounding to Grow Money Debt elimination, particularly of something like a loan that will take long-term capital, robs you of time and money. In the long term, the time (in terms of the [compounding](https://www.investopedia.com/terms/c/compounding.asp) time of your investment) that you lose is worth more to you than the money you actually pay (in terms of the money and interest that you are paying to your lender). You want to give your money as much time as possible to compound. This is one of the reasons to start a portfolio despite carrying debt, but not the only one. [Your investments may be small](https://www.investopedia.com/articles/pf/08/twenty-five-dollar-investment.asp), but they will pay off more than investments you would make later in life because these small investments will have more time to mature. ## Creating a Plan to Invest Instead of making a traditional portfolio with high- and low-risk investments that are adjusted according to your tolerance and age, the idea is to make your loan payments in place of low-risk and/or fixed-income investments. This means that you will be seeing returns from decreasing your debt load and interest payments rather than the 2% to 8% return on a bond or similar investment. The rest of your portfolio should focus on higher-risk, high-return investments like stocks. If your [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp) is very low, the bulk of your investing money will still be going toward loan payments, but there will be a percentage that does make it into the market to produce returns for you. Even if you have a high-risk tolerance, you may not be able to put as much as you'd like into your investment portfolio because, unlike bonds, loans require a certain amount in monthly payments. Your debt load may force you to create a conservative portfolio with most of your money being invested in your loans and only a little going into your high-risk and return investments. As the debt gets smaller, you can adjust your distributions accordingly. ## How Do You Invest With Little Money? Before you start investing, it is wise to have your finances in as much order as possible. The first step would be to save up cash in an emergency fund, usually three to six months of your salary. The next would be to start paying down high-interest debt, such as credit card debt. Once that is resolved, it is wise to start putting money in a retirement plan, such as a 401(k) at work or an IRA. This should be a monthly contribution and is investing. From there, you can start investing outside of retirement plans, even if it is a small amount of money. A simple way to start investing is to choose an ETF, such as one that tracks the S&P 500, which will give you exposure to the broad market. ## How Much Do You Need to Start Investing? You do not need a lot of money to start investing. You can start investing in a retirement plan with any amount of money. If you have a 401(k) at work or your own IRA, putting any amount of money into the accounts will count as investing. If you want to invest in the stock market, having enough money to buy one share of a company's stock that you like will also be enough to get you started. ## How Should a Beginner Invest? A beginner should start investing with contributions to a retirement plan. They should then choose index funds or exchange-traded funds (ETFs). A good way to start is also by choosing a robo-advisor that will make investment decisions for you based on the criteria you decide. ## The Bottom Line You can invest despite debt. The important question is [whether or not you should](https://www.investopedia.com/ask/answers/why-should-i-invest/). The answer to this question is personalized to your financial situation and risk tolerance. There are certainly benefits from getting your money into the market as soon as possible, but there is also no guarantee that your portfolio will perform as expected. These things depend on your investing strategy and market timing. The biggest benefit of investing while in debt is psychological. Paying down long-term debts can be tedious and disheartening if you are not the type of person who puts your shoulder into a task and keeps pushing until it is done. For many people who are servicing debt, it seems like they are struggling to get to the point where their regular financial life—that of saving and investing—can begin. Debt becomes like a limbo state where things seem to be happening in slow motion. By having even a modest portfolio to track, you can keep your enthusiasm about the growth of your personal finances from ebbing. For some people, building a portfolio while in debt provides a much-needed ray of light.
The old saying that it takes money to make money is true. For those living paycheck to paycheck, there often isn't enough money left over to put toward investing. When you need the money now, thinking about an individual retirement account (IRA) and the stock market might be far down on your priority list. However, by reading this article and gaining knowledge, you are taking one of the necessary first steps in building a retirement nest egg. Key Takeaways Setting aside small amounts of money can help you save even if the idea of investing is daunting.Dividend reinvestment plans allow you to buy small amounts of dividend-paying stocks straight from the company while reinvesting the dividends.You can buy one ETF share at a time through a broker.Although target-date funds divvy up your investment based on your target retirement date, they often have large minimums to initially invest and may have substantial fees.A 401(k) with matching funds is essentially free money and therefore should take priority over outside investments.Investors who are in debt need to understand what kind of debt they are in and may need to prioritize paying off the debt over investing for a period of time. You Need Money The fact remains that you must put money away for later years or face a possible catastrophic situation. Someday, you won't be able to work and Social Security won't be enough to live on—assuming the fund is around in 20 or 30 years. You can start investing now with less money than you think it will take. First, we have to solve the problem of limited funds and the advice isn't new or revolutionary. Something in your life has to go, but it doesn't have to be a big life change. Simple changes that save $1 here and $5 there can add up to make a big impact. We've put together a few ideas for those people who don't see any available funds for investing. Note As with anything else, make sure you consult a financial professional about your investment options. This is especially important if you're trying to juggle saving while paying off your debts. Dividend Reinvestment Plans (DRIPS) Dividend reinvestment plans (DRIPS) allow you to invest small amounts of money into a dividend-paying stock, by purchasing directly from the company. Companies like GE, Coca-Cola, Verizon, Home Depot, and Johnson & Johnson are just a few of the companies that allow you to make regular purchases of very small amounts of stock, and reinvest the dividends. This can add up to a big investment over time and, as you gain a larger balance, you may consider diverting some of these funds into other investments. Exchange-Traded Funds (ETFs) Exchange-traded funds (ETFs) are financial products that track the performance of a certain sector of the investment market. You can buy as little as one share of an ETF through a broker, and some of these ETFs track the performance of the total stock market, the bond market, and many others. Many ETFs also pay a dividend, so purchasing a fund like the Vanguard Total Stock Market ETF (VTI) will bring exposure to an instantly diversified portfolio that also pays a dividend. Target-Date Funds Target-date funds, as the name implies, target your retirement date by changing the percentage of stocks and bonds to ensure that your money remains safe as you approach retirement age. Some of these funds require a minimum investment of $1,000, but they may serve as great products for investors who don't want to manage their portfolios on their own. But make sure you use caution when picking a target-date fund because of the high fees that some of these vehicles charge. The 401(k) The 401(k) is an employer-sponsored retirement savings plan that allows you to put away a portion of your paycheck into an investment account. The plan comes with tax savings depending on the type of plan you have: If you invest in a traditional 401(k), you can set aside pre-tax dollars, which lowers your taxable income and, therefore, your tax liability. If you invest in a Roth 401(k), any withdrawals you make during retirement are tax-free. If you have a 401(k) that will match your contributions, invest there first. Since your company is giving you free money to invest, you should consider funding your 401(k) before outside investments. Investing While in Debt If you have some money saved or invested, you want to see it grow over time. Many factors can prevent this from happening. Debt is one of the biggest obstacles for some people. If you have a sizable amount of debt to deal with, whether it's a mortgage, line of credit (LOC), student loan, or credit card, you can still learn how to balance your debt with saving and investing. Having debt can make it very difficult for investors to make money. In some cases, investing while in debt is like trying to bail out a sinking ship with a coffee cup. For instance, if you owe money on a LOC with 7% interest, the money you put aside will have to make more than 7% (after taxes and fees) to make it more profitable than paying down the debt. Some investments deliver such high returns, but you have to be able to find them, knowing you are under the burden of debt. It is important to briefly distinguish between the different kinds of debt that may be incurred. High-Interest Debt High interest is relative, but anything above 10% is a good candidate for this category. Having said that, you can probably count your credit card as a high-interest debt. Carrying any kind of balance on your credit card or similar high-interest vehicle makes paying it down a priority before starting to invest. Low-Interest Debt This type of low-interest debt may often be a car loan, a line of credit, or a personal loan from a bank. The interest rates are usually described as a prime plus or minus a certain percentage, so there is still some performance pressure from investing with this type of debt. It is, however, much less daunting to make a portfolio that returns 12% than one that has to return 25%. One thing to keep in mind, though, is that your credit score determines your interest rate. The better your score, the lower your rate. But if you have a less-than-stellar credit history, the chance of obtaining a low-interest loan may be small. Tax-Deductible Debt If there is such a thing as good debt, this is it. Tax-deductible debts include mortgages, student loans, business loans, investment loans, and all the other loans in which interest paid is returned to you in the form of tax deductions. Since this debt is generally low interest as well, you can easily build a portfolio while paying it down. The types of debt we focus on here are long-term low-interest and tax-deductible debt, such as mortgage payments. If you do have high-interest debt, you'll likely want to focus on paying it off before you begin your investing adventure. Not all interest-bearing loans are tax-deductible. Be sure to check with your lender or a financial professional whether you can deduct the interest on your loan. Compounding to Grow Money Debt elimination, particularly of something like a loan that will take long-term capital, robs you of time and money. In the long term, the time (in terms of the compounding time of your investment) that you lose is worth more to you than the money you actually pay (in terms of the money and interest that you are paying to your lender). You want to give your money as much time as possible to compound. This is one of the reasons to start a portfolio despite carrying debt, but not the only one. Your investments may be small, but they will pay off more than investments you would make later in life because these small investments will have more time to mature. Creating a Plan to Invest Instead of making a traditional portfolio with high- and low-risk investments that are adjusted according to your tolerance and age, the idea is to make your loan payments in place of low-risk and/or fixed-income investments. This means that you will be seeing returns from decreasing your debt load and interest payments rather than the 2% to 8% return on a bond or similar investment. The rest of your portfolio should focus on higher-risk, high-return investments like stocks. If your risk tolerance is very low, the bulk of your investing money will still be going toward loan payments, but there will be a percentage that does make it into the market to produce returns for you. Even if you have a high-risk tolerance, you may not be able to put as much as you'd like into your investment portfolio because, unlike bonds, loans require a certain amount in monthly payments. Your debt load may force you to create a conservative portfolio with most of your money being invested in your loans and only a little going into your high-risk and return investments. As the debt gets smaller, you can adjust your distributions accordingly. How Do You Invest With Little Money? Before you start investing, it is wise to have your finances in as much order as possible. The first step would be to save up cash in an emergency fund, usually three to six months of your salary. The next would be to start paying down high-interest debt, such as credit card debt. Once that is resolved, it is wise to start putting money in a retirement plan, such as a 401(k) at work or an IRA. This should be a monthly contribution and is investing. From there, you can start investing outside of retirement plans, even if it is a small amount of money. A simple way to start investing is to choose an ETF, such as one that tracks the S&P 500, which will give you exposure to the broad market. How Much Do You Need to Start Investing? You do not need a lot of money to start investing. You can start investing in a retirement plan with any amount of money. If you have a 401(k) at work or your own IRA, putting any amount of money into the accounts will count as investing. If you want to invest in the stock market, having enough money to buy one share of a company's stock that you like will also be enough to get you started. How Should a Beginner Invest? A beginner should start investing with contributions to a retirement plan. They should then choose index funds or exchange-traded funds (ETFs). A good way to start is also by choosing a robo-advisor that will make investment decisions for you based on the criteria you decide. The Bottom Line You can invest despite debt. The important question is whether or not you should. The answer to this question is personalized to your financial situation and risk tolerance. There are certainly benefits from getting your money into the market as soon as possible, but there is also no guarantee that your portfolio will perform as expected. These things depend on your investing strategy and market timing. The biggest benefit of investing while in debt is psychological. Paying down long-term debts can be tedious and disheartening if you are not the type of person who puts your shoulder into a task and keeps pushing until it is done. For many people who are servicing debt, it seems like they are struggling to get to the point where their regular financial life—that of saving and investing—can begin. Debt becomes like a limbo state where things seem to be happening in slow motion. By having even a modest portfolio to track, you can keep your enthusiasm about the growth of your personal finances from ebbing. For some people, building a portfolio while in debt provides a much-needed ray of light.
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https://www.investopedia.com/best-high-yield-checking-accounts-5070332
Best High-Interest Checking Accounts for May 2024—Up to 6.25%
<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"> <span class="comp external-content mntl-external-component" id="external-content_1-0"><article class="comp article list-sc list-sc-content--finance list-sc--base mntl-block" id="list-sc-content--finance_1-0"> <div class="comp expert-content article-content mntl-block" id="article-content_1-0"> <div class="comp article-content__description article-container expert-content article-intro prm-sc-page mntl-sc-page mntl-block" id="article-intro_1-0"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> Holding enough money in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/checkingaccount.asp" rel="noopener noreferrer">checking account</a> to cover your bills and then stashing any surplus cash in a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savings.asp" rel="noopener noreferrer">savings account</a> is the traditional model for boosting the bank interest you can earn. But for those willing to regularly use a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitcard.asp" rel="noopener noreferrer">debit card</a>, significantly higher earnings are available from high-interest checking accounts. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-best-high-yield-checking-accounts"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0-1"> <span class="mntl-sc-block-heading__text"> Best High-Yield Checking Accounts </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-2"> <li>La Capitol Federal Credit Union – <strong>6.25% APY</strong></li><li>Pelican State Credit Union – <strong>6.05% APY</strong></li><li>Credit Union of New Jersey – <strong>6.00% APY</strong></li><li>Fitness Bank – <strong>6.00% APY</strong></li><li>Orion Federal Credit Union – <strong>6.00% APY</strong><br/></li><li>Garden Savings Federal Credit Union – <strong>5.12% APY</strong><br/></li><li>Presidential Bank – <strong>4.62% APY</strong></li><li>Consumers Credit Union – <strong>5.00% APY</strong><br/></li><li>Signature Federal Credit Union – <strong>4.00% APY</strong></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_1-0-3"> These accounts, sometimes called rewards checking, offer a trade-off: If you meet a handful of requirements in any given statement cycle, the bank or credit union will pay you an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rate</a> for that month that is well beyond what even the best savings accounts offer. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-4"> The catch is that you need to follow all of the requirements to the letter, and if you miss even one, you'll be paid little or no interest for that month. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-5"> Still, the requirements aren't difficult for many consumers, and the payoff can be quite lucrative. Indeed, our ranking of the best high-interest checking accounts that are available nationwide all pay at least 4.00%, with the top-paying account reaching as high as a 6.25% annual percentage yield (APY). Compare that to <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>, where the best are paying better than 5.50% APY right now, while the national average rate is only 0.46% for savings accounts and 0.08% for checking accounts (as of April 15, 2024).<span class="ql-inline-citation" data-cite="13"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-whatyouneedtoknow 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_1-0-6"> <h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"> In the News</h3><!-- end: comp mntl-sc-block-callout-heading mntl-text-block --> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p><strong>In the News: </strong>The Fed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952">held rates steady</a> for a sixth consecutive time at its meeting ending on May 1. The 5.25% to 5.50% range is the highest it has been since 2001, and Fed officials noted in a statement that there has been a lack of recent progress toward the committee's goal of lowering inflation. Consumer prices rose 3.5% over the year in March. Officials don't foresee reducing the target range until they are confident inflation is moving toward 2%.<span class="ql-inline-citation" data-cite="32"></span><span class="ql-inline-citation" data-cite="33"></span></p> <p>Interest rate hikes can directly impact the rate you receive on your high-yield checking account. Additionally, they can impact your savings account rate. It's wise to see if the bank you're using for your checking account offers a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings account</a>. You could also see if it offers one of the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> right now. Combined, these accounts could help you earn the maximum amount of money on the cash you keep at your financial institution.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-whatyouneedtoknow mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-7"> Note that all of the high-interest checking accounts listed below require signing up for electronic statements, and most also stipulate that you enroll in online or mobile banking. Additionally, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditunion.asp">credit unions</a> are significant players in the high-interest checking account arena, populating the majority of our ranking slots. But don't let the name or location of a credit union fool you into thinking you can't bank with them. Many credit unions—and all of the ones we've included in our rankings here—offer a pathway for anyone in the country to join, usually for a modest fee or donation. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-8"> Below you'll find the top checking account rates available from our partners, followed by our complete ranking of the best checking account rates nationwide. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block--ma-rate-table--finance-mma mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block" id="mntl-sc-block_1-0-9"> <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 --> </div><!-- end: comp mntl-sc-block--ma-rate-table--finance-mma mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block --> </div><!-- end: comp article-content__description article-container expert-content article-intro prm-sc-page mntl-sc-page mntl-block --> <div class="comp article-body mntl-block" id="article-body_1-0"> <div class="comp left-nav article-body__left-nav mntl-block" id="article-body__left-nav_1-0"></div><!-- end: comp left-nav article-body__left-nav mntl-block --> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0"> <div class="comp article-content__description article-container list-sc-item__container mntl-block" id="list-sc-item__container_1-0"> <span class="heading-toc" id="toc-la-capitol-federal-credit-union--625-apy"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading" id="mntl-sc-block_2-0"> <a class="mntl-sc-block-heading__link" href="https://www.lacapfcu.org/choice-checking" rel="noopener nofollow sponsored nocaes" target="_blank">La Capitol Federal Credit Union – 6.25% APY</a><!-- end: mntl-sc-block-heading__link --> </h2><!-- end: comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-1"> With its limited balance threshold, it's best for customers who keep relatively minimal funds on hand. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-2"> <li><strong>Maximum balance for top APY:</strong> 6.25% APY on up to $10,000. Balances above $10,000 earn 0.72% APY.</li><li><strong>Debit card transactions required per month: </strong>15.</li><li><strong>Direct deposit required?</strong> No.</li><li><strong>ACH required?</strong> No.</li><li><strong>Bill payments required?</strong> No.</li><li><strong>APY if qualifications not met:</strong> 0.10% APY on full balance for that month.</li><li><strong>ATM fee reimbursement:</strong> Up to $25 per month.</li><li><strong>Monthly maintenance fee:</strong> If you meet the monthly debit transaction requirement, keep your average daily balance above $1,000 for the month, or are under 24 years old there is no fee. Otherwise, an $8 low balance fee will apply.</li><li><strong>Paper statement fee: </strong>For any months not enrolled in e-statements, $2 will be assessed, but the fee is waived for those under 24 and those over 60.</li><li><strong>Minimum opening deposit: </strong>$50<span class="ql-inline-citation" data-cite="19"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp article-content__description article-container list-sc-item__container mntl-block --> </div><!-- end: comp mntl-sc-list-item list-sc-item mntl-block --> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-1"> <div class="comp article-content__description article-container list-sc-item__container mntl-block" id="list-sc-item__container_1-0-1"> <span class="heading-toc" id="toc-pelican-state-credit-union--605-apy"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading" id="mntl-sc-block_2-0-3"> <a class="mntl-sc-block-heading__link" href="https://www.pelicanstatecu.com/personal/reward-checking-accounts#kasasacash" rel="noopener nofollow nocaes" target="_blank">Pelican State Credit Union – 6.05% APY</a><!-- end: mntl-sc-block-heading__link --> </h2><!-- end: comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-4"> Pelican's requirements are relatively easy to meet for those who regularly use a checking account. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-5"> <li><strong>Maximum balance for top APY:</strong> 6.05% APY on balances up to $20,000 and 0.50% APY on portion of balance greater than $20,000</li><li><strong>Debit card transactions required per month:</strong> 15</li><li><strong>Direct deposit required?</strong> One direct deposit, online bill payment, or automatic payment (ACH)</li><li><strong>ACH required?</strong> One direct deposit, online bill payment, or automatic payment (ACH)</li><li><strong>Bill payments required?</strong> One direct deposit, online bill payment, or automatic payment (ACH)</li><li><strong>Other requirements:</strong> Electronic statements, enroll and login to MyPelican online banking</li><li><strong>APY if qualifications not met:</strong> 0.05%</li><li><strong>ATM fee reimbursement:</strong> Unlimited nationwide (ATM receipt must be presented for reimbursement of ATM fees of $5 or higher within 30 days after the statement cycle where the reimbursement was applicable in order to receive a refund.)</li><li><strong>Monthly maintenance fee:</strong> None</li><li><strong>Minimum opening deposit:</strong> $25<span class="ql-inline-citation" data-cite="15"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp article-content__description article-container list-sc-item__container mntl-block --> </div><!-- end: comp mntl-sc-list-item list-sc-item mntl-block --> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-2"> <div class="comp article-content__description article-container list-sc-item__container mntl-block" id="list-sc-item__container_1-0-2"> <span class="heading-toc" id="toc-credit-union-of-new-jersey--600-apy"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading" id="mntl-sc-block_2-0-6"> <a class="mntl-sc-block-heading__link" href="https://www.cunj.com/bank/personal-banking/checking/kasasa-cash-checking/" rel="noopener nofollow nocaes" target="_blank">Credit Union of New Jersey – 6.00% APY</a><!-- end: mntl-sc-block-heading__link --> </h2><!-- end: comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-7"> For those who like to keep more than $10,000 in a checking account, Credit Union of New Jersey boasts the top rate. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-8"> <li><strong>Maximum balance for top APY:</strong> 6.00% APY on balances up to $25,000 and 0.75% APY on portion of balance greater than $25,000</li><li><strong>Debit card transactions required per month:</strong> 12</li><li><strong>Direct deposit required?</strong> At least one direct deposit, ACH credit, ACH payment, or bill pay transaction</li><li><strong>ACH required?</strong> At least one direct deposit, ACH credit, ACH payment, or bill pay transaction</li><li><strong>Bill payments required?</strong> At least one direct deposit, ACH credit, ACH payment, or bill pay transaction</li><li><strong>Other requirements:</strong> Electronic statements</li><li><strong>APY if qualifications not met:</strong> 0.01%</li><li><strong>ATM fee reimbursement:</strong> Up to $25 nationwide per statement period, up to $4.99 international per statement period</li><li><strong>Monthly maintenance fee:</strong> None</li><li><strong>Minimum opening deposit:</strong> $5<span class="ql-inline-citation" data-cite="16"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp article-content__description article-container list-sc-item__container mntl-block --> </div><!-- end: comp mntl-sc-list-item list-sc-item mntl-block --> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-3"> <div class="comp article-content__description article-container list-sc-item__container mntl-block" id="list-sc-item__container_1-0-3"> <span class="heading-toc" id="toc-fitness-bank--600-apy"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading" id="mntl-sc-block_2-0-9"> <a class="mntl-sc-block-heading__link" href="https://www.fitnessbank.fit/elite-checking/" rel="noopener nofollow sponsored nocaes" target="_blank">Fitness Bank – 6.00% APY</a><!-- end: mntl-sc-block-heading__link --> </h2><!-- end: comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-10"> Fitness-oriented banking customers willing to connect their daily activities to an app can earn a great rate at Fitness Bank. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-11"> <li><strong>Maximum balance for top APY:</strong> 6.00% APY on balances up to $25,000 and 0.25% APY on portion of balance greater than $25,000</li><li><strong>Debit card transactions required per month:</strong> 15</li><li><strong>Direct deposit required?</strong> No</li><li><strong>ACH required?</strong> No</li><li><strong>Bill payments required?</strong> No</li><li><strong>Other requirements:</strong> Average 10,000 steps per day using the FitnessBank Step Tracker app (7,500 if 65+)</li><li><strong>APY if qualifications not met:</strong> 0.10% APY</li><li><strong>ATM fee reimbursement:</strong> Up to $10 per statement period</li><li><strong>Monthly maintenance fee:</strong> None with $10 minimum average daily balance, otherwise $10/month</li><li><strong>Minimum opening deposit:</strong> $100<span class="ql-inline-citation" data-cite="17"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp article-content__description article-container list-sc-item__container mntl-block --> </div><!-- end: comp mntl-sc-list-item list-sc-item mntl-block --> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-4"> <div class="comp article-content__description article-container list-sc-item__container mntl-block" id="list-sc-item__container_1-0-4"> <span class="heading-toc" id="toc-orion-federal-credit-union--600-apy"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading" id="mntl-sc-block_2-0-12"> <a class="mntl-sc-block-heading__link" href="https://orionfcu.com/checking/" rel="noopener nofollow nocaes" target="_blank">Orion Federal Credit Union – 6.00% APY</a><!-- end: mntl-sc-block-heading__link --> </h2><!-- end: comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-13"> Orion Federal Credit Union's requirements to earn its top rate are among easiest to meet. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-14"> <li><strong>Maximum balance for top APY:</strong> 6.00% APY on balances up to $10,000 and from 2.34% APY to 5.06% APY on portions of balance greater than $10,000, depending on specific balance</li><li><strong>Debit card transactions required per month:</strong> Spend at least $500/month on your Orion debit or credit card</li><li><strong>Direct deposit required?</strong> $500 monthly minimum</li><li><strong>ACH required?</strong> No</li><li><strong>Bill payments required?</strong> No</li><li><strong>Other requirements:</strong> No</li><li><strong>APY if qualifications not met:</strong> 0.01% APY</li><li><strong>ATM fee reimbursement:</strong> Up to $10 per statement period<span class="ql-inline-citation" data-cite="24"></span></li><li><strong>Monthly maintenance fee:</strong> None when requirements to earn top APY are met, otherwise $5/month</li><li><strong>Minimum opening deposit:</strong> No stated minimum<span class="ql-inline-citation" data-cite="18"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp article-content__description article-container list-sc-item__container mntl-block --> </div><!-- end: comp mntl-sc-list-item list-sc-item mntl-block --> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-5"> <div class="comp article-content__description article-container list-sc-item__container mntl-block" id="list-sc-item__container_1-0-5"> <span class="heading-toc" id="toc-garden-savings-federal-credit-union-platinum-rate-rewards-checking--512-apy"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading" id="mntl-sc-block_2-0-15"> <a class="mntl-sc-block-heading__link" href="https://www.gardensavingsfcu.org/accounts/personal-checking/platinum-checking.html" rel="noopener nofollow sponsored nocaes" target="_blank">Garden Savings Federal Credit Union, Platinum Rate Rewards Checking – 5.12% APY</a><!-- end: mntl-sc-block-heading__link --> </h2><!-- end: comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-16"> Direct deposit not a great option for you? Garden Savings offers one of the best APYs and a generous maximum earning balance while allowing you to qualify without establishing a direct deposit. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-17"> <li><strong>Maximum balance for top APY:</strong> 5.12% APY up to $15,000. Balances above that pay 0.15% APY.</li><li><strong>Debit card transactions required per month: </strong>12.</li><li><strong>Direct deposit required?</strong> One direct deposit OR one ACH deposit</li><li><strong>ACH required?</strong> See direct deposit above.</li><li><strong>Bill payments required?</strong> No.</li><li><strong>Other requirements:</strong> Must be enrolled in e-statements.</li><li><strong>APY if qualifications not met:</strong> 0.01% APY<span class="ql-inline-citation" data-cite="20"></span></li><li><strong>ATM fee reimbursement:</strong> Up to $20 in fees refunded if monthly qualifications met.</li><li><strong>Monthly maintenance fee:</strong> None.</li><li><strong>Minimum opening deposit:</strong> None<span class="ql-inline-citation" data-cite="21"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp article-content__description article-container list-sc-item__container mntl-block --> </div><!-- end: comp mntl-sc-list-item list-sc-item mntl-block --> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-6"> <div class="comp article-content__description article-container list-sc-item__container mntl-block" id="list-sc-item__container_1-0-6"> <span class="heading-toc" id="toc-presidential-bank-advantage-checking--462-apy"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading" id="mntl-sc-block_2-0-18"> <a class="mntl-sc-block-heading__link" href="https://www.presidential.com/personal-banking/checking-savings/checking#advantage-checking" rel="noopener nofollow sponsored nocaes" target="_blank">Presidential Bank, Advantage Checking – 4.62% APY</a><!-- end: mntl-sc-block-heading__link --> </h2><!-- end: comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-19"> Although this isn't the highest APY on the list, the high yield is extended to a much higher balance than with other accounts. It's also the only top-paying checking account that doesn't absolutely require debit card transactions, offering other electronic withdrawals as alternate qualifiers. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-20"> <li><strong>Maximum balance for top APY:</strong> 4.62% APY up to $25,000, and 2.50% APY on balances beyond $25,000.<span class="ql-inline-citation" data-cite="30"></span></li><li><strong>Debit card transactions required per month: </strong>Seven or more electronic withdrawals per month, which can be by ATM, debit card, ACH, or bill pay.</li><li><strong>Direct deposit required?</strong> Yes, at least $500 per month.</li><li><strong>ACH required?</strong> See debit card requirement above.</li><li><strong>Bill payments required?</strong> See debit card requirement above.</li><li><strong>Limitations:</strong> Write up to three paper checks per month at no charge, but incur a $3 charge per check thereafter.<span class="ql-inline-citation" data-cite="31"></span></li><li><strong>APY if qualifications not met:</strong> 0.10% APY.</li><li><strong>ATM fee reimbursement:</strong> Up to $8 in refunded fees per month.</li><li><strong>Monthly maintenance fee:</strong> $5, waived with a $500 minimum balance.</li><li><strong>Minimum opening deposit:</strong> $500.<span class="ql-inline-citation" data-cite="9"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp article-content__description article-container list-sc-item__container mntl-block --> </div><!-- end: comp mntl-sc-list-item list-sc-item mntl-block --> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-7"> <div class="comp article-content__description article-container list-sc-item__container mntl-block" id="list-sc-item__container_1-0-7"> <span class="heading-toc" id="toc-consumers-credit-union-rewards-checking--400-apy"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading" id="mntl-sc-block_2-0-21"> <a class="mntl-sc-block-heading__link" href="https://www.myconsumers.org/bank/accounts/free-rewards-checking" rel="noopener nofollow sponsored nocaes" target="_blank">Consumers Credit Union, Rewards Checking – 4.00% APY</a><!-- end: mntl-sc-block-heading__link --> </h2><!-- end: comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-22"> This is the best high-APY nationwide checking account that we've found. But earning the top rate requires opening and actively using a credit card from the credit union. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-23"> <li><strong>Maximum balance for top APY:</strong> Up to 5.00% on up to $10,000. Balances between $10,000.01 and $25,000 earn 0.20% APY, and balances in excess of $25,000 earn as high as 0.10% APY.<br/></li><li><strong>Debit card transactions required per month: </strong>12.</li><li><strong>Direct deposit required?</strong> One direct deposit, ACH deposit, or mobile deposit of $500+ per month</li><li><strong>ACH required?</strong> See direct deposit above.</li><li><strong>Bill payments required?</strong> No.</li><li><strong>Other requirements:</strong> Holding a Consumers CU Visa card and spending $1,000 on it per month. If credit card spending is at least $500 but doesn't hit $1,000, APY on the account will be 4.00% APY. If you don't have the credit card, but meet all the other requirements you get 3.00% APY.</li><li><strong>APY if qualifications not met:</strong> 0.01% APY on full balance for that month.<span class="ql-inline-citation" data-cite="29"></span></li><li><strong>ATM fee reimbursement:</strong> Unlimited refunds in months where qualifications are met.</li><li><strong>Monthly maintenance fee:</strong> None.</li><li><strong>Minimum opening deposit:</strong> $5<span class="ql-inline-citation" data-cite="22"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp article-content__description article-container list-sc-item__container mntl-block --> </div><!-- end: comp mntl-sc-list-item list-sc-item mntl-block --> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-8"> <div class="comp article-content__description article-container list-sc-item__container mntl-block" id="list-sc-item__container_1-0-8"> <span class="heading-toc" id="toc-signature-federal-credit-union-high-yield-checking-account--400-apy"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading" id="mntl-sc-block_2-0-24"> <a class="mntl-sc-block-heading__link" href="https://www.signaturefcu.org/Products/Accounts/Checking.aspx" rel="noopener nofollow nocaes" target="_blank">Signature Federal Credit Union, High-Yield Checking Account – 4.00% APY</a><!-- end: mntl-sc-block-heading__link --> </h2><!-- end: comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-25"> For those with a reliable direct deposit of $1,000 or more each month, Signature offers a generous maximum balance, one of the easiest debit card requirements, and a minimal cost to join. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-26"> <li><strong>Maximum balance for top APY:</strong> 4.00% APY up to $40,000, then 0.00% APY</li><li><strong>Debit card transactions required per month: </strong>15</li><li><strong>Direct deposit required?</strong> Yes, at least $1,000 per month</li><li><strong>ACH required?</strong> No</li><li><strong>Bill payments required?</strong> No</li><li><strong>Other requirements:</strong> Must enroll in e-statements</li><li><strong>ATM fee reimbursement:</strong> $10 per month, plus access to free ATMs through the CO-OP and Culiance networks</li><li><strong>Minimum opening deposit:</strong> None stated<span class="ql-inline-citation" data-cite="26"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp article-content__description article-container list-sc-item__container mntl-block --> </div><!-- end: comp mntl-sc-list-item list-sc-item mntl-block --> <div class="comp article-container article-outro mntl-block" id="article-outro_1-0"> <div class="comp left-nav article-outro__left-nav mntl-block" id="article-outro__left-nav_1-0"></div><!-- end: comp left-nav article-outro__left-nav mntl-block --> <div class="comp expert-content article-outro__content prm-sc-page mntl-sc-page mntl-block" id="article-outro__content_1-0"> <span class="heading-toc" id="toc-you-may-be-able-to-earn-even-more"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> You May Be Able to Earn Even More </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-1"> As with all banking products, it can pay to shop locally. Our rankings focus on banks and credit unions open to customers nationwide, allowing for accounts to be opened online. But with credit unions being strong players in the rewards checking realm, it's possible that a credit union in your community or state, or that serves your employer, may pay as much or more than the best nationwide options we've laid out. Or perhaps you'll find one with slightly easier requirements. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-2"> The nationwide leaders above will be hard to beat in most markets. But it's always worth checking the local and regional options available specifically to you before locking into a choice. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-what-is-kasasa"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0-3"> <span class="mntl-sc-block-heading__text"> What Is Kasasa? </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-4"> If you do only a little research on rewards checking accounts, you'll notice the word Kasasa popping up from time to time, and the odd word may leave you scratching your head. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-5"> That's because <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.kasasa.com/" rel="sponsored nofollow">Kasasa</a> is a fabricated branding word and the name of a company that offers checking account infrastructure to banks and credit unions. What all Kasasa accounts have in common is that they offer some sort of reward, whether exceptional interest rates, cash back on debit card purchases, or more unconventional perks, and they carry no fees. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-tips-for-succeeding-with-high-yield-checking"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0-6"> <span class="mntl-sc-block-heading__text"> Tips for Succeeding With High-Yield Checking </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-7"> By now, you understand you have to actively earn your reward with a high-interest checking account. For most people, these are not accounts you can leave on autopilot and expect to receive the maximum interest payment each month. A little bit of due diligence—both upfront and monthly—is required if you want to maximize your earnings. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_3-0-8"> <span class="mntl-sc-block-subheading__text"> Be Sure You Thoroughly Understand the Requirements </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-9"> As you research options, be sure you fully understand what each account will require of you. Thinking through how you normally use a checking account and what behavior modifications you're willing to make (if any) will help lead you to the best rewards checking account for your needs and style. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-10"> Then, once you've chosen an account, make the time investment of a phone call to a customer service representative at the bank or credit union to ask questions about the specific rules of qualifying transactions. One of the most important things to clarify is what types of debit card transactions will qualify toward the minimum number. Do they have to involve a signature? Can they be PIN-based? Do they have to be at least some minimum dollar amount? </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-11"> Don't stop at debit questions, though; familiarize yourself with any requirements about <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/directdeposit.asp">direct deposit</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ach-transfers-what-are-they-and-how-do-they-work-4590120">ACH transactions</a>. Also, learn where to review the monthly qualification calendar, which will indicate the first and last days for posted transactions to count towards each monthly rewards cycle. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_3-0-12"> <span class="mntl-sc-block-subheading__text"> Set Some Monthly Reminders </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-13"> Now that you know your marching orders for earning top dollar on your checking account balance every month, turn that information into some automated tasks that will help ensure you don't forget. Being deprived of a whole month of interest due to a single misstep can be frustrating. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-14"> Adding a reminder to your phone or calendar for the same day every month, perhaps seven to ten days before the closing date for qualifying transactions, is a best practice that can help you complete any necessary actions while you still have time. </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_3-0-15"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>The date a transaction will count towards your monthly qualification requirements is the posted date, not the actual activity date. Since it can take a day or two for pending transactions to post, be sure to initiate any needed activity a few days before the end of your qualification period.</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 --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_3-0-16"> <span class="mntl-sc-block-subheading__text"> Watch Out for Account Maximums </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-17"> If your account has a maximum that you may sometimes bump up against, regularly pay attention to your balance. If you go a few dollars over and it's expected to be a temporary surplus, don't sweat it. But since the interest rate many of these accounts pay on the portion of your balance that exceeds the high-APY threshold is zero, or close to it, you won't want to regularly keep more than the maximum in your account. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-18"> To see how much difference this can make, take the example of an account with a $10,000 maximum for earning 3.00%. At amounts above $10,000, the account pays just 0.10% APY. If you were to keep a balance of about $20,000 in the account regularly, you'd essentially be lowering your APY on that account to just 1.55% APY (the average of 3.00 plus 0.10). </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_3-0-19"> <span class="mntl-sc-block-subheading__text"> Pair Your High-Yield Checking With High-Yield Savings </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-20"> For those who find they're being constrained by the maximum balance threshold on their high-yield checking account, a savvy move is to pair it with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp">high-yield savings account</a>. The savings account can be at the same institution or an entirely different one. You can find our ranking of the top-paying national savings accounts <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">here</a>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-21"> The key is simply to create an electronic link between your two high-yield accounts so that you can easily transfer surplus funds that exceed your checking account's maximum allowance into a savings account that may pay 10x as much as the surplus funds would earn in checking. Conversely, if your checking account balance falls below the high-APY threshold, you can transfer funds from savings back to checking to maximize your high-yield earnings. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-pros-and-cons-of-high-yield-checking-accounts"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0-22"> <span class="mntl-sc-block-heading__text"> Pros and Cons of High-Yield Checking Accounts </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-23"> <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>Offer a higher interest rate than traditional checking accounts </p></li> <li><p>Give you easy access to your cash </p></li> <li><p>May come with bonus perks and benefits </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>May require a certain balance to earn the highest rate </p></li> <li><p>Could have rules around minimum balances or transactions per month</p></li> <li><p>Rate could decrease over time</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_3-0-24"> <span class="mntl-sc-block-subheading__text"> Pros Explained </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-25"> <li><strong>Offer a higher interest rate than traditional checking accounts:</strong> While traditional checking accounts offer an average of 0.08% APY as of April 2024, according to the Federal Deposit Insurance Corporation (FDIC), some high-yield checking accounts may offer APYs close to or beyond 5.00%.<span class="ql-inline-citation" data-cite="11"></span></li> <li><strong>Give you easy access to your cash:</strong> Like other checking accounts, high-yield checking accounts are designed for high activity and generally come with a debit card. You can use these accounts to withdraw cash and pay your bills as needed. </li> <li><strong>May come with bonus perks and benefits:</strong> Some high-yield checking accounts come with additional perks, such as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-rewards-checking-accounts-5069834">cash-back debit card</a>, reimbursement for out-of-network ATM fees, and zero monthly maintenance fees. </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_3-0-26"> <span class="mntl-sc-block-subheading__text"> Cons Explained </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-27"> <li><strong>May require a certain balance to earn the highest rate:</strong> Each institution sets its own rules, but some may require you to have a certain amount of cash in your checking account to access the best rates. </li> <li><strong>Could have rules around minimum balances or transactions per month:</strong> Along similar lines, some high-interest checking accounts may require you to maintain a minimum balance or conduct a certain number of transactions per month to earn a certain APY, avoid fees, or keep the account open. </li> <li><strong>Rate could decrease over time:</strong> Your checking account rate is not fixed and may fluctuate with market conditions. Over time, you may see your rate decrease and your interest earnings go down as a result. Browse the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> for accounts with a guaranteed return at a specific APY.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-alternatives-to-high-yield-checking-accounts"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0-28"> <span class="mntl-sc-block-heading__text"> Alternatives to High-Yield Checking Accounts </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-29"> A high-yield checking account may not be the best fit for everyone. Here are some alternative options to explore.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-30"> <li><strong>Traditional checking account:</strong> Although they don’t earn much or any interest, traditional checking accounts may have other perks that appeal to you, such as no fees, ATM fee reimbursement, or early direct deposit. Browse the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-free-checking-accounts-7153155">best free checking accounts</a> to see if one would work for you.</li> <li><strong>High-yield savings account:</strong> You can often find higher APYs on savings accounts than checking accounts. A savings account is a great place to store cash that you don’t need for everyday spending or monthly bills. See 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 find a good home for your money.</li> <li><strong>Certificate of deposit (CD):</strong> You might also <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">invest in a CD</a> to earn interest on your money over time. CDs may be a good fit if you don’t need immediate access to your cash, since you could rack up fees if you withdraw your money before the CD’s maturity date. </li> <li><strong>Money market account:</strong> These accounts are like a combination of checking and savings accounts—they often come with checks and a debit card while offering a fairly high rate. The downside of money market accounts, though, is they may charge higher fees or have higher minimum balance requirements. See the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">best money market accounts</a> to explore your options.</li> <li><strong>I Bonds:</strong> <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/i-bonds-vs-cds-which-is-the-better-investment-right-now-7546699">I bonds</a> are U.S. government bonds that can help protect your savings against inflation. You can’t access your cash until at least a year has passed, though. </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_3-0-31"> <span class="heading-toc" id="toc-faqs-e355e71e-463a-4637-a6cf-03bedc40ac74"></span> <h2 class="comp mntl-sc-block-faq__title mntl-text-block" id="mntl-sc-block-faq__title_1-0"> Frequently Asked Questions</h2><!-- end: comp mntl-sc-block-faq__title mntl-text-block --> <ul class="comp mntl-sc-block-faq__content mntl-accordion" id="mntl-sc-block-faq__content_1-0"> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-0" tabindex="-1"> <h3 class="accordion__title">What Is a High-Yield Checking Account?</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>A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/are-high-yield-checking-accounts-a-good-idea-right-now-7547060">high-yield checking account</a> is a type of checking account that earns higher-than-average interest. According to the FDIC, the average checking account interest rate is only 0.08% as of April 15, 2024.<span class="ql-inline-citation" data-cite="11"></span> High-yield checking accounts may earn rates up to 6.00% or higher.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-1" tabindex="-1"> <h3 class="accordion__title">Are High-Yield Checking Accounts Worth It?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-1"> <div class="faq-accordion__item-answer"> <p>A high-yield checking account may be worth it if earning interest on your checking account balance is a priority. If you only keep a small amount of cash in your checking account, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings account</a> may be a higher priority. </p><p>When determining whether a high-yield checking account is worth it, keep an eye out for any rules or restrictions that wouldn’t be a good fit for your spending habits, such as account or transaction minimums.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-2" tabindex="-1"> <h3 class="accordion__title">Which Banks Pay the Highest Interest on Checking Accounts?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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 financial institutions that often pay among the highest interest rates on checking accounts include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.pelicanstatecu.com/personal/reward-checking-accounts#kasasacash" rel="nofollow">Pelican State Credit Union</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.fitnessbank.fit/elite-checking/" rel="sponsored nofollow">Fitness Bank</a>, with rates of 6.05% APY and 6.00% APY respectively.<span class="ql-inline-citation" data-cite="17"></span><span class="ql-inline-citation" data-cite="15"></span></p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-3" tabindex="-1"> <h3 class="accordion__title">Do High-Yield Checking Accounts Exist?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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>Yes, high-yield checking accounts exist at various banks and online financial services companies. Compare the options above from multiple institutions to find the best <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/apr-apy-bank-hopes-cant-tell-difference/">APY</a> on a high-interest checking account. </p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-4" tabindex="-1"> <h3 class="accordion__title">What Is a High-Yield Investor Checking Account?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-4"> <div class="faq-accordion__item-answer"> <p>A high-yield investor checking account is a checking account that’s linked to 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> and usually has a higher-than-average interest rate. You can find investor checking accounts from brokerages like <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/charles-schwab-review-4587888">Charles Schwab</a>. A brokerage checking account may make it easier to invest your money, but you may be able to find a higher checking account or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">savings account APY</a> from a bank. </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 finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0-32"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-33"> To choose the best high-yield checking accounts, we scanned online resources for banks and credit unions that offered checking accounts with the highest annual percentage yields (APYs). Institutions had to be federally insured (by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">FDIC</a> for banks and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua.asp">NCUA</a> for credit unions); the maximum allowable balance that could earn the high rate had to be at least $10,000; and the number of required debit card transactions could not exceed 15.<br/> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp expert-content article-outro__content prm-sc-page mntl-sc-page mntl-block --> <figure class="comp figure-landscape primary-image--listsc primary-image mntl-universal-primary-image primary-image" id="primary-image--listsc_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="A woman sits on a couch with her legs crossed looking at a laptop" class="primary-image__image mntl-primary-image--blurry" height="4480" onload="(function(e){e.classList.add('loaded')})(this)" sizes="750px" src="https://www.investopedia.com/thmb/GPGq1qAJ6TH_tBUvqrCRV7MVszY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/bestcheckingaccountsround-up-20b24b7e5c28499fad6009e24ef6472b.jpg" srcset="https://www.investopedia.com/thmb/EcYtRRMGeOVANUjjkLXuXoxnG84=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/bestcheckingaccountsround-up-20b24b7e5c28499fad6009e24ef6472b.jpg 750w" style="--blurry: url('data:image/gif;charset=utf-8;base64,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')" width="6720"/> <noscript> <img alt="A woman sits on a couch with her legs crossed looking at a laptop" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="4480" sizes="750px" src="https://www.investopedia.com/thmb/GPGq1qAJ6TH_tBUvqrCRV7MVszY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/bestcheckingaccountsround-up-20b24b7e5c28499fad6009e24ef6472b.jpg" srcset="https://www.investopedia.com/thmb/EcYtRRMGeOVANUjjkLXuXoxnG84=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/bestcheckingaccountsround-up-20b24b7e5c28499fad6009e24ef6472b.jpg 750w" width="6720"/> </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>JulPo / Getty Images</p></span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-landscape primary-image--listsc primary-image mntl-universal-primary-image primary-image --> </div><!-- end: comp article-container article-outro mntl-block --> </div><!-- end: comp article-body mntl-block --> </div><!-- end: comp expert-content article-content mntl-block --> </article><!-- end: comp article list-sc list-sc-content--finance list-sc--base mntl-block --> </span> </div><div class="loc content-bottom"><div class="comp article-container mntl-block" id="article-container_1-0"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-13"><p>Federal Deposit Insurance Corporation. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.fdic.gov/resources/bankers/national-rates/index.html">National Rates and Rate Caps</a>."</p></li> <li class="mntl-sources__source" id="citation-32"><p>Federal Reserve. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20240501a.htm">Federal Reserve Issues FOMC Statement</a>."</p></li> <li class="mntl-sources__source" id="citation-33"><p>Bureau of Labor Statistics. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bls.gov/news.release/cpi.nr0.htm">Consumer Price Index</a>."</p></li> <li class="mntl-sources__source" id="citation-19"><p>La Capitol Federal Credit Union. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.lacapfcu.org/choice-checking" rel="nofollow sponsored">Choice Checking</a>."</p></li> <li class="mntl-sources__source" id="citation-15"><p>Pelican State Credit Union. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.pelicanstatecu.com/personal/reward-checking-accounts#kasasacash">Reward Checking Accounts</a>."</p></li> <li class="mntl-sources__source" id="citation-16"><p>Credit Union of New Jersey. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.cunj.com/bank/personal-banking/checking/kasasa-cash-checking/">Kasasa Cash Checking</a>."</p></li> <li class="mntl-sources__source" id="citation-17"><p>Fitness Bank. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.fitnessbank.fit/elite-checking/" rel="nofollow sponsored">Open an Elite Checking Account</a>."</p></li> <li class="mntl-sources__source" id="citation-24"><p>Orion Federal Credit Union. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://orionfcu.com/wp-content/uploads/2024/04/Orion_Account_Disclosures_-_Web_Version_-_Rev_2023-09-29-1.pdf">Account Disclosures</a>."</p></li> <li class="mntl-sources__source" id="citation-18"><p>Orion Federal Credit Union. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://orionfcu.com/checking/">Checking</a>."</p></li> <li class="mntl-sources__source" id="citation-20"><p>Garden Savings Federal Credit Union. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.gardensavingsfcu.org/services-tools/tools/rates.html#checking" rel="nofollow sponsored">Rates</a>."</p></li> <li class="mntl-sources__source" id="citation-21"><p>Garden Savings Federal Credit Union. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.gardensavingsfcu.org/accounts/personal-checking/platinum-checking.html" rel="nofollow sponsored">Platinum Rate Rewards Checking</a>."</p></li> <li class="mntl-sources__source" id="citation-30"><p>Presidential Bank. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.presidential.com/personal/banking/checking/advantage-checking" rel="nofollow sponsored">Advantage Checking</a>."</p></li> <li class="mntl-sources__source" id="citation-31"><p>Presidential Bank. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.presidential.com/_files/ugd/7ebcb6_1364dc2e5ed84496ae4f47db691a6e48.pdf" rel="nofollow sponsored">Schedule of Fees</a>."</p></li> <li class="mntl-sources__source" id="citation-9"><p>Presidential Bank. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.presidential.com/personal-banking/checking-savings/checking" rel="nofollow sponsored">Checking</a>."</p></li> <li class="mntl-sources__source" id="citation-29"><p>Consumers Credit Union. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.myconsumers.org/docs/default-source/default-document-library/consumer_fee_schedule3cb1f27b220b46e38278186d8f609a23fc8e3ea533ad421d8caf5ccbd8df1cb5.pdf?sfvrsn=699f4ce3_44" rel="nofollow sponsored">Rate Schedule</a>.”</p></li> <li class="mntl-sources__source" id="citation-22"><p>Consumers Credit Union. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.myconsumers.org/bank/accounts/free-rewards-checking" rel="nofollow sponsored">Rewards Checking</a>."</p></li> <li class="mntl-sources__source" id="citation-26"><p>Signature Federal Credit Union. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.signaturefcu.org/Products/Accounts/Checking.aspx">Checking</a>."</p></li> <li class="mntl-sources__source" id="citation-11"><p>Federal Deposit Insurance Corporation. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.fdic.gov/resources/bankers/national-rates/index.html">National Rates and Rate Caps</a>."</p></li> </ol> </div> </div></div> <div class="comp related-recirc-section--terms mntl-block" data-tracking-container="true" id="related-recirc-section--terms_1-0"><div class="comp related-terms mntl-block" id="related-terms_1-0"><div class="comp related-terms__heading mntl-text-block" id="related-terms__heading_1-0">Related Terms</div> <div class="comp related-terms__list mntl-block" id="related-terms__list_1-0"><div class="comp relates-terms__content mntl-block" id="relates-terms__content_1-0"><a class="related-terms__title mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/high-yield-checking-account-8610476" id="related-terms__title_1-0" rel="nocaes"><span class="link__wrapper">What Is a High-Yield Checking Account?</span></a> <div class="comp related-terms__description mntl-text-block" id="related-terms__description_1-0">A high-yield checking account provides interest at an above-average rate, in some cases above 5% or 6% APY. But these accounts usually come with stringent requirements.</div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/high-yield-checking-account-8610476" id="related-terms__read-more_1-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div> <div class="comp related-terms__list mntl-block" id="related-terms__list_2-0"><div class="comp relates-terms__content mntl-block" id="relates-terms__content_2-0"><a class="related-terms__title mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/c/checkingaccount.asp" id="related-terms__title_2-0" rel="nocaes"><span class="link__wrapper">What Is a Checking Account? Here's Everything You Need To Know</span></a> <div class="comp related-terms__description mntl-text-block" id="related-terms__description_2-0">A checking account is an account held at a financial institution that allows deposits and withdrawals. Learn how checking accounts work and how to get one.</div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/c/checkingaccount.asp" id="related-terms__read-more_2-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div> <div class="comp related-terms__list mntl-block" id="related-terms__list_3-0"><div class="comp relates-terms__content mntl-block" id="relates-terms__content_3-0"><a class="related-terms__title mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/what-is-a-student-bank-account-7643916" id="related-terms__title_3-0" rel="nocaes"><span class="link__wrapper">What Is a Student Bank Account?</span></a> <div class="comp related-terms__description mntl-text-block" id="related-terms__description_3-0">Student bank accounts are accounts designed for teens and young adults. Learn about the features of a typical student bank account and how to compare them. </div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/what-is-a-student-bank-account-7643916" id="related-terms__read-more_3-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div> <div class="comp related-terms__list mntl-block" id="related-terms__list_4-0"><div class="comp relates-terms__content mntl-block" id="relates-terms__content_4-0"><a class="related-terms__title mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/m/moneymarketaccount.asp" id="related-terms__title_4-0" rel="nocaes"><span class="link__wrapper">Money Market Account: How It Works and How It Differs From Other Bank Accounts</span></a> <div class="comp related-terms__description mntl-text-block" id="related-terms__description_4-0">Money market account is an interest-bearing account at a bank or credit union, not to be confused with a money market mutual fund.</div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/m/moneymarketaccount.asp" id="related-terms__read-more_4-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div> <div class="comp related-terms__list mntl-block" id="related-terms__list_5-0"><div class="comp relates-terms__content mntl-block" id="relates-terms__content_5-0"><a class="related-terms__title mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/a/apy.asp" id="related-terms__title_5-0" rel="nocaes"><span class="link__wrapper">What Is APY and How Is It Calculated?</span></a> <div class="comp related-terms__description mntl-text-block" id="related-terms__description_5-0">The annual percentage yield (APY) is the effective rate of return on an investment for one year taking compounding interest into account. </div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/a/apy.asp" id="related-terms__read-more_5-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div> <div class="comp related-terms__list mntl-block" id="related-terms__list_6-0"><div class="comp relates-terms__content mntl-block" id="relates-terms__content_6-0"><a class="related-terms__title mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/c/commercialbank.asp" id="related-terms__title_6-0" rel="nocaes"><span class="link__wrapper">How Do Commercial Banks Work, and Why Do They Matter?</span></a> <div class="comp related-terms__description mntl-text-block" id="related-terms__description_6-0">A commercial bank is a financial institution that accepts deposits, offers checking and savings account services, and makes loans.</div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/c/commercialbank.asp" id="related-terms__read-more_6-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div></div></div></div> </div></div>
Holding enough money in a [checking account](https://www.investopedia.com/terms/c/checkingaccount.asp) to cover your bills and then stashing any surplus cash in a [savings account](https://www.investopedia.com/terms/s/savings.asp) is the traditional model for boosting the bank interest you can earn. But for those willing to regularly use a [debit card](https://www.investopedia.com/terms/d/debitcard.asp), significantly higher earnings are available from high-interest checking accounts. ## Best High-Yield Checking Accounts * La Capitol Federal Credit Union – **6.25% APY** * Pelican State Credit Union – **6.05% APY** * Credit Union of New Jersey – **6.00% APY** * Fitness Bank – **6.00% APY** * Orion Federal Credit Union – **6.00% APY** * Garden Savings Federal Credit Union – **5.12% APY** * Presidential Bank – **4.62% APY** * Consumers Credit Union – **5.00% APY** * Signature Federal Credit Union – **4.00% APY** These accounts, sometimes called rewards checking, offer a trade-off: If you meet a handful of requirements in any given statement cycle, the bank or credit union will pay you an [interest rate](https://www.investopedia.com/terms/i/interestrate.asp) for that month that is well beyond what even the best savings accounts offer. The catch is that you need to follow all of the requirements to the letter, and if you miss even one, you'll be paid little or no interest for that month. Still, the requirements aren't difficult for many consumers, and the payoff can be quite lucrative. Indeed, our ranking of the best high-interest checking accounts that are available nationwide all pay at least 4.00%, with the top-paying account reaching as high as a 6.25% annual percentage yield (APY). Compare that to [high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633), where the best are paying better than 5.50% APY right now, while the national average rate is only 0.46% for savings accounts and 0.08% for checking accounts (as of April 15, 2024). ### In the News **In the News:** The Fed [held rates steady](https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952) for a sixth consecutive time at its meeting ending on May 1. The 5.25% to 5.50% range is the highest it has been since 2001, and Fed officials noted in a statement that there has been a lack of recent progress toward the committee's goal of lowering inflation. Consumer prices rose 3.5% over the year in March. Officials don't foresee reducing the target range until they are confident inflation is moving toward 2%. Interest rate hikes can directly impact the rate you receive on your high-yield checking account. Additionally, they can impact your savings account rate. It's wise to see if the bank you're using for your checking account offers a [high-yield savings account](https://www.investopedia.com/best-high-yield-savings-accounts-4770633). You could also see if it offers one of the [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) right now. Combined, these accounts could help you earn the maximum amount of money on the cash you keep at your financial institution. Note that all of the high-interest checking accounts listed below require signing up for electronic statements, and most also stipulate that you enroll in online or mobile banking. Additionally, [credit unions](https://www.investopedia.com/terms/c/creditunion.asp) are significant players in the high-interest checking account arena, populating the majority of our ranking slots. But don't let the name or location of a credit union fool you into thinking you can't bank with them. Many credit unions—and all of the ones we've included in our rankings here—offer a pathway for anyone in the country to join, usually for a modest fee or donation. Below you'll find the top checking account rates available from our partners, followed by our complete ranking of the best checking account rates nationwide. ## [La Capitol Federal Credit Union – 6.25% APY](https://www.lacapfcu.org/choice-checking) With its limited balance threshold, it's best for customers who keep relatively minimal funds on hand. * **Maximum balance for top APY:** 6.25% APY on up to $10,000. Balances above $10,000 earn 0.72% APY. * **Debit card transactions required per month:** 15. * **Direct deposit required?** No. * **ACH required?** No. * **Bill payments required?** No. * **APY if qualifications not met:** 0.10% APY on full balance for that month. * **ATM fee reimbursement:** Up to $25 per month. * **Monthly maintenance fee:** If you meet the monthly debit transaction requirement, keep your average daily balance above $1,000 for the month, or are under 24 years old there is no fee. Otherwise, an $8 low balance fee will apply. * **Paper statement fee:** For any months not enrolled in e-statements, $2 will be assessed, but the fee is waived for those under 24 and those over 60. * **Minimum opening deposit:** $50 ## [Pelican State Credit Union – 6.05% APY](https://www.pelicanstatecu.com/personal/reward-checking-accounts#kasasacash) Pelican's requirements are relatively easy to meet for those who regularly use a checking account. * **Maximum balance for top APY:** 6.05% APY on balances up to $20,000 and 0.50% APY on portion of balance greater than $20,000 * **Debit card transactions required per month:** 15 * **Direct deposit required?** One direct deposit, online bill payment, or automatic payment (ACH) * **ACH required?** One direct deposit, online bill payment, or automatic payment (ACH) * **Bill payments required?** One direct deposit, online bill payment, or automatic payment (ACH) * **Other requirements:** Electronic statements, enroll and login to MyPelican online banking * **APY if qualifications not met:** 0.05% * **ATM fee reimbursement:** Unlimited nationwide (ATM receipt must be presented for reimbursement of ATM fees of $5 or higher within 30 days after the statement cycle where the reimbursement was applicable in order to receive a refund.) * **Monthly maintenance fee:** None * **Minimum opening deposit:** $25 ## [Credit Union of New Jersey – 6.00% APY](https://www.cunj.com/bank/personal-banking/checking/kasasa-cash-checking/) For those who like to keep more than $10,000 in a checking account, Credit Union of New Jersey boasts the top rate. * **Maximum balance for top APY:** 6.00% APY on balances up to $25,000 and 0.75% APY on portion of balance greater than $25,000 * **Debit card transactions required per month:** 12 * **Direct deposit required?** At least one direct deposit, ACH credit, ACH payment, or bill pay transaction * **ACH required?** At least one direct deposit, ACH credit, ACH payment, or bill pay transaction * **Bill payments required?** At least one direct deposit, ACH credit, ACH payment, or bill pay transaction * **Other requirements:** Electronic statements * **APY if qualifications not met:** 0.01% * **ATM fee reimbursement:** Up to $25 nationwide per statement period, up to $4.99 international per statement period * **Monthly maintenance fee:** None * **Minimum opening deposit:** $5 ## [Fitness Bank – 6.00% APY](https://www.fitnessbank.fit/elite-checking/) Fitness-oriented banking customers willing to connect their daily activities to an app can earn a great rate at Fitness Bank. * **Maximum balance for top APY:** 6.00% APY on balances up to $25,000 and 0.25% APY on portion of balance greater than $25,000 * **Debit card transactions required per month:** 15 * **Direct deposit required?** No * **ACH required?** No * **Bill payments required?** No * **Other requirements:** Average 10,000 steps per day using the FitnessBank Step Tracker app (7,500 if 65+) * **APY if qualifications not met:** 0.10% APY * **ATM fee reimbursement:** Up to $10 per statement period * **Monthly maintenance fee:** None with $10 minimum average daily balance, otherwise $10/month * **Minimum opening deposit:** $100 ## [Orion Federal Credit Union – 6.00% APY](https://orionfcu.com/checking/) Orion Federal Credit Union's requirements to earn its top rate are among easiest to meet. * **Maximum balance for top APY:** 6.00% APY on balances up to $10,000 and from 2.34% APY to 5.06% APY on portions of balance greater than $10,000, depending on specific balance * **Debit card transactions required per month:** Spend at least $500/month on your Orion debit or credit card * **Direct deposit required?** $500 monthly minimum * **ACH required?** No * **Bill payments required?** No * **Other requirements:** No * **APY if qualifications not met:** 0.01% APY * **ATM fee reimbursement:** Up to $10 per statement period * **Monthly maintenance fee:** None when requirements to earn top APY are met, otherwise $5/month * **Minimum opening deposit:** No stated minimum ## [Garden Savings Federal Credit Union, Platinum Rate Rewards Checking – 5.12% APY](https://www.gardensavingsfcu.org/accounts/personal-checking/platinum-checking.html) Direct deposit not a great option for you? Garden Savings offers one of the best APYs and a generous maximum earning balance while allowing you to qualify without establishing a direct deposit. * **Maximum balance for top APY:** 5.12% APY up to $15,000. Balances above that pay 0.15% APY. * **Debit card transactions required per month:** 12. * **Direct deposit required?** One direct deposit OR one ACH deposit * **ACH required?** See direct deposit above. * **Bill payments required?** No. * **Other requirements:** Must be enrolled in e-statements. * **APY if qualifications not met:** 0.01% APY * **ATM fee reimbursement:** Up to $20 in fees refunded if monthly qualifications met. * **Monthly maintenance fee:** None. * **Minimum opening deposit:** None ## [Presidential Bank, Advantage Checking – 4.62% APY](https://www.presidential.com/personal-banking/checking-savings/checking#advantage-checking) Although this isn't the highest APY on the list, the high yield is extended to a much higher balance than with other accounts. It's also the only top-paying checking account that doesn't absolutely require debit card transactions, offering other electronic withdrawals as alternate qualifiers. * **Maximum balance for top APY:** 4.62% APY up to $25,000, and 2.50% APY on balances beyond $25,000. * **Debit card transactions required per month:** Seven or more electronic withdrawals per month, which can be by ATM, debit card, ACH, or bill pay. * **Direct deposit required?** Yes, at least $500 per month. * **ACH required?** See debit card requirement above. * **Bill payments required?** See debit card requirement above. * **Limitations:** Write up to three paper checks per month at no charge, but incur a $3 charge per check thereafter. * **APY if qualifications not met:** 0.10% APY. * **ATM fee reimbursement:** Up to $8 in refunded fees per month. * **Monthly maintenance fee:** $5, waived with a $500 minimum balance. * **Minimum opening deposit:** $500. ## [Consumers Credit Union, Rewards Checking – 4.00% APY](https://www.myconsumers.org/bank/accounts/free-rewards-checking) This is the best high-APY nationwide checking account that we've found. But earning the top rate requires opening and actively using a credit card from the credit union. * **Maximum balance for top APY:** Up to 5.00% on up to $10,000. Balances between $10,000.01 and $25,000 earn 0.20% APY, and balances in excess of $25,000 earn as high as 0.10% APY. * **Debit card transactions required per month:** 12. * **Direct deposit required?** One direct deposit, ACH deposit, or mobile deposit of $500+ per month * **ACH required?** See direct deposit above. * **Bill payments required?** No. * **Other requirements:** Holding a Consumers CU Visa card and spending $1,000 on it per month. If credit card spending is at least $500 but doesn't hit $1,000, APY on the account will be 4.00% APY. If you don't have the credit card, but meet all the other requirements you get 3.00% APY. * **APY if qualifications not met:** 0.01% APY on full balance for that month. * **ATM fee reimbursement:** Unlimited refunds in months where qualifications are met. * **Monthly maintenance fee:** None. * **Minimum opening deposit:** $5 ## [Signature Federal Credit Union, High-Yield Checking Account – 4.00% APY](https://www.signaturefcu.org/Products/Accounts/Checking.aspx) For those with a reliable direct deposit of $1,000 or more each month, Signature offers a generous maximum balance, one of the easiest debit card requirements, and a minimal cost to join. * **Maximum balance for top APY:** 4.00% APY up to $40,000, then 0.00% APY * **Debit card transactions required per month:** 15 * **Direct deposit required?** Yes, at least $1,000 per month * **ACH required?** No * **Bill payments required?** No * **Other requirements:** Must enroll in e-statements * **ATM fee reimbursement:** $10 per month, plus access to free ATMs through the CO-OP and Culiance networks * **Minimum opening deposit:** None stated ## You May Be Able to Earn Even More As with all banking products, it can pay to shop locally. Our rankings focus on banks and credit unions open to customers nationwide, allowing for accounts to be opened online. But with credit unions being strong players in the rewards checking realm, it's possible that a credit union in your community or state, or that serves your employer, may pay as much or more than the best nationwide options we've laid out. Or perhaps you'll find one with slightly easier requirements. The nationwide leaders above will be hard to beat in most markets. But it's always worth checking the local and regional options available specifically to you before locking into a choice. ## What Is Kasasa? If you do only a little research on rewards checking accounts, you'll notice the word Kasasa popping up from time to time, and the odd word may leave you scratching your head. That's because [Kasasa](https://www.kasasa.com/) is a fabricated branding word and the name of a company that offers checking account infrastructure to banks and credit unions. What all Kasasa accounts have in common is that they offer some sort of reward, whether exceptional interest rates, cash back on debit card purchases, or more unconventional perks, and they carry no fees. ## Tips for Succeeding With High-Yield Checking By now, you understand you have to actively earn your reward with a high-interest checking account. For most people, these are not accounts you can leave on autopilot and expect to receive the maximum interest payment each month. A little bit of due diligence—both upfront and monthly—is required if you want to maximize your earnings. ### Be Sure You Thoroughly Understand the Requirements As you research options, be sure you fully understand what each account will require of you. Thinking through how you normally use a checking account and what behavior modifications you're willing to make (if any) will help lead you to the best rewards checking account for your needs and style. Then, once you've chosen an account, make the time investment of a phone call to a customer service representative at the bank or credit union to ask questions about the specific rules of qualifying transactions. One of the most important things to clarify is what types of debit card transactions will qualify toward the minimum number. Do they have to involve a signature? Can they be PIN-based? Do they have to be at least some minimum dollar amount? Don't stop at debit questions, though; familiarize yourself with any requirements about [direct deposit](https://www.investopedia.com/terms/d/directdeposit.asp) or [ACH transactions](https://www.investopedia.com/ach-transfers-what-are-they-and-how-do-they-work-4590120). Also, learn where to review the monthly qualification calendar, which will indicate the first and last days for posted transactions to count towards each monthly rewards cycle. ### Set Some Monthly Reminders Now that you know your marching orders for earning top dollar on your checking account balance every month, turn that information into some automated tasks that will help ensure you don't forget. Being deprived of a whole month of interest due to a single misstep can be frustrating. Adding a reminder to your phone or calendar for the same day every month, perhaps seven to ten days before the closing date for qualifying transactions, is a best practice that can help you complete any necessary actions while you still have time. The date a transaction will count towards your monthly qualification requirements is the posted date, not the actual activity date. Since it can take a day or two for pending transactions to post, be sure to initiate any needed activity a few days before the end of your qualification period. ### Watch Out for Account Maximums If your account has a maximum that you may sometimes bump up against, regularly pay attention to your balance. If you go a few dollars over and it's expected to be a temporary surplus, don't sweat it. But since the interest rate many of these accounts pay on the portion of your balance that exceeds the high-APY threshold is zero, or close to it, you won't want to regularly keep more than the maximum in your account. To see how much difference this can make, take the example of an account with a $10,000 maximum for earning 3.00%. At amounts above $10,000, the account pays just 0.10% APY. If you were to keep a balance of about $20,000 in the account regularly, you'd essentially be lowering your APY on that account to just 1.55% APY (the average of 3.00 plus 0.10). ### Pair Your High-Yield Checking With High-Yield Savings For those who find they're being constrained by the maximum balance threshold on their high-yield checking account, a savvy move is to pair it with a [high-yield savings account](https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp). The savings account can be at the same institution or an entirely different one. You can find our ranking of the top-paying national savings accounts [here](https://www.investopedia.com/best-high-yield-savings-accounts-4770633). The key is simply to create an electronic link between your two high-yield accounts so that you can easily transfer surplus funds that exceed your checking account's maximum allowance into a savings account that may pay 10x as much as the surplus funds would earn in checking. Conversely, if your checking account balance falls below the high-APY threshold, you can transfer funds from savings back to checking to maximize your high-yield earnings. ## Pros and Cons of High-Yield Checking Accounts Pros * Offer a higher interest rate than traditional checking accounts * Give you easy access to your cash * May come with bonus perks and benefits Cons * May require a certain balance to earn the highest rate * Could have rules around minimum balances or transactions per month * Rate could decrease over time ### Pros Explained * **Offer a higher interest rate than traditional checking accounts:** While traditional checking accounts offer an average of 0.08% APY as of April 2024, according to the Federal Deposit Insurance Corporation (FDIC), some high-yield checking accounts may offer APYs close to or beyond 5.00%. * **Give you easy access to your cash:** Like other checking accounts, high-yield checking accounts are designed for high activity and generally come with a debit card. You can use these accounts to withdraw cash and pay your bills as needed. * **May come with bonus perks and benefits:** Some high-yield checking accounts come with additional perks, such as a [cash-back debit card](https://www.investopedia.com/best-rewards-checking-accounts-5069834), reimbursement for out-of-network ATM fees, and zero monthly maintenance fees. ### Cons Explained * **May require a certain balance to earn the highest rate:** Each institution sets its own rules, but some may require you to have a certain amount of cash in your checking account to access the best rates. * **Could have rules around minimum balances or transactions per month:** Along similar lines, some high-interest checking accounts may require you to maintain a minimum balance or conduct a certain number of transactions per month to earn a certain APY, avoid fees, or keep the account open. * **Rate could decrease over time:** Your checking account rate is not fixed and may fluctuate with market conditions. Over time, you may see your rate decrease and your interest earnings go down as a result. Browse the [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) for accounts with a guaranteed return at a specific APY. ## Alternatives to High-Yield Checking Accounts A high-yield checking account may not be the best fit for everyone. Here are some alternative options to explore.  * **Traditional checking account:** Although they don’t earn much or any interest, traditional checking accounts may have other perks that appeal to you, such as no fees, ATM fee reimbursement, or early direct deposit. Browse the [best free checking accounts](https://www.investopedia.com/best-free-checking-accounts-7153155) to see if one would work for you. * **High-yield savings account:** You can often find higher APYs on savings accounts than checking accounts. A savings account is a great place to store cash that you don’t need for everyday spending or monthly bills. See the [best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) to find a good home for your money. * **Certificate of deposit (CD):** You might also [invest in a CD](https://www.investopedia.com/best-cd-rates-4770214) to earn interest on your money over time. CDs may be a good fit if you don’t need immediate access to your cash, since you could rack up fees if you withdraw your money before the CD’s maturity date. * **Money market account:** These accounts are like a combination of checking and savings accounts—they often come with checks and a debit card while offering a fairly high rate. The downside of money market accounts, though, is they may charge higher fees or have higher minimum balance requirements. See the [best money market accounts](https://www.investopedia.com/best-money-market-accounts-5096917) to explore your options. * **I Bonds:** [I bonds](https://www.investopedia.com/i-bonds-vs-cds-which-is-the-better-investment-right-now-7546699) are U.S. government bonds that can help protect your savings against inflation. You can’t access your cash until at least a year has passed, though. ## Frequently Asked Questions * ### What Is a High-Yield Checking Account? A [high-yield checking account](https://www.investopedia.com/are-high-yield-checking-accounts-a-good-idea-right-now-7547060) is a type of checking account that earns higher-than-average interest. According to the FDIC, the average checking account interest rate is only 0.08% as of April 15, 2024. High-yield checking accounts may earn rates up to 6.00% or higher. * ### Are High-Yield Checking Accounts Worth It? A high-yield checking account may be worth it if earning interest on your checking account balance is a priority. If you only keep a small amount of cash in your checking account, a [high-yield savings account](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) may be a higher priority.  When determining whether a high-yield checking account is worth it, keep an eye out for any rules or restrictions that wouldn’t be a good fit for your spending habits, such as account or transaction minimums. * ### Which Banks Pay the Highest Interest on Checking Accounts? Some financial institutions that often pay among the highest interest rates on checking accounts include [Pelican State Credit Union](https://www.pelicanstatecu.com/personal/reward-checking-accounts#kasasacash) and [Fitness Bank](https://www.fitnessbank.fit/elite-checking/), with rates of 6.05% APY and 6.00% APY respectively. * ### Do High-Yield Checking Accounts Exist? Yes, high-yield checking accounts exist at various banks and online financial services companies. Compare the options above from multiple institutions to find the best [APY](https://www.investopedia.com/personal-finance/apr-apy-bank-hopes-cant-tell-difference/) on a high-interest checking account. * ### What Is a High-Yield Investor Checking Account? A high-yield investor checking account is a checking account that’s linked to a [brokerage account](https://www.investopedia.com/terms/b/brokerageaccount.asp) and usually has a higher-than-average interest rate. You can find investor checking accounts from brokerages like [Charles Schwab](https://www.investopedia.com/charles-schwab-review-4587888). A brokerage checking account may make it easier to invest your money, but you may be able to find a higher checking account or [savings account APY](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) from a bank. ## Methodology To choose the best high-yield checking accounts, we scanned online resources for banks and credit unions that offered checking accounts with the highest annual percentage yields (APYs). Institutions had to be federally insured (by [FDIC](https://www.investopedia.com/terms/f/fdic.asp) for banks and [NCUA](https://www.investopedia.com/terms/n/ncua.asp) for credit unions); the maximum allowable balance that could earn the high rate had to be at least $10,000; and the number of required debit card transactions could not exceed 15. ![A woman sits on a couch with her legs crossed looking at a laptop](https://www.investopedia.com/thmb/GPGq1qAJ6TH_tBUvqrCRV7MVszY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/bestcheckingaccountsround-up-20b24b7e5c28499fad6009e24ef6472b.jpg) ![A woman sits on a couch with her legs crossed looking at a laptop](https://www.investopedia.com/thmb/GPGq1qAJ6TH_tBUvqrCRV7MVszY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/bestcheckingaccountsround-up-20b24b7e5c28499fad6009e24ef6472b.jpg) JulPo / 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. Federal Deposit Insurance Corporation. "[National Rates and Rate Caps](https://www.fdic.gov/resources/bankers/national-rates/index.html)." 2. Federal Reserve. "[Federal Reserve Issues FOMC Statement](https://www.federalreserve.gov/newsevents/pressreleases/monetary20240501a.htm)." 3. Bureau of Labor Statistics. "[Consumer Price Index](https://www.bls.gov/news.release/cpi.nr0.htm)." 4. La Capitol Federal Credit Union. "[Choice Checking](https://www.lacapfcu.org/choice-checking)." 5. Pelican State Credit Union. "[Reward Checking Accounts](https://www.pelicanstatecu.com/personal/reward-checking-accounts#kasasacash)." 6. Credit Union of New Jersey. "[Kasasa Cash Checking](https://www.cunj.com/bank/personal-banking/checking/kasasa-cash-checking/)." 7. Fitness Bank. "[Open an Elite Checking Account](https://www.fitnessbank.fit/elite-checking/)." 8. Orion Federal Credit Union. "[Account Disclosures](https://orionfcu.com/wp-content/uploads/2024/04/Orion_Account_Disclosures_-_Web_Version_-_Rev_2023-09-29-1.pdf)." 9. Orion Federal Credit Union. "[Checking](https://orionfcu.com/checking/)." 10. Garden Savings Federal Credit Union. "[Rates](https://www.gardensavingsfcu.org/services-tools/tools/rates.html#checking)." 11. Garden Savings Federal Credit Union. "[Platinum Rate Rewards Checking](https://www.gardensavingsfcu.org/accounts/personal-checking/platinum-checking.html)." 12. Presidential Bank. "[Advantage Checking](https://www.presidential.com/personal/banking/checking/advantage-checking)." 13. Presidential Bank. "[Schedule of Fees](https://www.presidential.com/_files/ugd/7ebcb6_1364dc2e5ed84496ae4f47db691a6e48.pdf)." 14. Presidential Bank. "[Checking](https://www.presidential.com/personal-banking/checking-savings/checking)." 15. Consumers Credit Union. “[Rate Schedule](https://www.myconsumers.org/docs/default-source/default-document-library/consumer_fee_schedule3cb1f27b220b46e38278186d8f609a23fc8e3ea533ad421d8caf5ccbd8df1cb5.pdf?sfvrsn=699f4ce3_44).” 16. Consumers Credit Union. "[Rewards Checking](https://www.myconsumers.org/bank/accounts/free-rewards-checking)." 17. Signature Federal Credit Union. "[Checking](https://www.signaturefcu.org/Products/Accounts/Checking.aspx)." 18. Federal Deposit Insurance Corporation. "[National Rates and Rate Caps](https://www.fdic.gov/resources/bankers/national-rates/index.html)." Related Terms [What Is a High-Yield Checking Account?](https://www.investopedia.com/high-yield-checking-account-8610476) A high-yield checking account provides interest at an above-average rate, in some cases above 5% or 6% APY. But these accounts usually come with stringent requirements. [more](https://www.investopedia.com/high-yield-checking-account-8610476) [What Is a Checking Account? Here's Everything You Need To Know](https://www.investopedia.com/terms/c/checkingaccount.asp) A checking account is an account held at a financial institution that allows deposits and withdrawals. Learn how checking accounts work and how to get one. [more](https://www.investopedia.com/terms/c/checkingaccount.asp) [What Is a Student Bank Account?](https://www.investopedia.com/what-is-a-student-bank-account-7643916) Student bank accounts are accounts designed for teens and young adults. Learn about the features of a typical student bank account and how to compare them. [more](https://www.investopedia.com/what-is-a-student-bank-account-7643916) [Money Market Account: How It Works and How It Differs From Other Bank Accounts](https://www.investopedia.com/terms/m/moneymarketaccount.asp) Money market account is an interest-bearing account at a bank or credit union, not to be confused with a money market mutual fund. [more](https://www.investopedia.com/terms/m/moneymarketaccount.asp) [What Is APY and How Is It Calculated?](https://www.investopedia.com/terms/a/apy.asp) The annual percentage yield (APY) is the effective rate of return on an investment for one year taking compounding interest into account. [more](https://www.investopedia.com/terms/a/apy.asp) [How Do Commercial Banks Work, and Why Do They Matter?](https://www.investopedia.com/terms/c/commercialbank.asp) A commercial bank is a financial institution that accepts deposits, offers checking and savings account services, and makes loans. [more](https://www.investopedia.com/terms/c/commercialbank.asp)
Holding enough money in a checking account to cover your bills and then stashing any surplus cash in a savings account is the traditional model for boosting the bank interest you can earn. But for those willing to regularly use a debit card, significantly higher earnings are available from high-interest checking accounts. Best High-Yield Checking Accounts La Capitol Federal Credit Union – 6.25% APYPelican State Credit Union – 6.05% APYCredit Union of New Jersey – 6.00% APYFitness Bank – 6.00% APYOrion Federal Credit Union – 6.00% APYGarden Savings Federal Credit Union – 5.12% APYPresidential Bank – 4.62% APYConsumers Credit Union – 5.00% APYSignature Federal Credit Union – 4.00% APY These accounts, sometimes called rewards checking, offer a trade-off: If you meet a handful of requirements in any given statement cycle, the bank or credit union will pay you an interest rate for that month that is well beyond what even the best savings accounts offer. The catch is that you need to follow all of the requirements to the letter, and if you miss even one, you'll be paid little or no interest for that month. Still, the requirements aren't difficult for many consumers, and the payoff can be quite lucrative. Indeed, our ranking of the best high-interest checking accounts that are available nationwide all pay at least 4.00%, with the top-paying account reaching as high as a 6.25% annual percentage yield (APY). Compare that to high-yield savings accounts, where the best are paying better than 5.50% APY right now, while the national average rate is only 0.46% for savings accounts and 0.08% for checking accounts (as of April 15, 2024). In the News In the News: The Fed held rates steady for a sixth consecutive time at its meeting ending on May 1. The 5.25% to 5.50% range is the highest it has been since 2001, and Fed officials noted in a statement that there has been a lack of recent progress toward the committee's goal of lowering inflation. Consumer prices rose 3.5% over the year in March. Officials don't foresee reducing the target range until they are confident inflation is moving toward 2%. Interest rate hikes can directly impact the rate you receive on your high-yield checking account. Additionally, they can impact your savings account rate. It's wise to see if the bank you're using for your checking account offers a high-yield savings account. You could also see if it offers one of the best CD rates right now. Combined, these accounts could help you earn the maximum amount of money on the cash you keep at your financial institution. Note that all of the high-interest checking accounts listed below require signing up for electronic statements, and most also stipulate that you enroll in online or mobile banking. Additionally, credit unions are significant players in the high-interest checking account arena, populating the majority of our ranking slots. But don't let the name or location of a credit union fool you into thinking you can't bank with them. Many credit unions—and all of the ones we've included in our rankings here—offer a pathway for anyone in the country to join, usually for a modest fee or donation. Below you'll find the top checking account rates available from our partners, followed by our complete ranking of the best checking account rates nationwide. La Capitol Federal Credit Union – 6.25% APY With its limited balance threshold, it's best for customers who keep relatively minimal funds on hand. Maximum balance for top APY: 6.25% APY on up to $10,000. Balances above $10,000 earn 0.72% APY.Debit card transactions required per month: 15.Direct deposit required? No.ACH required? No.Bill payments required? No.APY if qualifications not met: 0.10% APY on full balance for that month.ATM fee reimbursement: Up to $25 per month.Monthly maintenance fee: If you meet the monthly debit transaction requirement, keep your average daily balance above $1,000 for the month, or are under 24 years old there is no fee. Otherwise, an $8 low balance fee will apply.Paper statement fee: For any months not enrolled in e-statements, $2 will be assessed, but the fee is waived for those under 24 and those over 60.Minimum opening deposit: $50 Pelican State Credit Union – 6.05% APY Pelican's requirements are relatively easy to meet for those who regularly use a checking account. Maximum balance for top APY: 6.05% APY on balances up to $20,000 and 0.50% APY on portion of balance greater than $20,000Debit card transactions required per month: 15Direct deposit required? One direct deposit, online bill payment, or automatic payment (ACH)ACH required? One direct deposit, online bill payment, or automatic payment (ACH)Bill payments required? One direct deposit, online bill payment, or automatic payment (ACH)Other requirements: Electronic statements, enroll and login to MyPelican online bankingAPY if qualifications not met: 0.05%ATM fee reimbursement: Unlimited nationwide (ATM receipt must be presented for reimbursement of ATM fees of $5 or higher within 30 days after the statement cycle where the reimbursement was applicable in order to receive a refund.)Monthly maintenance fee: NoneMinimum opening deposit: $25 Credit Union of New Jersey – 6.00% APY For those who like to keep more than $10,000 in a checking account, Credit Union of New Jersey boasts the top rate. Maximum balance for top APY: 6.00% APY on balances up to $25,000 and 0.75% APY on portion of balance greater than $25,000Debit card transactions required per month: 12Direct deposit required? At least one direct deposit, ACH credit, ACH payment, or bill pay transactionACH required? At least one direct deposit, ACH credit, ACH payment, or bill pay transactionBill payments required? At least one direct deposit, ACH credit, ACH payment, or bill pay transactionOther requirements: Electronic statementsAPY if qualifications not met: 0.01%ATM fee reimbursement: Up to $25 nationwide per statement period, up to $4.99 international per statement periodMonthly maintenance fee: NoneMinimum opening deposit: $5 Fitness Bank – 6.00% APY Fitness-oriented banking customers willing to connect their daily activities to an app can earn a great rate at Fitness Bank. Maximum balance for top APY: 6.00% APY on balances up to $25,000 and 0.25% APY on portion of balance greater than $25,000Debit card transactions required per month: 15Direct deposit required? NoACH required? NoBill payments required? NoOther requirements: Average 10,000 steps per day using the FitnessBank Step Tracker app (7,500 if 65+)APY if qualifications not met: 0.10% APYATM fee reimbursement: Up to $10 per statement periodMonthly maintenance fee: None with $10 minimum average daily balance, otherwise $10/monthMinimum opening deposit: $100 Orion Federal Credit Union – 6.00% APY Orion Federal Credit Union's requirements to earn its top rate are among easiest to meet. Maximum balance for top APY: 6.00% APY on balances up to $10,000 and from 2.34% APY to 5.06% APY on portions of balance greater than $10,000, depending on specific balanceDebit card transactions required per month: Spend at least $500/month on your Orion debit or credit cardDirect deposit required? $500 monthly minimumACH required? NoBill payments required? NoOther requirements: NoAPY if qualifications not met: 0.01% APYATM fee reimbursement: Up to $10 per statement periodMonthly maintenance fee: None when requirements to earn top APY are met, otherwise $5/monthMinimum opening deposit: No stated minimum Garden Savings Federal Credit Union, Platinum Rate Rewards Checking – 5.12% APY Direct deposit not a great option for you? Garden Savings offers one of the best APYs and a generous maximum earning balance while allowing you to qualify without establishing a direct deposit. Maximum balance for top APY: 5.12% APY up to $15,000. Balances above that pay 0.15% APY.Debit card transactions required per month: 12.Direct deposit required? One direct deposit OR one ACH depositACH required? See direct deposit above.Bill payments required? No.Other requirements: Must be enrolled in e-statements.APY if qualifications not met: 0.01% APYATM fee reimbursement: Up to $20 in fees refunded if monthly qualifications met.Monthly maintenance fee: None.Minimum opening deposit: None Presidential Bank, Advantage Checking – 4.62% APY Although this isn't the highest APY on the list, the high yield is extended to a much higher balance than with other accounts. It's also the only top-paying checking account that doesn't absolutely require debit card transactions, offering other electronic withdrawals as alternate qualifiers. Maximum balance for top APY: 4.62% APY up to $25,000, and 2.50% APY on balances beyond $25,000.Debit card transactions required per month: Seven or more electronic withdrawals per month, which can be by ATM, debit card, ACH, or bill pay.Direct deposit required? Yes, at least $500 per month.ACH required? See debit card requirement above.Bill payments required? See debit card requirement above.Limitations: Write up to three paper checks per month at no charge, but incur a $3 charge per check thereafter.APY if qualifications not met: 0.10% APY.ATM fee reimbursement: Up to $8 in refunded fees per month.Monthly maintenance fee: $5, waived with a $500 minimum balance.Minimum opening deposit: $500. Consumers Credit Union, Rewards Checking – 4.00% APY This is the best high-APY nationwide checking account that we've found. But earning the top rate requires opening and actively using a credit card from the credit union. Maximum balance for top APY: Up to 5.00% on up to $10,000. Balances between $10,000.01 and $25,000 earn 0.20% APY, and balances in excess of $25,000 earn as high as 0.10% APY.Debit card transactions required per month: 12.Direct deposit required? One direct deposit, ACH deposit, or mobile deposit of $500+ per monthACH required? See direct deposit above.Bill payments required? No.Other requirements: Holding a Consumers CU Visa card and spending $1,000 on it per month. If credit card spending is at least $500 but doesn't hit $1,000, APY on the account will be 4.00% APY. If you don't have the credit card, but meet all the other requirements you get 3.00% APY.APY if qualifications not met: 0.01% APY on full balance for that month.ATM fee reimbursement: Unlimited refunds in months where qualifications are met.Monthly maintenance fee: None.Minimum opening deposit: $5 Signature Federal Credit Union, High-Yield Checking Account – 4.00% APY For those with a reliable direct deposit of $1,000 or more each month, Signature offers a generous maximum balance, one of the easiest debit card requirements, and a minimal cost to join. Maximum balance for top APY: 4.00% APY up to $40,000, then 0.00% APYDebit card transactions required per month: 15Direct deposit required? Yes, at least $1,000 per monthACH required? NoBill payments required? NoOther requirements: Must enroll in e-statementsATM fee reimbursement: $10 per month, plus access to free ATMs through the CO-OP and Culiance networksMinimum opening deposit: None stated You May Be Able to Earn Even More As with all banking products, it can pay to shop locally. Our rankings focus on banks and credit unions open to customers nationwide, allowing for accounts to be opened online. But with credit unions being strong players in the rewards checking realm, it's possible that a credit union in your community or state, or that serves your employer, may pay as much or more than the best nationwide options we've laid out. Or perhaps you'll find one with slightly easier requirements. The nationwide leaders above will be hard to beat in most markets. But it's always worth checking the local and regional options available specifically to you before locking into a choice. What Is Kasasa? If you do only a little research on rewards checking accounts, you'll notice the word Kasasa popping up from time to time, and the odd word may leave you scratching your head. That's because Kasasa is a fabricated branding word and the name of a company that offers checking account infrastructure to banks and credit unions. What all Kasasa accounts have in common is that they offer some sort of reward, whether exceptional interest rates, cash back on debit card purchases, or more unconventional perks, and they carry no fees. Tips for Succeeding With High-Yield Checking By now, you understand you have to actively earn your reward with a high-interest checking account. For most people, these are not accounts you can leave on autopilot and expect to receive the maximum interest payment each month. A little bit of due diligence—both upfront and monthly—is required if you want to maximize your earnings. Be Sure You Thoroughly Understand the Requirements As you research options, be sure you fully understand what each account will require of you. Thinking through how you normally use a checking account and what behavior modifications you're willing to make (if any) will help lead you to the best rewards checking account for your needs and style. Then, once you've chosen an account, make the time investment of a phone call to a customer service representative at the bank or credit union to ask questions about the specific rules of qualifying transactions. One of the most important things to clarify is what types of debit card transactions will qualify toward the minimum number. Do they have to involve a signature? Can they be PIN-based? Do they have to be at least some minimum dollar amount? Don't stop at debit questions, though; familiarize yourself with any requirements about direct deposit or ACH transactions. Also, learn where to review the monthly qualification calendar, which will indicate the first and last days for posted transactions to count towards each monthly rewards cycle. Set Some Monthly Reminders Now that you know your marching orders for earning top dollar on your checking account balance every month, turn that information into some automated tasks that will help ensure you don't forget. Being deprived of a whole month of interest due to a single misstep can be frustrating. Adding a reminder to your phone or calendar for the same day every month, perhaps seven to ten days before the closing date for qualifying transactions, is a best practice that can help you complete any necessary actions while you still have time. The date a transaction will count towards your monthly qualification requirements is the posted date, not the actual activity date. Since it can take a day or two for pending transactions to post, be sure to initiate any needed activity a few days before the end of your qualification period. Watch Out for Account Maximums If your account has a maximum that you may sometimes bump up against, regularly pay attention to your balance. If you go a few dollars over and it's expected to be a temporary surplus, don't sweat it. But since the interest rate many of these accounts pay on the portion of your balance that exceeds the high-APY threshold is zero, or close to it, you won't want to regularly keep more than the maximum in your account. To see how much difference this can make, take the example of an account with a $10,000 maximum for earning 3.00%. At amounts above $10,000, the account pays just 0.10% APY. If you were to keep a balance of about $20,000 in the account regularly, you'd essentially be lowering your APY on that account to just 1.55% APY (the average of 3.00 plus 0.10). Pair Your High-Yield Checking With High-Yield Savings For those who find they're being constrained by the maximum balance threshold on their high-yield checking account, a savvy move is to pair it with a high-yield savings account. The savings account can be at the same institution or an entirely different one. You can find our ranking of the top-paying national savings accounts here. The key is simply to create an electronic link between your two high-yield accounts so that you can easily transfer surplus funds that exceed your checking account's maximum allowance into a savings account that may pay 10x as much as the surplus funds would earn in checking. Conversely, if your checking account balance falls below the high-APY threshold, you can transfer funds from savings back to checking to maximize your high-yield earnings. Pros and Cons of High-Yield Checking Accounts Pros Offer a higher interest rate than traditional checking accounts  Give you easy access to your cash  May come with bonus perks and benefits  Cons May require a certain balance to earn the highest rate  Could have rules around minimum balances or transactions per month Rate could decrease over time Pros Explained Offer a higher interest rate than traditional checking accounts: While traditional checking accounts offer an average of 0.08% APY as of April 2024, according to the Federal Deposit Insurance Corporation (FDIC), some high-yield checking accounts may offer APYs close to or beyond 5.00%. Give you easy access to your cash: Like other checking accounts, high-yield checking accounts are designed for high activity and generally come with a debit card. You can use these accounts to withdraw cash and pay your bills as needed.  May come with bonus perks and benefits: Some high-yield checking accounts come with additional perks, such as a cash-back debit card, reimbursement for out-of-network ATM fees, and zero monthly maintenance fees.  Cons Explained May require a certain balance to earn the highest rate: Each institution sets its own rules, but some may require you to have a certain amount of cash in your checking account to access the best rates.  Could have rules around minimum balances or transactions per month: Along similar lines, some high-interest checking accounts may require you to maintain a minimum balance or conduct a certain number of transactions per month to earn a certain APY, avoid fees, or keep the account open.  Rate could decrease over time: Your checking account rate is not fixed and may fluctuate with market conditions. Over time, you may see your rate decrease and your interest earnings go down as a result. Browse the best CD rates for accounts with a guaranteed return at a specific APY. Alternatives to High-Yield Checking Accounts A high-yield checking account may not be the best fit for everyone. Here are some alternative options to explore.  Traditional checking account: Although they don’t earn much or any interest, traditional checking accounts may have other perks that appeal to you, such as no fees, ATM fee reimbursement, or early direct deposit. Browse the best free checking accounts to see if one would work for you. High-yield savings account: You can often find higher APYs on savings accounts than checking accounts. A savings account is a great place to store cash that you don’t need for everyday spending or monthly bills. See the best high-yield savings accounts to find a good home for your money. Certificate of deposit (CD): You might also invest in a CD to earn interest on your money over time. CDs may be a good fit if you don’t need immediate access to your cash, since you could rack up fees if you withdraw your money before the CD’s maturity date.  Money market account: These accounts are like a combination of checking and savings accounts—they often come with checks and a debit card while offering a fairly high rate. The downside of money market accounts, though, is they may charge higher fees or have higher minimum balance requirements. See the best money market accounts to explore your options. I Bonds: I bonds are U.S. government bonds that can help protect your savings against inflation. You can’t access your cash until at least a year has passed, though.  Frequently Asked Questions What Is a High-Yield Checking Account? A high-yield checking account is a type of checking account that earns higher-than-average interest. According to the FDIC, the average checking account interest rate is only 0.08% as of April 15, 2024. High-yield checking accounts may earn rates up to 6.00% or higher. Are High-Yield Checking Accounts Worth It? A high-yield checking account may be worth it if earning interest on your checking account balance is a priority. If you only keep a small amount of cash in your checking account, a high-yield savings account may be a higher priority. When determining whether a high-yield checking account is worth it, keep an eye out for any rules or restrictions that wouldn’t be a good fit for your spending habits, such as account or transaction minimums. Which Banks Pay the Highest Interest on Checking Accounts? Some financial institutions that often pay among the highest interest rates on checking accounts include Pelican State Credit Union and Fitness Bank, with rates of 6.05% APY and 6.00% APY respectively. Do High-Yield Checking Accounts Exist? Yes, high-yield checking accounts exist at various banks and online financial services companies. Compare the options above from multiple institutions to find the best APY on a high-interest checking account.  What Is a High-Yield Investor Checking Account? A high-yield investor checking account is a checking account that’s linked to a brokerage account and usually has a higher-than-average interest rate. You can find investor checking accounts from brokerages like Charles Schwab. A brokerage checking account may make it easier to invest your money, but you may be able to find a higher checking account or savings account APY from a bank.  Methodology To choose the best high-yield checking accounts, we scanned online resources for banks and credit unions that offered checking accounts with the highest annual percentage yields (APYs). Institutions had to be federally insured (by FDIC for banks and NCUA for credit unions); the maximum allowable balance that could earn the high rate had to be at least $10,000; and the number of required debit card transactions could not exceed 15. JulPo / 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. Federal Deposit Insurance Corporation. "National Rates and Rate Caps." Federal Reserve. "Federal Reserve Issues FOMC Statement." Bureau of Labor Statistics. "Consumer Price Index." La Capitol Federal Credit Union. "Choice Checking." Pelican State Credit Union. "Reward Checking Accounts." Credit Union of New Jersey. "Kasasa Cash Checking." Fitness Bank. "Open an Elite Checking Account." Orion Federal Credit Union. "Account Disclosures." Orion Federal Credit Union. "Checking." Garden Savings Federal Credit Union. "Rates." Garden Savings Federal Credit Union. "Platinum Rate Rewards Checking." Presidential Bank. "Advantage Checking." Presidential Bank. "Schedule of Fees." Presidential Bank. "Checking." Consumers Credit Union. “Rate Schedule.” Consumers Credit Union. "Rewards Checking." Signature Federal Credit Union. "Checking." Federal Deposit Insurance Corporation. "National Rates and Rate Caps." Related Terms What Is a High-Yield Checking Account? A high-yield checking account provides interest at an above-average rate, in some cases above 5% or 6% APY. But these accounts usually come with stringent requirements. more What Is a Checking Account? Here's Everything You Need To Know A checking account is an account held at a financial institution that allows deposits and withdrawals. Learn how checking accounts work and how to get one. more What Is a Student Bank Account? Student bank accounts are accounts designed for teens and young adults. Learn about the features of a typical student bank account and how to compare them. more Money Market Account: How It Works and How It Differs From Other Bank Accounts Money market account is an interest-bearing account at a bank or credit union, not to be confused with a money market mutual fund. more What Is APY and How Is It Calculated? The annual percentage yield (APY) is the effective rate of return on an investment for one year taking compounding interest into account. more How Do Commercial Banks Work, and Why Do They Matter? A commercial bank is a financial institution that accepts deposits, offers checking and savings account services, and makes loans. more
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"https://www.pelicanstatecu.com/personal/reward-checking-accounts#kasasacash" ], [ "Credit Union of New Jersey – 6.00% APY", "https://www.cunj.com/bank/personal-banking/checking/kasasa-cash-checking/" ], [ "Fitness Bank – 6.00% APY", "https://www.fitnessbank.fit/elite-checking/" ], [ "Orion Federal Credit Union – 6.00% APY", "https://orionfcu.com/checking/" ], [ "Garden Savings Federal Credit Union, Platinum Rate Rewards Checking – 5.12% APY", "https://www.gardensavingsfcu.org/accounts/personal-checking/platinum-checking.html" ], [ "Presidential Bank, Advantage Checking – 4.62% APY", "https://www.presidential.com/personal-banking/checking-savings/checking#advantage-checking" ], [ "Consumers Credit Union, Rewards Checking – 4.00% APY", "https://www.myconsumers.org/bank/accounts/free-rewards-checking" ], [ "Signature Federal Credit Union, High-Yield Checking Account – 4.00% APY", "https://www.signaturefcu.org/Products/Accounts/Checking.aspx" ], [ "Kasasa", "https://www.kasasa.com/" ], [ 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"https://www.investopedia.com/i-bonds-vs-cds-which-is-the-better-investment-right-now-7546699" ], [ "high-yield checking account", "https://www.investopedia.com/are-high-yield-checking-accounts-a-good-idea-right-now-7547060" ], [ "high-yield savings account", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "Pelican State Credit Union", "https://www.pelicanstatecu.com/personal/reward-checking-accounts#kasasacash" ], [ "Fitness Bank", "https://www.fitnessbank.fit/elite-checking/" ], [ "APY", "https://www.investopedia.com/personal-finance/apr-apy-bank-hopes-cant-tell-difference/" ], [ "brokerage account", "https://www.investopedia.com/terms/b/brokerageaccount.asp" ], [ "Charles Schwab", "https://www.investopedia.com/charles-schwab-review-4587888" ], [ "savings account APY", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "FDIC", "https://www.investopedia.com/terms/f/fdic.asp" ], [ "NCUA", "https://www.investopedia.com/terms/n/ncua.asp" ], [ "A woman sits on a couch with her legs crossed looking at a laptop", "https://www.investopedia.com/thmb/GPGq1qAJ6TH_tBUvqrCRV7MVszY=/1500x0/filters:no_upscale(" ], [ "A woman sits on a couch with her legs crossed looking at a laptop", "https://www.investopedia.com/thmb/GPGq1qAJ6TH_tBUvqrCRV7MVszY=/1500x0/filters:no_upscale(" ], [ "editorial policy.", "https://www.investopedia.com/legal-4768893#EditorialPolicy" ], [ "National Rates and Rate Caps", "https://www.fdic.gov/resources/bankers/national-rates/index.html" ], [ "Federal Reserve Issues FOMC Statement", "https://www.federalreserve.gov/newsevents/pressreleases/monetary20240501a.htm" ], [ "Consumer Price Index", "https://www.bls.gov/news.release/cpi.nr0.htm" ], [ "Choice Checking", "https://www.lacapfcu.org/choice-checking" ], [ "Reward Checking Accounts", "https://www.pelicanstatecu.com/personal/reward-checking-accounts#kasasacash" ], [ "Kasasa Cash Checking", "https://www.cunj.com/bank/personal-banking/checking/kasasa-cash-checking/" ], [ "Open an Elite Checking Account", "https://www.fitnessbank.fit/elite-checking/" ], [ "Account Disclosures", "https://orionfcu.com/wp-content/uploads/2024/04/Orion_Account_Disclosures_-_Web_Version_-_Rev_2023-09-29-1.pdf" ], [ "Checking", "https://orionfcu.com/checking/" ], [ "Rates", "https://www.gardensavingsfcu.org/services-tools/tools/rates.html#checking" ], [ "Platinum Rate Rewards Checking", "https://www.gardensavingsfcu.org/accounts/personal-checking/platinum-checking.html" ], [ "Advantage Checking", "https://www.presidential.com/personal/banking/checking/advantage-checking" ], [ "Schedule of Fees", "https://www.presidential.com/_files/ugd/7ebcb6_1364dc2e5ed84496ae4f47db691a6e48.pdf" ], [ "Checking", "https://www.presidential.com/personal-banking/checking-savings/checking" ], [ "Rate Schedule", "https://www.myconsumers.org/docs/default-source/default-document-library/consumer_fee_schedule3cb1f27b220b46e38278186d8f609a23fc8e3ea533ad421d8caf5ccbd8df1cb5.pdf?sfvrsn=699f4ce3_44" ], [ "Rewards Checking", "https://www.myconsumers.org/bank/accounts/free-rewards-checking" ], [ "Checking", "https://www.signaturefcu.org/Products/Accounts/Checking.aspx" ], [ "National Rates and Rate Caps", "https://www.fdic.gov/resources/bankers/national-rates/index.html" ], [ "What Is a High-Yield Checking Account?", "https://www.investopedia.com/high-yield-checking-account-8610476" ], [ "more", "https://www.investopedia.com/high-yield-checking-account-8610476" ], [ "What Is a Checking Account? Here's Everything You Need To Know", "https://www.investopedia.com/terms/c/checkingaccount.asp" ], [ "more", "https://www.investopedia.com/terms/c/checkingaccount.asp" ], [ "What Is a Student Bank Account?", "https://www.investopedia.com/what-is-a-student-bank-account-7643916" ], [ "more", "https://www.investopedia.com/what-is-a-student-bank-account-7643916" ], [ "Money Market Account: How It Works and How It Differs From Other Bank Accounts", "https://www.investopedia.com/terms/m/moneymarketaccount.asp" ], [ "more", "https://www.investopedia.com/terms/m/moneymarketaccount.asp" ], [ "What Is APY and How Is It Calculated?", "https://www.investopedia.com/terms/a/apy.asp" ], [ "more", "https://www.investopedia.com/terms/a/apy.asp" ], [ "How Do Commercial Banks Work, and Why Do They Matter?", "https://www.investopedia.com/terms/c/commercialbank.asp" ], [ "more", "https://www.investopedia.com/terms/c/commercialbank.asp" ] ]
https://www.investopedia.com/how-to-improve-your-credit-score-with-no-credit-history-5212482
How To Improve Your Credit Score With No Credit History
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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/c/credit_score.asp">Credit scores</a> are three-digit numbers that measure how responsible you are when it comes to managing money and repaying debt. These scores are generated by the information that’s contained in your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a>, so it follows that to have a credit score, you must first have a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-improve-your-credit-score-4590097">Can you improve your credit score</a> if you have a limited or no credit history? Yes, you can, but first, it’s important to understand a little bit about how credit scoring works. </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"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>A credit score is a three-digit number that measures how responsibly you manage money and repay debts.</li> <li>Credit scores are calculated using the information in your credit report and there are different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-credit-score-do-you-need-to-buy-a-car-5181034">credit scoring</a> models that may apply.</li> <li>Everyone’s credit score starts off differently, though the lowest credit score you can have is 300.</li> <li>Some of the best ways to improve your credit score quickly when you have no credit history include becoming an authorized user, opening secured credit cards, or getting a small loan in your name.</li> </ul></div></div></div> <span class="heading-toc" id="toc-how-credit-scoring-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> How Credit Scoring Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Credit scores don’t magically appear out of thin air; instead, they’re calculated using different credit scoring formulas. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ficoscore.asp">FICO credit score model</a> is the one used by 90% of top lenders in credit decisions.<span class="ql-inline-citation" data-cite="1"></span> <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 another credit scoring model. </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"> Both models use the information contained in your credit report to calculate credit scores. A credit report contains details of your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-divorce-impacts-your-credit-score-5195370">past financial history</a>, including: </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>Number of credit accounts you have in your name</li><li>Balances and payment history for those accounts</li><li>Inquiries for new credit applications</li><li>Public records, including judgments, bankruptcies, and foreclosure proceedings<span class="ql-inline-citation" data-cite="10"></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"> If you have no credit history, there may not be much information on your credit report. This, in turn, can make it difficult to calculate a credit score. According to 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</a>, an estimated 45 million Americans are “credit invisibles,” meaning they don’t have enough credit history to generate a score.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <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>Having no credit history at all is not the same as having bad credit, which means you do have a credit score and it is low because of past financial mistakes.</p></div></div></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"> Where does your credit score start? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Having no credit history doesn’t necessarily mean your credit score starts at zero. That’s because the FICO and VantageScore credit models don’t go that low. Instead, the lowest possible credit score you can have with either model is 300. A score of 850 is the highest score you can achieve.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> If you have no credit history at all, then you likely have no credit score. Once you begin to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-build-credit-as-a-college-student-or-young-adult-5190715">build and improve credit</a>, your score may start at 300 and climb from there. So what affects your credit scores? </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 short answer is that it depends on the credit scoring model. As FICO scores are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/which-fico-scores-do-lenders-use-5116055">most widely used by lenders</a>, here’s a breakdown of how these scores are calculated: </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><strong>Payment History: </strong>Thirty-five percent of your FICO score is based on payment history, with on-time payments helping your score and late payments hurting it.</li> <li><strong>Credit Utilization: </strong>Thirty percent of your FICO score is based on credit utilization, which is the amount of your available credit limit you’re using at any given time.</li> <li><strong>Credit Age: </strong>Fifteen percent of your FICO score is based on your credit age, which is the length of time you’ve been using the credit.</li> <li><strong>Credit Mix: </strong>Ten percent of your FICO score is based on the types of credit you’re using, such as revolving credit lines or installment loans.</li> <li><strong>Credit Inquiries: </strong>Ten percent of your FICO score is based on how often you apply for new credit, which results in 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 credit check</a>.<span class="ql-inline-citation" data-cite="5"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_27-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_28-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_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 visit AnnualCreditReport.com to obtain a free copy of your credit report, which can tell you if there’s enough information to generate a credit score.<span class="ql-inline-citation" data-cite="14"></span></p></div></div></div> <span class="heading-toc" id="toc-fastest-ways-to-build-credit"></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"> Fastest Ways To Build Credit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Improving your credit score when you have no credit history can be challenging. Still, there are some ways to build credit from the ground up, some of which may yield benefits faster than others. If you want to establish credit quickly, here are some of the best ways to do it. </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"> Become an authorized user </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-card-authorized-user.asp">Authorized users</a> have charging privileges on someone else’s credit card, but they aren’t responsible for the debt. Becoming an authorized user can allow you to piggyback on someone else’s good credit history and start building credit right away. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The account will show up on your credit report as well as on the original account holder’s. As long as they’re practicing good credit habits—such as paying on time and keeping the card balance low—their positive account history is reflected on your credit report.<br> </br></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_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Becoming an authorized user is not the same as sharing a joint credit card account, for which you’d both be equally responsible for the card balance.</p></div></div></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"> Apply for a secured or credit builder card </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-cards-4801582">Secured credit cards</a> are designed for people with bad credit or no credit at all. These cards typically require a cash deposit to open, which doubles as your credit line. As you make purchases, your credit limit is reduced. As you pay your bill each month, you can free up available credit.<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_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 want to build credit with a secured card quickly, the easiest way to do it is to pay on time. Remember that with FICO credit scoring, payment history carries the most weight.<span class="ql-inline-citation" data-cite="5"></span> You could begin to see a positive movement in your credit score after just a few months if you pay on time consistently.<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> <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"> Try a store credit card </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Most store credit cards offer charging privileges only at the issuing store and its brands or partners and work the same as other credit cards, though they may be easier to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-do-if-you-re-rejected-for-a-student-credit-card-5191299">get approved</a> for compared with traditional credit cards. Some may even offer rewards on purchases. </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"> What you have to watch out for, however, are the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">annual percentage rate (APR)</a> and the credit limit. Because store credit cards may have lower credit requirements for approval, they may charge a higher APR, which means that carrying a balance on one of these cards month to month could cost you more money. And a low credit limit means that you could max your card out quickly, leading to a higher <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 can lower your credit score. </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"> Get credit for rent and utility payments </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Rent and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/paying-utility-bills-improve-credit.asp">utility payments are not automatically factored into your credit score</a> calculations, but there are services that can help you get them included, allowing you to build credit more quickly. Experian Boost, for example, is a free service that can help you raise your credit score by reporting payments for utilities, phone, and streaming services. According to Experian, the average user saw an increase in their FICO 8 credit score of 13 points as a result.<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_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_52-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_53-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>Experian Boost also includes free credit score monitoring, which can help you track credit score changes over time.<span class="ql-inline-citation" data-cite="8"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> This service may be worth looking into if you don’t have any credit cards or loans in your name for the time being. Just keep in mind that any credit score changes associated with Experian Boost would only be reflected in the FICO 8 version of your score.<span class="ql-inline-citation" data-cite="8"></span> As there are multiple FICO versions lenders can use to evaluate credit, if a lender is checking something other than FICO 8 when you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-you-should-know-before-taking-out-a-personal-loan-5201657">apply for a loan</a>, you may not see much benefit from having these payments reported on your credit history.<br/> </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-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 credit score is defined differently, depending on which model you're using. A good FICO credit score is anywhere from 670 to 739. Anything below that would be fair or poor credit, while anything above it is either very good or exceptional credit.<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_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_58-0"><span class="heading-toc" id="toc-what-is-a-credit-report"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Credit Report?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A credit report is a collection of information about your financial history. Creditors report information to the credit bureaus, including the date new accounts are opened, applications you submit for new credit, payment history, and balances. This information is used to produce your credit report and credit scores.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_60-0"><span class="heading-toc" id="toc-what-is-the-fastest-way-to-increase-your-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Fastest Way to Increase Your Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The fastest ways to increase your credit score include paying bills on time, becoming an authorized user, increasing credit limits without increasing your balances, and paying off debts. Keep in mind, however, that it may take several months to see significant improvements in your score.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_62-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Improving your credit score when you have no credit history may not be an easy task, but it can be worthwhile to put in the effort. The higher your credit scores, the easier it may be to get approved for new loans or lines of credit. Higher credit scores can also translate to lower interest rates, saving you money when you borrow. Taking steps to open a secured or retail card, as well as becoming an authorized user, are just some of the ways you could start building credit fast.<br> </br></p></div>
[Credit scores](https://www.investopedia.com/terms/c/credit_score.asp) are three-digit numbers that measure how responsible you are when it comes to managing money and repaying debt. These scores are generated by the information that’s contained in your [credit report](https://www.investopedia.com/terms/c/creditreport.asp), so it follows that to have a credit score, you must first have a [credit history](https://www.investopedia.com/terms/c/credit-history.asp). [Can you improve your credit score](https://www.investopedia.com/how-to-improve-your-credit-score-4590097) if you have a limited or no credit history? Yes, you can, but first, it’s important to understand a little bit about how credit scoring works. ### * A credit score is a three-digit number that measures how responsibly you manage money and repay debts. * Credit scores are calculated using the information in your credit report and there are different [credit scoring](https://www.investopedia.com/what-credit-score-do-you-need-to-buy-a-car-5181034) models that may apply. * Everyone’s credit score starts off differently, though the lowest credit score you can have is 300. * Some of the best ways to improve your credit score quickly when you have no credit history include becoming an authorized user, opening secured credit cards, or getting a small loan in your name. ## How Credit Scoring Works Credit scores don’t magically appear out of thin air; instead, they’re calculated using different credit scoring formulas. The [FICO credit score model](https://www.investopedia.com/terms/f/ficoscore.asp) is the one used by 90% of top lenders in credit decisions. [VantageScore](https://www.investopedia.com/terms/v/vantagescore.asp) is another credit scoring model. Both models use the information contained in your credit report to calculate credit scores. A credit report contains details of your [past financial history](https://www.investopedia.com/how-divorce-impacts-your-credit-score-5195370), including: * Number of credit accounts you have in your name * Balances and payment history for those accounts * Inquiries for new credit applications * Public records, including judgments, bankruptcies, and foreclosure proceedings If you have no credit history, there may not be much information on your credit report. This, in turn, can make it difficult to calculate a credit score. According to the [Consumer Financial Protection Bureau](https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp), an estimated 45 million Americans are “credit invisibles,” meaning they don’t have enough credit history to generate a score. ### Having no credit history at all is not the same as having bad credit, which means you do have a credit score and it is low because of past financial mistakes. ### Where does your credit score start? Having no credit history doesn’t necessarily mean your credit score starts at zero. That’s because the FICO and VantageScore credit models don’t go that low. Instead, the lowest possible credit score you can have with either model is 300. A score of 850 is the highest score you can achieve. If you have no credit history at all, then you likely have no credit score. Once you begin to [build and improve credit](https://www.investopedia.com/how-to-build-credit-as-a-college-student-or-young-adult-5190715), your score may start at 300 and climb from there. So what affects your credit scores? The short answer is that it depends on the credit scoring model. As FICO scores are [most widely used by lenders](https://www.investopedia.com/which-fico-scores-do-lenders-use-5116055), here’s a breakdown of how these scores are calculated: * **Payment History:** Thirty-five percent of your FICO score is based on payment history, with on-time payments helping your score and late payments hurting it. * **Credit Utilization:** Thirty percent of your FICO score is based on credit utilization, which is the amount of your available credit limit you’re using at any given time. * **Credit Age:** Fifteen percent of your FICO score is based on your credit age, which is the length of time you’ve been using the credit. * **Credit Mix:** Ten percent of your FICO score is based on the types of credit you’re using, such as revolving credit lines or installment loans. * **Credit Inquiries:** Ten percent of your FICO score is based on how often you apply for new credit, which results in a [hard credit check](https://www.investopedia.com/terms/h/hard-inquiry.asp). ### You can visit AnnualCreditReport.com to obtain a free copy of your credit report, which can tell you if there’s enough information to generate a credit score. ## Fastest Ways To Build Credit Improving your credit score when you have no credit history can be challenging. Still, there are some ways to build credit from the ground up, some of which may yield benefits faster than others. If you want to establish credit quickly, here are some of the best ways to do it. ### Become an authorized user [Authorized users](https://www.investopedia.com/terms/c/credit-card-authorized-user.asp) have charging privileges on someone else’s credit card, but they aren’t responsible for the debt. Becoming an authorized user can allow you to piggyback on someone else’s good credit history and start building credit right away. The account will show up on your credit report as well as on the original account holder’s. As long as they’re practicing good credit habits—such as paying on time and keeping the card balance low—their positive account history is reflected on your credit report. ### Becoming an authorized user is not the same as sharing a joint credit card account, for which you’d both be equally responsible for the card balance. ### Apply for a secured or credit builder card [Secured credit cards](https://www.investopedia.com/best-credit-cards-4801582) are designed for people with bad credit or no credit at all. These cards typically require a cash deposit to open, which doubles as your credit line. As you make purchases, your credit limit is reduced. As you pay your bill each month, you can free up available credit. If you want to build credit with a secured card quickly, the easiest way to do it is to pay on time. Remember that with FICO credit scoring, payment history carries the most weight. You could begin to see a positive movement in your credit score after just a few months if you pay on time consistently. ### Try a store credit card Most store credit cards offer charging privileges only at the issuing store and its brands or partners and work the same as other credit cards, though they may be easier to [get approved](https://www.investopedia.com/what-to-do-if-you-re-rejected-for-a-student-credit-card-5191299) for compared with traditional credit cards. Some may even offer rewards on purchases. What you have to watch out for, however, are the [annual percentage rate (APR)](https://www.investopedia.com/terms/a/apr.asp) and the credit limit. Because store credit cards may have lower credit requirements for approval, they may charge a higher APR, which means that carrying a balance on one of these cards month to month could cost you more money. And a low credit limit means that you could max your card out quickly, leading to a higher [credit utilization ratio](https://www.investopedia.com/terms/c/credit-utilization-rate.asp), which can lower your credit score. ### Get credit for rent and utility payments Rent and [utility payments are not automatically factored into your credit score](https://www.investopedia.com/ask/answers/12/paying-utility-bills-improve-credit.asp) calculations, but there are services that can help you get them included, allowing you to build credit more quickly. Experian Boost, for example, is a free service that can help you raise your credit score by reporting payments for utilities, phone, and streaming services. According to Experian, the average user saw an increase in their FICO 8 credit score of 13 points as a result. ### Experian Boost also includes free credit score monitoring, which can help you track credit score changes over time. This service may be worth looking into if you don’t have any credit cards or loans in your name for the time being. Just keep in mind that any credit score changes associated with Experian Boost would only be reflected in the FICO 8 version of your score. As there are multiple FICO versions lenders can use to evaluate credit, if a lender is checking something other than FICO 8 when you [apply for a loan](https://www.investopedia.com/what-you-should-know-before-taking-out-a-personal-loan-5201657), you may not see much benefit from having these payments reported on your credit history. ## What Is a Good Credit Score? A good credit score is defined differently, depending on which model you're using. A good FICO credit score is anywhere from 670 to 739. Anything below that would be fair or poor credit, while anything above it is either very good or exceptional credit. ## What Is a Credit Report? A credit report is a collection of information about your financial history. Creditors report information to the credit bureaus, including the date new accounts are opened, applications you submit for new credit, payment history, and balances. This information is used to produce your credit report and credit scores. ## What Is the Fastest Way to Increase Your Credit Score? The fastest ways to increase your credit score include paying bills on time, becoming an authorized user, increasing credit limits without increasing your balances, and paying off debts. Keep in mind, however, that it may take several months to see significant improvements in your score. ## The Bottom Line Improving your credit score when you have no credit history may not be an easy task, but it can be worthwhile to put in the effort. The higher your credit scores, the easier it may be to get approved for new loans or lines of credit. Higher credit scores can also translate to lower interest rates, saving you money when you borrow. Taking steps to open a secured or retail card, as well as becoming an authorized user, are just some of the ways you could start building credit fast.
Credit scores are three-digit numbers that measure how responsible you are when it comes to managing money and repaying debt. These scores are generated by the information that’s contained in your credit report, so it follows that to have a credit score, you must first have a credit history. Can you improve your credit score if you have a limited or no credit history? Yes, you can, but first, it’s important to understand a little bit about how credit scoring works. A credit score is a three-digit number that measures how responsibly you manage money and repay debts. Credit scores are calculated using the information in your credit report and there are different credit scoring models that may apply. Everyone’s credit score starts off differently, though the lowest credit score you can have is 300. Some of the best ways to improve your credit score quickly when you have no credit history include becoming an authorized user, opening secured credit cards, or getting a small loan in your name. How Credit Scoring Works Credit scores don’t magically appear out of thin air; instead, they’re calculated using different credit scoring formulas. The FICO credit score model is the one used by 90% of top lenders in credit decisions. VantageScore is another credit scoring model. Both models use the information contained in your credit report to calculate credit scores. A credit report contains details of your past financial history, including: Number of credit accounts you have in your nameBalances and payment history for those accountsInquiries for new credit applicationsPublic records, including judgments, bankruptcies, and foreclosure proceedings If you have no credit history, there may not be much information on your credit report. This, in turn, can make it difficult to calculate a credit score. According to the Consumer Financial Protection Bureau, an estimated 45 million Americans are “credit invisibles,” meaning they don’t have enough credit history to generate a score. Having no credit history at all is not the same as having bad credit, which means you do have a credit score and it is low because of past financial mistakes. Where does your credit score start? Having no credit history doesn’t necessarily mean your credit score starts at zero. That’s because the FICO and VantageScore credit models don’t go that low. Instead, the lowest possible credit score you can have with either model is 300. A score of 850 is the highest score you can achieve. If you have no credit history at all, then you likely have no credit score. Once you begin to build and improve credit, your score may start at 300 and climb from there. So what affects your credit scores? The short answer is that it depends on the credit scoring model. As FICO scores are most widely used by lenders, here’s a breakdown of how these scores are calculated: Payment History: Thirty-five percent of your FICO score is based on payment history, with on-time payments helping your score and late payments hurting it. Credit Utilization: Thirty percent of your FICO score is based on credit utilization, which is the amount of your available credit limit you’re using at any given time. Credit Age: Fifteen percent of your FICO score is based on your credit age, which is the length of time you’ve been using the credit. Credit Mix: Ten percent of your FICO score is based on the types of credit you’re using, such as revolving credit lines or installment loans. Credit Inquiries: Ten percent of your FICO score is based on how often you apply for new credit, which results in a hard credit check. You can visit AnnualCreditReport.com to obtain a free copy of your credit report, which can tell you if there’s enough information to generate a credit score. Fastest Ways To Build Credit Improving your credit score when you have no credit history can be challenging. Still, there are some ways to build credit from the ground up, some of which may yield benefits faster than others. If you want to establish credit quickly, here are some of the best ways to do it. Become an authorized user Authorized users have charging privileges on someone else’s credit card, but they aren’t responsible for the debt. Becoming an authorized user can allow you to piggyback on someone else’s good credit history and start building credit right away. The account will show up on your credit report as well as on the original account holder’s. As long as they’re practicing good credit habits—such as paying on time and keeping the card balance low—their positive account history is reflected on your credit report. Becoming an authorized user is not the same as sharing a joint credit card account, for which you’d both be equally responsible for the card balance. Apply for a secured or credit builder card Secured credit cards are designed for people with bad credit or no credit at all. These cards typically require a cash deposit to open, which doubles as your credit line. As you make purchases, your credit limit is reduced. As you pay your bill each month, you can free up available credit. If you want to build credit with a secured card quickly, the easiest way to do it is to pay on time. Remember that with FICO credit scoring, payment history carries the most weight. You could begin to see a positive movement in your credit score after just a few months if you pay on time consistently. Try a store credit card Most store credit cards offer charging privileges only at the issuing store and its brands or partners and work the same as other credit cards, though they may be easier to get approved for compared with traditional credit cards. Some may even offer rewards on purchases. What you have to watch out for, however, are the annual percentage rate (APR) and the credit limit. Because store credit cards may have lower credit requirements for approval, they may charge a higher APR, which means that carrying a balance on one of these cards month to month could cost you more money. And a low credit limit means that you could max your card out quickly, leading to a higher credit utilization ratio, which can lower your credit score. Get credit for rent and utility payments Rent and utility payments are not automatically factored into your credit score calculations, but there are services that can help you get them included, allowing you to build credit more quickly. Experian Boost, for example, is a free service that can help you raise your credit score by reporting payments for utilities, phone, and streaming services. According to Experian, the average user saw an increase in their FICO 8 credit score of 13 points as a result. Experian Boost also includes free credit score monitoring, which can help you track credit score changes over time. This service may be worth looking into if you don’t have any credit cards or loans in your name for the time being. Just keep in mind that any credit score changes associated with Experian Boost would only be reflected in the FICO 8 version of your score. As there are multiple FICO versions lenders can use to evaluate credit, if a lender is checking something other than FICO 8 when you apply for a loan, you may not see much benefit from having these payments reported on your credit history. What Is a Good Credit Score? A good credit score is defined differently, depending on which model you're using. A good FICO credit score is anywhere from 670 to 739. Anything below that would be fair or poor credit, while anything above it is either very good or exceptional credit. What Is a Credit Report? A credit report is a collection of information about your financial history. Creditors report information to the credit bureaus, including the date new accounts are opened, applications you submit for new credit, payment history, and balances. This information is used to produce your credit report and credit scores. What Is the Fastest Way to Increase Your Credit Score? The fastest ways to increase your credit score include paying bills on time, becoming an authorized user, increasing credit limits without increasing your balances, and paying off debts. Keep in mind, however, that it may take several months to see significant improvements in your score. The Bottom Line Improving your credit score when you have no credit history may not be an easy task, but it can be worthwhile to put in the effort. The higher your credit scores, the easier it may be to get approved for new loans or lines of credit. Higher credit scores can also translate to lower interest rates, saving you money when you borrow. Taking steps to open a secured or retail card, as well as becoming an authorized user, are just some of the ways you could start building credit fast.
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https://www.investopedia.com/understanding-spot-ethereum-etfs-8622726
Understanding Spot Ethereum ETFs: A Comprehensive 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"> After the January 2024 U.S. Securities and Exchange Commission’s (SEC’s) approval of spot Bitcoin exchange-traded funds (ETFs) spurred a massive rally in the digital currency, interest in a proposed spot Ethereum exchange-traded fund (ETF) surged along with the prices of these two major cryptocurrencies.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">The SEC</a>, which scuttled 20 spot Bitcoin ETF proposals from 2018 to 2023, has shown itself even more hesitant since the rise in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin.asp">Bitcoin</a> prices in early 2024 to approve similar funds for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ethereum.asp">Ethereum</a>.<span class="ql-inline-citation" data-cite="27"></span><span class="ql-inline-citation" data-cite="26"></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_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The regulator is still concerned that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrencies</a> are often involved in fraud, could introduce their speculative bubbles into the heart of Wall Street, and could lead less sophisticated investors to infer that SEC approval means these currencies are any safer than before. The SEC only approved spot Bitcoin ETFs on the heels of a ruling against it by a U.S. federal appeals court in August 2023 that essentially forced its hand.<span class="ql-inline-citation" data-cite="10"></span><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_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> As we <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/why-spot-ether-etfs-could-face-a-difficult-path-to-approval-8609104">reported</a> in March 2024, the SEC has followed up the spot Bitcoin ETF approval by focusing on the difference between Ethereum and Bitcoin’s cryptocurrency models. This has made analysts skeptical about the near- to middle-term prospects of the regulator approving spot Ethereum ETFs.<span class="ql-inline-citation" data-cite="9"></span> While this process is ongoing, investors and industry observers are closely monitoring developments. </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’s decision, whichever way it falls, will have significant implications for the future of cryptocurrencies and their role in mainstream finance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Below, we guide you through the travails and controversies surrounding spot Ethereum ETFs in the lead-up to potential approval, how they differ from futures ETFs already valued in relation to the cryptocurrency’s price moves, and what the approval of spot Ethereum ETFs would mean for everyday investors.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-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_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>Spot Ethereum ETFs would offer a way to invest in Ethereum without directly owning the cryptocurrency.</li><li>However, the U.S. Securities and Exchange Commission (SEC) remains hesitant to approve them, based in part on Ethereum’s move to a proof-of-stake (PoS) consensus model.</li><li>ETFs provide benefits such as diversification, simplicity, and regulatory oversight.</li><li>Investors should be aware of the risks, including market volatility and regulatory changes.</li><li>If approved, choosing the right Ethereum ETF involves considering fees, performance history, and underlying assets.</li><li>The future of spot Ethereum ETFs looks promising because of the recent success of spot Bitcoin ETFs, but it remains subject to regulatory developments.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-prelude-to-spot-ethereum-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Prelude to Spot Ethereum ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Before discussing the specifics of spot Ethereum ETFs, it’s crucial to underline that they are not yet approved for trading in the United States or elsewhere. The approval of spot Bitcoin ETFs, such as the ProShares Bitcoin Strategy ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BITO">BITO</a>) and the Valkyrie Bitcoin and Ether Strategy ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTF">BTF</a>), was significant for the mainstream acceptance of cryptocurrencies. These ETFs have had rapid inflows and strong investor demand, suggesting an appetite for regulated, easily accessible exposure to cryptocurrencies.<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_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Proponents of cryptocurrencies argue that early price increases in spot Bitcoin ETFs bolster the case for spot Ethereum ETFs. They believe that investors are seeking <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</a> through exposure to Ethereum, the second-largest cryptocurrency by market capitalization. For them, Ethereum’s thriving ecosystem of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/decentralized-applications-dapps.asp">decentralized applications (dApps)</a> and smart contracts makes it an attractive investment, even before considering the value of its real-world applications as it gains wider acceptance.<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_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> However, critics caution against the rush to embrace spot Ethereum ETFs. They argue that the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatile</a> nature of cryptocurrencies makes them unsuitable for many investors. Concerns about regulatory uncertainty, potential market manipulation, and the environmental impact of cryptocurrency mining (even if mitigated by Ethereum’s model) are all cited as reasons for caution. Skeptics worry that the push for ETFs might be driven more by the financial industry’s interest in new products than by a genuine need for investor access to cryptocurrencies.<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> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> If approved, spot Ethereum ETFs would hold ether tokens in their portfolios. Their objective would be to track the price of Ethereum as closely as possible, providing investors with direct exposure to the cryptocurrency without the need to purchase and store it themselves. </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"> Spot Ethereum ETFs would offer a more straightforward and transparent approach than <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 invest in derivatives or a diversified portfolio of cryptocurrencies. By holding the ether tokens, these ETFs aim to give investors a more accurate representation of the cryptocurrency’s performance.<br/> </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-spot-etfs-vs-futures-etfs"></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"> Spot ETFs vs. Futures ETFs </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_27-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_28-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Spot ETFs</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Hold actual cryptocurrencies</p></li> <li><p>Track the price of the crypto very closely</p></li> <li><p>Can be more cost-effective than futures</p></li> <li><p>Have more significant regulatory burdens than futures</p></li> <li><p>Are subject to custody risks</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">Futures ETFs</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Invest in crypto futures contracts</p></li> <li><p>Have less efficient tracking of the price of the underlying crypto</p></li> <li><p>Don’t have regulatory or custody risks</p></li> <li><p>Carry higher management costs</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Investors have two main options for crypto-based exchange-traded funds: spot ETFs and futures-based ETFs. While both types aim to provide exposure to the price movement of an underlying crypto-asset, they differ in how they do this. </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"> Spot ETFs hold actual crypto tokens in their underlying <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolios</a> and are designed to track the price as closely as possible—offering investors direct exposure to the cryptocurrency. When investors buy shares in a spot ETF, they own a portion of the fund’s crypto holdings.<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_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Meanwhile, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ether-futures-etf-definition-8363103">futures-based ETFs</a> invest in crypto futures contracts rather than hold the cryptocurrency directly. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futurescontract.asp">Futures contracts</a> are agreements to buy or sell an asset at a predetermined price on a specific future date. These ETFs track the price of crypto-assets by rolling over futures contracts as they approach expiration.<span class="ql-inline-citation" data-cite="28"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> While spot ETFs should be more cost-effective and provide more direct access than their futures-based alternatives, they have more significant regulatory burdens and are subject to custody risks (e.g., the ETF provider gets hacked or loses their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/private-key.asp">private keys</a>). Futures-based ETFs don’t have regulatory or custody risks, but they typically have tracking errors between the ETF price and the underlying asset and carry higher management fees because of the active trading of futures contracts.<span class="ql-inline-citation" data-cite="29"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-investing-in-ethereum"></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"> Investing in Ethereum </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> While Ethereum, the second-largest cryptocurrency by <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>, has often been overshadowed by Bitcoin, it has potential applications that could make it attractive to investors. Ethereum is a decentralized, open-source blockchain platform that enables the creation and execution of smart contracts and dApps. Launched in 2015 by Vitalik Buterin, Ethereum has grown into a prominent platform for various blockchain-based applications and services.<span class="ql-inline-citation" data-cite="30"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Ethereum grew due to the demand for non-fungible tokens, tokenized equity, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/decentralized-finance-defi-5113835">decentralized finance (DeFi)</a> applications, and Ethereum’s native cryptocurrency, ether (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ETH">ETH</a>). Because of network effects, as more developers and users have adopted Ethereum—the cryptocurrency has outlasted many others launched at about the same time—the platform has attracted even more participants. </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, investing in Ethereum has risks. The cryptocurrency market is known for its volatility, and the price of ETH can fluctuate significantly over short periods. Regulatory uncertainties, security concerns, and competition from other blockchain platforms are also issues that investors should consider. In addition, Ethereum faces questions about its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/scalability.asp">scalability</a> and has high <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gas-ethereum.asp">transaction fees</a>.<span class="ql-inline-citation" data-cite="22"></span><span class="ql-inline-citation" data-cite="31"></span> Transaction costs have risen as the network has become more congested, which could impact its adoption. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> The Ethereum community has tried to solve some of these issues, most prominently through its September 2022 “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-ethereum-merge-6504132">merge</a>,” which was its shift to a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/proof-stake-pos.asp">proof-of-stake (PoS)</a> consensus mechanism. Under its previous <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> system, which Bitcoin still relies upon, powerful computers compete to solve complex mathematical problems to validate transactions and add new blocks to the Ethereum system. Known as <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin-mining.asp">mining</a>, this work requires significant computational power and consumes a mammoth amount of energy. </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"> By contrast, the PoS relies on users staking their ether—that is, locking up a part of their ETH as collateral to validate transactions and create new blocks. The more ether that a user stakes, the better their chances of being selected to validate transactions and earn rewards. Ethereum says changes to this model have led to a 99.988% cut in its energy usage.<span class="ql-inline-citation" data-cite="32"></span><span class="ql-inline-citation" data-cite="23"></span> PoS is also designed to improve network security by making it more costly for attackers to gain control of the network. Ethereum has also introduced <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sharding.asp">sharding</a> to reduce latency. </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-how-ethereum-works"></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"> How Ethereum Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Ethereum operates on a blockchain, a decentralized, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/distributed-ledger-technology-dlt.asp">distributed ledger technology</a> that records transactions across a network of computers. The Ethereum <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp">blockchain</a> is powered by its native cryptocurrency token, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ether-cryptocurrency.asp">ether</a>, which serves as payment for transaction fees and computational services within the network.<span class="ql-inline-citation" data-cite="33"></span><span class="ql-inline-citation" data-cite="34"></span> </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"> One of Ethereum’s key features is its support for <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>. These are self-executing agreements with their terms directly written into code. They automatically enforce the rules and penalties surrounding an agreement, eliminating the need for intermediaries and reducing the risk of fraud or manipulation.<span class="ql-inline-citation" data-cite="35"></span> </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-ethereum-vs-bitcoin"></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"> Ethereum vs. Bitcoin </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> While Ethereum and Bitcoin have obvious similarities—most prominently, being based on decentralized blockchain technology—they have differences that are important for investors to note: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> <li><strong>Purpose</strong>: Bitcoin was primarily designed as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/digital-currency.asp">digital currency</a> and a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/storeofvalue.asp">store of value</a> to provide an alternative to traditional fiat currencies. Ethereum, meanwhile, was created as a platform for building dApps and enabling smart contracts.</li> <li><strong>Capabilities</strong>: Bitcoin primarily facilitates peer-to-peer transactions without the need for intermediaries. Ethereum goes beyond simple transactions and allows developers to build and deploy complex applications on its blockchain.<span class="ql-inline-citation" data-cite="37"></span><span class="ql-inline-citation" data-cite="30"></span></li> <li><strong>Supply</strong>: Bitcoin has a fixed <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/what-happens-bitcoin-after-21-million-mined/">maximum supply of 21 million</a> coins, which makes it scarce and potentially supports its value. Ethereum, by contrast, does not have a fixed supply cap, although its consensus mechanism could limit the issuing of new ETH.<span class="ql-inline-citation" data-cite="36"></span><span class="ql-inline-citation" data-cite="34"></span></li> <li><strong>Transaction speed</strong>: Ethereum’s blockchain processes transactions faster than Bitcoin’s 10-minute target interval between blocks, although both networks have faced scalability issues as their use increased.<span class="ql-inline-citation" data-cite="39"></span><span class="ql-inline-citation" data-cite="38"></span><span class="ql-inline-citation" data-cite="22"></span></li> <li><strong>Consensus mechanism:</strong> Bitcoin uses a PoW consensus mechanism, where miners compete to solve complex mathematical problems to validate transactions and create new blocks.<span class="ql-inline-citation" data-cite="37"></span> Ethereum, meanwhile, has transitioned to a PoS consensus mechanism, where validators stake their ETH holdings to participate in the validation process.<span class="ql-inline-citation" data-cite="40"></span></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Market profile</strong>: While Bitcoin remains the dominant cryptocurrency by market capitalization, Ethereum has a strong developer community and a growing ecosystem of dApps and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tokenized-equity.asp">tokenized assets</a>, which could drive future demand for ETH.<span class="ql-inline-citation" data-cite="43"></span><span class="ql-inline-citation" data-cite="41"></span><span class="ql-inline-citation" data-cite="42"></span><br/></li> </ol> <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-how-spot-ethereum-etfs-would-work"></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"> How Spot Ethereum ETFs Would Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> A spot Ethereum ETF would involve “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mutualfund/05/062705.asp">creation and redemption</a>,” just like other ETFs. Authorized participants, typically large institutional investors, play a crucial role in this process. </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"> To create new shares of the ETF, authorized participants would deposit a corresponding amount of ether with the ETF issuer. In exchange, they receive newly minted shares of the ETF. Conversely, when authorized participants want to redeem shares of the ETF, they return the shares to the issuer and receive an equal amount of ether in return.<span class="ql-inline-citation" data-cite="44"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> This keeps an ETF’s price in line with the value of the underlying ether. As demand for the ETF shares increases, authorized participants can create more shares by depositing additional ether. Similarly, they can redeem shares and receive ether back if demand decreases. </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"> Investors can buy and sell shares of spot Ethereum ETFs on stock exchanges throughout the trading day, as they do with any other ETF or stock. This would make the cryptocurrency fund easy to trade and likely give it abundant <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a>, enabling investors to enter or exit positions throughout the trading day without interacting directly with cryptocurrency exchanges.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <span class="heading-toc" id="toc-benefits-of-spot-ethereum-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-heading__text"> Benefits of Spot Ethereum ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> If approved, a spot Ethereum ETF could offer these potential advantages for investors: </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><strong>Accessibility</strong>: Spot Ethereum ETFs provide a convenient way for investors to gain exposure to Ethereum. By investing in an ETF, individuals can avoid the complexities of navigating cryptocurrency exchanges, setting up digital wallets, and worrying about the security and storage of their Ethereum holdings.</li><li><strong>Regulated</strong>: ETFs are regulated investments supervised by financial watchdogs. This regulatory framework offers investors more protection and transparency than directly holding cryptocurrencies.</li><li><strong>Diversification</strong>: By allocating a part of their portfolio to Ethereum through an ETF, investors might benefit from the cryptocurrency’s growth and diversify their exposure to different asset classes.</li><li><strong>Liquidity</strong>: A major advantage of spot Ethereum ETFs would be their liquidity. With the ability to trade ETF shares on stock exchanges throughout the trading day, investors could quickly enter or exit positions based on their investment strategies and market conditions.</li> </ul> <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-risks-of-spot-ethereum-etfs"></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"> Risks of Spot Ethereum ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> Investors should also be aware of the potential risks associated with these investments: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> <li><strong>Volatility</strong>: Ethereum, like other cryptocurrencies, is known for its high volatility. The price of ether can fluctuate significantly in short periods, directly impacting the value of spot Ethereum ETFs. Investors should be prepared for potential price swings.<span class="ql-inline-citation" data-cite="45"></span></li> <li><strong>Regulatory uncertainty</strong>: The legal landscape for cryptocurrencies and related investment products is evolving. In particular, should the SEC classify ether as a security, that would vastly change its market overnight.</li> <li><strong>Regulatory limits</strong>: While proponents often note the safety that comes with investing in ETFs under the SEC’s oversight, only the ETFs, not the cryptocurrency, would face the SEC’s full and rigorous oversight. In fact, backers of the spot ETH ETFs have fought against the SEC’s attempts to bring the currency under its purview, namely by treating ether as a security.<span class="ql-inline-citation" data-cite="25"></span></li> <li><strong>Counterparty risk</strong>: Investors in spot Ethereum ETFs are exposed to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/counterpartyrisk.asp">counterparty risk</a> arising from the entities involved in the ETF’s operations. Any issues, defaults, or security breaches experienced by these parties could affect the value and integrity of the ETF.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Tracking error</strong>: While spot Ethereum ETFs will track the price of ether, there might be slight discrepancies or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trackingerror.asp">tracking errors</a>. ETF expenses, market inefficiencies, or the timing of ether transactions can contribute to these.<span class="ql-inline-citation" data-cite="46"></span></li> </ol> <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-investing-in-eth-directly-vs-eth-etfs-and-futures"></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"> Investing in ETH Directly vs. ETH ETFs and Futures </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> Investors can purchase ETH on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-crypto-exchanges-5071855">cryptocurrency exchanges</a> and hold it in a digital <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin-wallet.asp">wallet</a>. This approach offers direct ownership of the cryptocurrency but also involves securely storing and managing the private keys. While now easier to use and more robust in terms of security, crypto exchanges still face challenges such as lack of regulatory oversight, the threat of hacks and theft, and the potential for bad actors to scam users. </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"> Alternatively, investing in spot Ethereum ETFs offers a more accessible and regulated route. ETFs provide investors with exposure to the price movement of ETH without needing to hold the cryptocurrency directly. As of the first half of 2024, only futures-based Ethereum ETFs exist. </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"> Investors can forgo futures-based ETFs and trade Ethereum derivatives themselves, such as futures and options contracts, on a cryptocurrency exchange. These instruments allow for leveraged trading and can be used for hedging or speculative purposes. However, trading derivatives on one’s own comes with many risks and complexities. These contracts are often highly leveraged and may not be fully regulated. </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"> Liquidity is another factor to consider when trading Ethereum derivatives. While major exchanges generally offer enough liquidity for Ethereum futures and options, the market depth may be lower than ETF or spot trading. This can lead to wider bid-ask spreads and challenges in executing large trades.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_87-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="5">Different Ways to Invest in Ether</th> </tr> <tr> <th></th> <th>Prospective Spot ETH ETF*</th> <th>Futures ETF</th> <th>ETH Futures</th> <th>ETH</th> </tr> </thead> <tbody data-check="0"> <tr> <th>Underlying Asset</th> <td>Ether held in trust</td> <td>Ethereum futures contracts</td> <td>Ethereum futures contracts</td> <td>Ether</td> </tr> <tr> <th>Ownership</th> <td>Indirect ownership through the ETF</td> <td>Indirect exposure through futures</td> <td>Direct ownership of futures contracts</td> <td>Direct ownership of cryptocurrency</td> </tr> <tr> <th>Custody</th> <td>ETF holds ETH on behalf of the investors</td> <td>ETF holds futures contracts</td> <td>Investor holds futures contracts</td> <td>Investor responsible for custody</td> </tr> <tr> <th>Trading Venue</th> <td>Stock exchange</td> <td>Stock exchange</td> <td>Futures exchange</td> <td>Cryptocurrency exchange</td> </tr> <tr> <th>Trading Hours</th> <td>During stock exchange hours</td> <td>During stock exchange hours</td> <td>Varies by futures exchange</td> <td>24/7</td> </tr> <tr> <th>Regulation</th> <td>Regulated by securities laws</td> <td>Regulated by securities laws</td> <td>Regulated by futures regulations</td> <td>Largely unregulated</td> </tr> <tr> <th>Liquidity</th> <td>Depends on ETF trading volume</td> <td>Depends on ETF trading volume</td> <td>Depends on futures trading volume</td> <td>Depends on the cryptocurrency market</td> </tr> <tr> <th>Minimum Investment</th> <td>Typically one share</td> <td>Typically one share</td> <td>Varies by contract specifications</td> <td>Fractional ETH can be bought</td> </tr> <tr> <th>Management Fees</th> <td>Applicable (expense ratio)</td> <td>Applicable (expense ratio)</td> <td>Not applicable</td> <td>Not applicable</td> </tr> <tr> <th>Counterparty Risk</th> <td>Issuer and custodian risk</td> <td>Issuer and futures exchange risk</td> <td>Futures exchange risk</td> <td>Exchange and wallet security risk</td> </tr> <tr> <th>Regulatory Status</th> <td>Not yet approved (as of March 2024)</td> <td>Approved and trading</td> <td>Approved and trading</td> <td>Not applicable</td> </tr> </tbody> </table> <figcaption>*Spot ETFs have not yet been approved by regulators for trading</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <span class="heading-toc" id="toc-the-outlook-for-spot-ethereum-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_89-0"> <span class="mntl-sc-block-heading__text"> The Outlook for Spot Ethereum ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> The prospects of spot Ethereum ETFs are tied to regulatory developments and the overall acceptance of cryptocurrencies as a legitimate asset class. While the SEC has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/spot-bitcoin-etfs-are-approved-by-sec-cleared-to-start-trading-thursday-8357670">approved spot Bitcoin ETFs</a>, it has yet to do so with applications for spot Ethereum ETFs. </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"> In May 2024, the SEC is expected to decide on Ethereum ETF applications by major players like Fidelity, BlackRock, and Grayscale. Analysts have become less optimistic about the approval of Ethereum ETFs in 2024.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> One sticking point is the practice of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/passive-income-through-crypto-6386333">staking</a>, where Ethereum holders lock up their funds as collateral to support the operations of the Ethereum blockchain in exchange for rewards. The SEC has cracked down on staking in the past, fining cryptocurrency exchange Kraken and suing Coinbase over their staking offerings. The SEC is also concerned about protecting investors from potentially losing control of their tokens and taking on the risks associated with staking platforms.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="4"></span> Adding staking amendments to Ethereum ETF proposals by Fidelity and Grayscale further complicated an already difficult approval process.<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_95-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_96-0"><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_97-0"><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>Cryptocurrency ETFs, including those focused on Ether, are still relatively new and can have significantly more volatility than traditional assets. Spot Crypto ETFs should only be a part of a well-diversified portfolio.<br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_98-0"> Another issue is whether the SEC will classify ether tokens as securities. If this occurs, the asset itself, not just ETFs whose value is tied to it, would fall under the jurisdiction of the SEC and be subject to many of the same securities laws and regulations as stocks. This could change how ether is traded, held, and taxed for investors. It could also impact the development and operation of dApps on Ethereum since these, too, might come under U.S. securities laws. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_99-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_100-0"> While SEC Chair <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-does-gary-gensler-as-sec-chief-mean-for-crypto-5095573">Gary Gensler</a> and other regulators have been consistent crypto sceptics, the approval of several spot Bitcoin ETFs in early 2024 set a precedent that could ultimately pave the way for Ethereum ETFs.<span class="ql-inline-citation" data-cite="7"></span> If the SEC finds the issues it faces with ETH ETFs the same as in the Bitcoin ETF approval process, it should be more inclined to grant its approval. </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"> ETH ETF proponents, such as Coinbase chief legal officer Paul Grewal and Grayscale chief legal officer Craig Salm, have argued that the SEC has no good reason to deny Ethereum ETF applications given its earlier approval of Bitcoin ETFs.<span class="ql-inline-citation" data-cite="49"></span><span class="ql-inline-citation" data-cite="6"></span> They believe that the SEC can’t fairly distinguish between the approved Bitcoin ETFs and the proposed Ethereum ETFs—the only difference is the underlying asset. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_104-0"> However, the specific asset might be the sticking point for the SEC, which could label it a security given the different trading mechanisms it has on its platform from Bitcoin and how certain traders have far greater holdings of ETH than was the case with Bitcoin.<span class="ql-inline-citation" data-cite="25"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_105-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_106-0"><span class="heading-toc" id="toc-how-would-a-spot-ethereum-etf-affect-the-eth-markets"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Would a Spot Ethereum ETF Affect the ETH Markets?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Spot Ethereum ETFs should increase the liquidity of the ether market by providing more buyers and sellers. More liquidity can lead to more stable prices and less volatility, making ether more attractive to ordinary investors. ETF inflows may also increase the market price of ETH as fund providers will have to buy cryptocurrency in the open market, spiking demand, as occurred with Bitcoin in January 2024.<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_107-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_108-0"><span class="heading-toc" id="toc-would-spot-ethereum-etfs-pay-dividends"></span> <h2 class="mntl-sc-block-questionandanswer__question">Would Spot Ethereum ETFs Pay Dividends?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Unlike spot Bitcoin ETFs, which do not pay dividends, spot Ethereum ETFs might pay dividends from staking. However, this would depend on the specific structure and investment strategy of the ETF and any regulatory restrictions imposed on it.</p><p>Staking is the holding and “locking up” of a certain amount of ether in a wallet to support the network’s consensus mechanism and earn rewards in the form of newly minted Ethereum. If a spot Ethereum ETF engages in staking, it could generate income from these staking rewards.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_109-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_110-0"><span class="heading-toc" id="toc-can-spot-ethereum-etfs-be-included-in-retirement-account-portfolios"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Spot Ethereum ETFs Be Included in Retirement Account Portfolios?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes. While direct cryptocurrency holdings are not allowed in qualified retirement accounts like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ira-4689693">individual retirement accounts</a>, ETFs, including spot or futures-based Ethereum ETFs, are permitted.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_111-0"></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_112-0"> <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_113-0"> If approved by regulators, spot Ethereum ETFs would offer investors a means of gaining exposure to the ETH cryptocurrency market through a regulated and accessible fund. By providing accessibility, simplicity, and regulatory oversight, at least of the ETFs themselves, these investments could attract a broader range of investors to the cryptocurrency market. Unlike futures-based Ethereum ETFs, a spot ETF would directly hold ETH tokens and be more cost-effective. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_114-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_115-0"> However, as with any investment, it is crucial to understand the risks and considerations involved. By carefully evaluating the options available and staying informed about market developments, investors can make well-informed decisions when considering these and other ETFs as part of their investment strategy. </p></div>
After the January 2024 U.S. Securities and Exchange Commission’s (SEC’s) approval of spot Bitcoin exchange-traded funds (ETFs) spurred a massive rally in the digital currency, interest in a proposed spot Ethereum exchange-traded fund (ETF) surged along with the prices of these two major cryptocurrencies. [The SEC](https://www.investopedia.com/terms/s/sec.asp), which scuttled 20 spot Bitcoin ETF proposals from 2018 to 2023, has shown itself even more hesitant since the rise in [Bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp) prices in early 2024 to approve similar funds for [Ethereum](https://www.investopedia.com/terms/e/ethereum.asp). The regulator is still concerned that [cryptocurrencies](https://www.investopedia.com/terms/c/cryptocurrency.asp) are often involved in fraud, could introduce their speculative bubbles into the heart of Wall Street, and could lead less sophisticated investors to infer that SEC approval means these currencies are any safer than before. The SEC only approved spot Bitcoin ETFs on the heels of a ruling against it by a U.S. federal appeals court in August 2023 that essentially forced its hand. As we [reported](https://www.investopedia.com/why-spot-ether-etfs-could-face-a-difficult-path-to-approval-8609104) in March 2024, the SEC has followed up the spot Bitcoin ETF approval by focusing on the difference between Ethereum and Bitcoin’s cryptocurrency models. This has made analysts skeptical about the near- to middle-term prospects of the regulator approving spot Ethereum ETFs. While this process is ongoing, investors and industry observers are closely monitoring developments. The SEC’s decision, whichever way it falls, will have significant implications for the future of cryptocurrencies and their role in mainstream finance. Below, we guide you through the travails and controversies surrounding spot Ethereum ETFs in the lead-up to potential approval, how they differ from futures ETFs already valued in relation to the cryptocurrency’s price moves, and what the approval of spot Ethereum ETFs would mean for everyday investors. ### Key Takeaways * Spot Ethereum ETFs would offer a way to invest in Ethereum without directly owning the cryptocurrency. * However, the U.S. Securities and Exchange Commission (SEC) remains hesitant to approve them, based in part on Ethereum’s move to a proof-of-stake (PoS) consensus model. * ETFs provide benefits such as diversification, simplicity, and regulatory oversight. * Investors should be aware of the risks, including market volatility and regulatory changes. * If approved, choosing the right Ethereum ETF involves considering fees, performance history, and underlying assets. * The future of spot Ethereum ETFs looks promising because of the recent success of spot Bitcoin ETFs, but it remains subject to regulatory developments. ## Prelude to Spot Ethereum ETFs Before discussing the specifics of spot Ethereum ETFs, it’s crucial to underline that they are not yet approved for trading in the United States or elsewhere. The approval of spot Bitcoin ETFs, such as the ProShares Bitcoin Strategy ETF ([BITO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BITO)) and the Valkyrie Bitcoin and Ether Strategy ETF ([BTF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTF)), was significant for the mainstream acceptance of cryptocurrencies. These ETFs have had rapid inflows and strong investor demand, suggesting an appetite for regulated, easily accessible exposure to cryptocurrencies. Proponents of cryptocurrencies argue that early price increases in spot Bitcoin ETFs bolster the case for spot Ethereum ETFs. They believe that investors are seeking [diversification](https://www.investopedia.com/terms/d/diversification.asp) through exposure to Ethereum, the second-largest cryptocurrency by market capitalization. For them, Ethereum’s thriving ecosystem of [decentralized applications (dApps)](https://www.investopedia.com/terms/d/decentralized-applications-dapps.asp) and smart contracts makes it an attractive investment, even before considering the value of its real-world applications as it gains wider acceptance. However, critics caution against the rush to embrace spot Ethereum ETFs. They argue that the [volatile](https://www.investopedia.com/terms/v/volatility.asp) nature of cryptocurrencies makes them unsuitable for many investors. Concerns about regulatory uncertainty, potential market manipulation, and the environmental impact of cryptocurrency mining (even if mitigated by Ethereum’s model) are all cited as reasons for caution. Skeptics worry that the push for ETFs might be driven more by the financial industry’s interest in new products than by a genuine need for investor access to cryptocurrencies. If approved, spot Ethereum ETFs would hold ether tokens in their portfolios. Their objective would be to track the price of Ethereum as closely as possible, providing investors with direct exposure to the cryptocurrency without the need to purchase and store it themselves. Spot Ethereum ETFs would offer a more straightforward and transparent approach than [ETFs](https://www.investopedia.com/terms/e/etf.asp) that invest in derivatives or a diversified portfolio of cryptocurrencies. By holding the ether tokens, these ETFs aim to give investors a more accurate representation of the cryptocurrency’s performance. ## Spot ETFs vs. Futures ETFs Spot ETFs * Hold actual cryptocurrencies * Track the price of the crypto very closely * Can be more cost-effective than futures * Have more significant regulatory burdens than futures * Are subject to custody risks Futures ETFs * Invest in crypto futures contracts * Have less efficient tracking of the price of the underlying crypto * Don’t have regulatory or custody risks * Carry higher management costs Investors have two main options for crypto-based exchange-traded funds: spot ETFs and futures-based ETFs. While both types aim to provide exposure to the price movement of an underlying crypto-asset, they differ in how they do this. Spot ETFs hold actual crypto tokens in their underlying [portfolios](https://www.investopedia.com/terms/p/portfolio.asp) and are designed to track the price as closely as possible—offering investors direct exposure to the cryptocurrency. When investors buy shares in a spot ETF, they own a portion of the fund’s crypto holdings. Meanwhile, [futures-based ETFs](https://www.investopedia.com/ether-futures-etf-definition-8363103) invest in crypto futures contracts rather than hold the cryptocurrency directly. [Futures contracts](https://www.investopedia.com/terms/f/futurescontract.asp) are agreements to buy or sell an asset at a predetermined price on a specific future date. These ETFs track the price of crypto-assets by rolling over futures contracts as they approach expiration. While spot ETFs should be more cost-effective and provide more direct access than their futures-based alternatives, they have more significant regulatory burdens and are subject to custody risks (e.g., the ETF provider gets hacked or loses their [private keys](https://www.investopedia.com/terms/p/private-key.asp)). Futures-based ETFs don’t have regulatory or custody risks, but they typically have tracking errors between the ETF price and the underlying asset and carry higher management fees because of the active trading of futures contracts. ## Investing in Ethereum While Ethereum, the second-largest cryptocurrency by [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp), has often been overshadowed by Bitcoin, it has potential applications that could make it attractive to investors. Ethereum is a decentralized, open-source blockchain platform that enables the creation and execution of smart contracts and dApps. Launched in 2015 by Vitalik Buterin, Ethereum has grown into a prominent platform for various blockchain-based applications and services. Ethereum grew due to the demand for non-fungible tokens, tokenized equity, [decentralized finance (DeFi)](https://www.investopedia.com/decentralized-finance-defi-5113835) applications, and Ethereum’s native cryptocurrency, ether ([ETH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ETH)). Because of network effects, as more developers and users have adopted Ethereum—the cryptocurrency has outlasted many others launched at about the same time—the platform has attracted even more participants. However, investing in Ethereum has risks. The cryptocurrency market is known for its volatility, and the price of ETH can fluctuate significantly over short periods. Regulatory uncertainties, security concerns, and competition from other blockchain platforms are also issues that investors should consider. In addition, Ethereum faces questions about its [scalability](https://www.investopedia.com/terms/s/scalability.asp) and has high [transaction fees](https://www.investopedia.com/terms/g/gas-ethereum.asp). Transaction costs have risen as the network has become more congested, which could impact its adoption. The Ethereum community has tried to solve some of these issues, most prominently through its September 2022 “[merge](https://www.investopedia.com/the-ethereum-merge-6504132),” which was its shift to a [proof-of-stake (PoS)](https://www.investopedia.com/terms/p/proof-stake-pos.asp) consensus mechanism. Under its previous [proof-of-work (PoW)](https://www.investopedia.com/terms/p/proof-work.asp) system, which Bitcoin still relies upon, powerful computers compete to solve complex mathematical problems to validate transactions and add new blocks to the Ethereum system. Known as [mining](https://www.investopedia.com/terms/b/bitcoin-mining.asp), this work requires significant computational power and consumes a mammoth amount of energy. By contrast, the PoS relies on users staking their ether—that is, locking up a part of their ETH as collateral to validate transactions and create new blocks. The more ether that a user stakes, the better their chances of being selected to validate transactions and earn rewards. Ethereum says changes to this model have led to a 99.988% cut in its energy usage. PoS is also designed to improve network security by making it more costly for attackers to gain control of the network. Ethereum has also introduced [sharding](https://www.investopedia.com/terms/s/sharding.asp) to reduce latency. ## How Ethereum Works Ethereum operates on a blockchain, a decentralized, [distributed ledger technology](https://www.investopedia.com/terms/d/distributed-ledger-technology-dlt.asp) that records transactions across a network of computers. The Ethereum [blockchain](https://www.investopedia.com/terms/b/blockchain.asp) is powered by its native cryptocurrency token, [ether](https://www.investopedia.com/terms/e/ether-cryptocurrency.asp), which serves as payment for transaction fees and computational services within the network. One of Ethereum’s key features is its support for [smart contracts](https://www.investopedia.com/terms/s/smart-contracts.asp). These are self-executing agreements with their terms directly written into code. They automatically enforce the rules and penalties surrounding an agreement, eliminating the need for intermediaries and reducing the risk of fraud or manipulation. ## Ethereum vs. Bitcoin While Ethereum and Bitcoin have obvious similarities—most prominently, being based on decentralized blockchain technology—they have differences that are important for investors to note: 1. **Purpose**: Bitcoin was primarily designed as a [digital currency](https://www.investopedia.com/terms/d/digital-currency.asp) and a [store of value](https://www.investopedia.com/terms/s/storeofvalue.asp) to provide an alternative to traditional fiat currencies. Ethereum, meanwhile, was created as a platform for building dApps and enabling smart contracts. 2. **Capabilities**: Bitcoin primarily facilitates peer-to-peer transactions without the need for intermediaries. Ethereum goes beyond simple transactions and allows developers to build and deploy complex applications on its blockchain. 3. **Supply**: Bitcoin has a fixed [maximum supply of 21 million](https://www.investopedia.com/tech/what-happens-bitcoin-after-21-million-mined/) coins, which makes it scarce and potentially supports its value. Ethereum, by contrast, does not have a fixed supply cap, although its consensus mechanism could limit the issuing of new ETH. 4. **Transaction speed**: Ethereum’s blockchain processes transactions faster than Bitcoin’s 10-minute target interval between blocks, although both networks have faced scalability issues as their use increased. 5. **Consensus mechanism:** Bitcoin uses a PoW consensus mechanism, where miners compete to solve complex mathematical problems to validate transactions and create new blocks. Ethereum, meanwhile, has transitioned to a PoS consensus mechanism, where validators stake their ETH holdings to participate in the validation process. 7. **Market profile**: While Bitcoin remains the dominant cryptocurrency by market capitalization, Ethereum has a strong developer community and a growing ecosystem of dApps and [tokenized assets](https://www.investopedia.com/terms/t/tokenized-equity.asp), which could drive future demand for ETH. ## How Spot Ethereum ETFs Would Work A spot Ethereum ETF would involve “[creation and redemption](https://www.investopedia.com/articles/mutualfund/05/062705.asp),” just like other ETFs. Authorized participants, typically large institutional investors, play a crucial role in this process. To create new shares of the ETF, authorized participants would deposit a corresponding amount of ether with the ETF issuer. In exchange, they receive newly minted shares of the ETF. Conversely, when authorized participants want to redeem shares of the ETF, they return the shares to the issuer and receive an equal amount of ether in return. This keeps an ETF’s price in line with the value of the underlying ether. As demand for the ETF shares increases, authorized participants can create more shares by depositing additional ether. Similarly, they can redeem shares and receive ether back if demand decreases. Investors can buy and sell shares of spot Ethereum ETFs on stock exchanges throughout the trading day, as they do with any other ETF or stock. This would make the cryptocurrency fund easy to trade and likely give it abundant [liquidity](https://www.investopedia.com/terms/l/liquidity.asp), enabling investors to enter or exit positions throughout the trading day without interacting directly with cryptocurrency exchanges. ## Benefits of Spot Ethereum ETFs If approved, a spot Ethereum ETF could offer these potential advantages for investors: * **Accessibility**: Spot Ethereum ETFs provide a convenient way for investors to gain exposure to Ethereum. By investing in an ETF, individuals can avoid the complexities of navigating cryptocurrency exchanges, setting up digital wallets, and worrying about the security and storage of their Ethereum holdings. * **Regulated**: ETFs are regulated investments supervised by financial watchdogs. This regulatory framework offers investors more protection and transparency than directly holding cryptocurrencies. * **Diversification**: By allocating a part of their portfolio to Ethereum through an ETF, investors might benefit from the cryptocurrency’s growth and diversify their exposure to different asset classes. * **Liquidity**: A major advantage of spot Ethereum ETFs would be their liquidity. With the ability to trade ETF shares on stock exchanges throughout the trading day, investors could quickly enter or exit positions based on their investment strategies and market conditions. ## Risks of Spot Ethereum ETFs Investors should also be aware of the potential risks associated with these investments: 1. **Volatility**: Ethereum, like other cryptocurrencies, is known for its high volatility. The price of ether can fluctuate significantly in short periods, directly impacting the value of spot Ethereum ETFs. Investors should be prepared for potential price swings. 2. **Regulatory uncertainty**: The legal landscape for cryptocurrencies and related investment products is evolving. In particular, should the SEC classify ether as a security, that would vastly change its market overnight. 3. **Regulatory limits**: While proponents often note the safety that comes with investing in ETFs under the SEC’s oversight, only the ETFs, not the cryptocurrency, would face the SEC’s full and rigorous oversight. In fact, backers of the spot ETH ETFs have fought against the SEC’s attempts to bring the currency under its purview, namely by treating ether as a security. 4. **Counterparty risk**: Investors in spot Ethereum ETFs are exposed to [counterparty risk](https://www.investopedia.com/terms/c/counterpartyrisk.asp) arising from the entities involved in the ETF’s operations. Any issues, defaults, or security breaches experienced by these parties could affect the value and integrity of the ETF. 6. **Tracking error**: While spot Ethereum ETFs will track the price of ether, there might be slight discrepancies or [tracking errors](https://www.investopedia.com/terms/t/trackingerror.asp). ETF expenses, market inefficiencies, or the timing of ether transactions can contribute to these. ## Investing in ETH Directly vs. ETH ETFs and Futures Investors can purchase ETH on [cryptocurrency exchanges](https://www.investopedia.com/best-crypto-exchanges-5071855) and hold it in a digital [wallet](https://www.investopedia.com/terms/b/bitcoin-wallet.asp). This approach offers direct ownership of the cryptocurrency but also involves securely storing and managing the private keys. While now easier to use and more robust in terms of security, crypto exchanges still face challenges such as lack of regulatory oversight, the threat of hacks and theft, and the potential for bad actors to scam users. Alternatively, investing in spot Ethereum ETFs offers a more accessible and regulated route. ETFs provide investors with exposure to the price movement of ETH without needing to hold the cryptocurrency directly. As of the first half of 2024, only futures-based Ethereum ETFs exist. Investors can forgo futures-based ETFs and trade Ethereum derivatives themselves, such as futures and options contracts, on a cryptocurrency exchange. These instruments allow for leveraged trading and can be used for hedging or speculative purposes. However, trading derivatives on one’s own comes with many risks and complexities. These contracts are often highly leveraged and may not be fully regulated. Liquidity is another factor to consider when trading Ethereum derivatives. While major exchanges generally offer enough liquidity for Ethereum futures and options, the market depth may be lower than ETF or spot trading. This can lead to wider bid-ask spreads and challenges in executing large trades. | Different Ways to Invest in Ether | | | | | | --- | --- | --- | --- | --- | | | Prospective Spot ETH ETF\* | Futures ETF | ETH Futures | ETH | | Underlying Asset | Ether held in trust | Ethereum futures contracts | Ethereum futures contracts | Ether | | Ownership | Indirect ownership through the ETF | Indirect exposure through futures | Direct ownership of futures contracts | Direct ownership of cryptocurrency | | Custody | ETF holds ETH on behalf of the investors | ETF holds futures contracts | Investor holds futures contracts | Investor responsible for custody | | Trading Venue | Stock exchange | Stock exchange | Futures exchange | Cryptocurrency exchange | | Trading Hours | During stock exchange hours | During stock exchange hours | Varies by futures exchange | 24/7 | | Regulation | Regulated by securities laws | Regulated by securities laws | Regulated by futures regulations | Largely unregulated | | Liquidity | Depends on ETF trading volume | Depends on ETF trading volume | Depends on futures trading volume | Depends on the cryptocurrency market | | Minimum Investment | Typically one share | Typically one share | Varies by contract specifications | Fractional ETH can be bought | | Management Fees | Applicable (expense ratio) | Applicable (expense ratio) | Not applicable | Not applicable | | Counterparty Risk | Issuer and custodian risk | Issuer and futures exchange risk | Futures exchange risk | Exchange and wallet security risk | | Regulatory Status | Not yet approved (as of March 2024) | Approved and trading | Approved and trading | Not applicable | \*Spot ETFs have not yet been approved by regulators for trading ## The Outlook for Spot Ethereum ETFs The prospects of spot Ethereum ETFs are tied to regulatory developments and the overall acceptance of cryptocurrencies as a legitimate asset class. While the SEC has [approved spot Bitcoin ETFs](https://www.investopedia.com/spot-bitcoin-etfs-are-approved-by-sec-cleared-to-start-trading-thursday-8357670), it has yet to do so with applications for spot Ethereum ETFs. In May 2024, the SEC is expected to decide on Ethereum ETF applications by major players like Fidelity, BlackRock, and Grayscale. Analysts have become less optimistic about the approval of Ethereum ETFs in 2024. One sticking point is the practice of [staking](https://www.investopedia.com/passive-income-through-crypto-6386333), where Ethereum holders lock up their funds as collateral to support the operations of the Ethereum blockchain in exchange for rewards. The SEC has cracked down on staking in the past, fining cryptocurrency exchange Kraken and suing Coinbase over their staking offerings. The SEC is also concerned about protecting investors from potentially losing control of their tokens and taking on the risks associated with staking platforms. Adding staking amendments to Ethereum ETF proposals by Fidelity and Grayscale further complicated an already difficult approval process. ### Cryptocurrency ETFs, including those focused on Ether, are still relatively new and can have significantly more volatility than traditional assets. Spot Crypto ETFs should only be a part of a well-diversified portfolio. Another issue is whether the SEC will classify ether tokens as securities. If this occurs, the asset itself, not just ETFs whose value is tied to it, would fall under the jurisdiction of the SEC and be subject to many of the same securities laws and regulations as stocks. This could change how ether is traded, held, and taxed for investors. It could also impact the development and operation of dApps on Ethereum since these, too, might come under U.S. securities laws. While SEC Chair [Gary Gensler](https://www.investopedia.com/what-does-gary-gensler-as-sec-chief-mean-for-crypto-5095573) and other regulators have been consistent crypto sceptics, the approval of several spot Bitcoin ETFs in early 2024 set a precedent that could ultimately pave the way for Ethereum ETFs. If the SEC finds the issues it faces with ETH ETFs the same as in the Bitcoin ETF approval process, it should be more inclined to grant its approval. ETH ETF proponents, such as Coinbase chief legal officer Paul Grewal and Grayscale chief legal officer Craig Salm, have argued that the SEC has no good reason to deny Ethereum ETF applications given its earlier approval of Bitcoin ETFs. They believe that the SEC can’t fairly distinguish between the approved Bitcoin ETFs and the proposed Ethereum ETFs—the only difference is the underlying asset. However, the specific asset might be the sticking point for the SEC, which could label it a security given the different trading mechanisms it has on its platform from Bitcoin and how certain traders have far greater holdings of ETH than was the case with Bitcoin. ## How Would a Spot Ethereum ETF Affect the ETH Markets? Spot Ethereum ETFs should increase the liquidity of the ether market by providing more buyers and sellers. More liquidity can lead to more stable prices and less volatility, making ether more attractive to ordinary investors. ETF inflows may also increase the market price of ETH as fund providers will have to buy cryptocurrency in the open market, spiking demand, as occurred with Bitcoin in January 2024. ## Would Spot Ethereum ETFs Pay Dividends? Unlike spot Bitcoin ETFs, which do not pay dividends, spot Ethereum ETFs might pay dividends from staking. However, this would depend on the specific structure and investment strategy of the ETF and any regulatory restrictions imposed on it. Staking is the holding and “locking up” of a certain amount of ether in a wallet to support the network’s consensus mechanism and earn rewards in the form of newly minted Ethereum. If a spot Ethereum ETF engages in staking, it could generate income from these staking rewards. ## Can Spot Ethereum ETFs Be Included in Retirement Account Portfolios? Yes. While direct cryptocurrency holdings are not allowed in qualified retirement accounts like [individual retirement accounts](https://www.investopedia.com/ira-4689693), ETFs, including spot or futures-based Ethereum ETFs, are permitted. ## The Bottom Line If approved by regulators, spot Ethereum ETFs would offer investors a means of gaining exposure to the ETH cryptocurrency market through a regulated and accessible fund. By providing accessibility, simplicity, and regulatory oversight, at least of the ETFs themselves, these investments could attract a broader range of investors to the cryptocurrency market. Unlike futures-based Ethereum ETFs, a spot ETF would directly hold ETH tokens and be more cost-effective. However, as with any investment, it is crucial to understand the risks and considerations involved. By carefully evaluating the options available and staying informed about market developments, investors can make well-informed decisions when considering these and other ETFs as part of their investment strategy.
After the January 2024 U.S. Securities and Exchange Commission’s (SEC’s) approval of spot Bitcoin exchange-traded funds (ETFs) spurred a massive rally in the digital currency, interest in a proposed spot Ethereum exchange-traded fund (ETF) surged along with the prices of these two major cryptocurrencies. The SEC, which scuttled 20 spot Bitcoin ETF proposals from 2018 to 2023, has shown itself even more hesitant since the rise in Bitcoin prices in early 2024 to approve similar funds for Ethereum. The regulator is still concerned that cryptocurrencies are often involved in fraud, could introduce their speculative bubbles into the heart of Wall Street, and could lead less sophisticated investors to infer that SEC approval means these currencies are any safer than before. The SEC only approved spot Bitcoin ETFs on the heels of a ruling against it by a U.S. federal appeals court in August 2023 that essentially forced its hand. As we reported in March 2024, the SEC has followed up the spot Bitcoin ETF approval by focusing on the difference between Ethereum and Bitcoin’s cryptocurrency models. This has made analysts skeptical about the near- to middle-term prospects of the regulator approving spot Ethereum ETFs. While this process is ongoing, investors and industry observers are closely monitoring developments. The SEC’s decision, whichever way it falls, will have significant implications for the future of cryptocurrencies and their role in mainstream finance. Below, we guide you through the travails and controversies surrounding spot Ethereum ETFs in the lead-up to potential approval, how they differ from futures ETFs already valued in relation to the cryptocurrency’s price moves, and what the approval of spot Ethereum ETFs would mean for everyday investors. Key Takeaways Spot Ethereum ETFs would offer a way to invest in Ethereum without directly owning the cryptocurrency.However, the U.S. Securities and Exchange Commission (SEC) remains hesitant to approve them, based in part on Ethereum’s move to a proof-of-stake (PoS) consensus model.ETFs provide benefits such as diversification, simplicity, and regulatory oversight.Investors should be aware of the risks, including market volatility and regulatory changes.If approved, choosing the right Ethereum ETF involves considering fees, performance history, and underlying assets.The future of spot Ethereum ETFs looks promising because of the recent success of spot Bitcoin ETFs, but it remains subject to regulatory developments. Prelude to Spot Ethereum ETFs Before discussing the specifics of spot Ethereum ETFs, it’s crucial to underline that they are not yet approved for trading in the United States or elsewhere. The approval of spot Bitcoin ETFs, such as the ProShares Bitcoin Strategy ETF (BITO) and the Valkyrie Bitcoin and Ether Strategy ETF (BTF), was significant for the mainstream acceptance of cryptocurrencies. These ETFs have had rapid inflows and strong investor demand, suggesting an appetite for regulated, easily accessible exposure to cryptocurrencies. Proponents of cryptocurrencies argue that early price increases in spot Bitcoin ETFs bolster the case for spot Ethereum ETFs. They believe that investors are seeking diversification through exposure to Ethereum, the second-largest cryptocurrency by market capitalization. For them, Ethereum’s thriving ecosystem of decentralized applications (dApps) and smart contracts makes it an attractive investment, even before considering the value of its real-world applications as it gains wider acceptance. However, critics caution against the rush to embrace spot Ethereum ETFs. They argue that the volatile nature of cryptocurrencies makes them unsuitable for many investors. Concerns about regulatory uncertainty, potential market manipulation, and the environmental impact of cryptocurrency mining (even if mitigated by Ethereum’s model) are all cited as reasons for caution. Skeptics worry that the push for ETFs might be driven more by the financial industry’s interest in new products than by a genuine need for investor access to cryptocurrencies. If approved, spot Ethereum ETFs would hold ether tokens in their portfolios. Their objective would be to track the price of Ethereum as closely as possible, providing investors with direct exposure to the cryptocurrency without the need to purchase and store it themselves. Spot Ethereum ETFs would offer a more straightforward and transparent approach than ETFs that invest in derivatives or a diversified portfolio of cryptocurrencies. By holding the ether tokens, these ETFs aim to give investors a more accurate representation of the cryptocurrency’s performance. Spot ETFs vs. Futures ETFs Spot ETFs Hold actual cryptocurrencies Track the price of the crypto very closely Can be more cost-effective than futures Have more significant regulatory burdens than futures Are subject to custody risks Futures ETFs Invest in crypto futures contracts Have less efficient tracking of the price of the underlying crypto Don’t have regulatory or custody risks Carry higher management costs Investors have two main options for crypto-based exchange-traded funds: spot ETFs and futures-based ETFs. While both types aim to provide exposure to the price movement of an underlying crypto-asset, they differ in how they do this. Spot ETFs hold actual crypto tokens in their underlying portfolios and are designed to track the price as closely as possible—offering investors direct exposure to the cryptocurrency. When investors buy shares in a spot ETF, they own a portion of the fund’s crypto holdings. Meanwhile, futures-based ETFs invest in crypto futures contracts rather than hold the cryptocurrency directly. Futures contracts are agreements to buy or sell an asset at a predetermined price on a specific future date. These ETFs track the price of crypto-assets by rolling over futures contracts as they approach expiration. While spot ETFs should be more cost-effective and provide more direct access than their futures-based alternatives, they have more significant regulatory burdens and are subject to custody risks (e.g., the ETF provider gets hacked or loses their private keys). Futures-based ETFs don’t have regulatory or custody risks, but they typically have tracking errors between the ETF price and the underlying asset and carry higher management fees because of the active trading of futures contracts. Investing in Ethereum While Ethereum, the second-largest cryptocurrency by market capitalization, has often been overshadowed by Bitcoin, it has potential applications that could make it attractive to investors. Ethereum is a decentralized, open-source blockchain platform that enables the creation and execution of smart contracts and dApps. Launched in 2015 by Vitalik Buterin, Ethereum has grown into a prominent platform for various blockchain-based applications and services. Ethereum grew due to the demand for non-fungible tokens, tokenized equity, decentralized finance (DeFi) applications, and Ethereum’s native cryptocurrency, ether (ETH). Because of network effects, as more developers and users have adopted Ethereum—the cryptocurrency has outlasted many others launched at about the same time—the platform has attracted even more participants. However, investing in Ethereum has risks. The cryptocurrency market is known for its volatility, and the price of ETH can fluctuate significantly over short periods. Regulatory uncertainties, security concerns, and competition from other blockchain platforms are also issues that investors should consider. In addition, Ethereum faces questions about its scalability and has high transaction fees. Transaction costs have risen as the network has become more congested, which could impact its adoption. The Ethereum community has tried to solve some of these issues, most prominently through its September 2022 “merge,” which was its shift to a proof-of-stake (PoS) consensus mechanism. Under its previous proof-of-work (PoW) system, which Bitcoin still relies upon, powerful computers compete to solve complex mathematical problems to validate transactions and add new blocks to the Ethereum system. Known as mining, this work requires significant computational power and consumes a mammoth amount of energy. By contrast, the PoS relies on users staking their ether—that is, locking up a part of their ETH as collateral to validate transactions and create new blocks. The more ether that a user stakes, the better their chances of being selected to validate transactions and earn rewards. Ethereum says changes to this model have led to a 99.988% cut in its energy usage. PoS is also designed to improve network security by making it more costly for attackers to gain control of the network. Ethereum has also introduced sharding to reduce latency. How Ethereum Works Ethereum operates on a blockchain, a decentralized, distributed ledger technology that records transactions across a network of computers. The Ethereum blockchain is powered by its native cryptocurrency token, ether, which serves as payment for transaction fees and computational services within the network. One of Ethereum’s key features is its support for smart contracts. These are self-executing agreements with their terms directly written into code. They automatically enforce the rules and penalties surrounding an agreement, eliminating the need for intermediaries and reducing the risk of fraud or manipulation. Ethereum vs. Bitcoin While Ethereum and Bitcoin have obvious similarities—most prominently, being based on decentralized blockchain technology—they have differences that are important for investors to note: Purpose: Bitcoin was primarily designed as a digital currency and a store of value to provide an alternative to traditional fiat currencies. Ethereum, meanwhile, was created as a platform for building dApps and enabling smart contracts. Capabilities: Bitcoin primarily facilitates peer-to-peer transactions without the need for intermediaries. Ethereum goes beyond simple transactions and allows developers to build and deploy complex applications on its blockchain. Supply: Bitcoin has a fixed maximum supply of 21 million coins, which makes it scarce and potentially supports its value. Ethereum, by contrast, does not have a fixed supply cap, although its consensus mechanism could limit the issuing of new ETH. Transaction speed: Ethereum’s blockchain processes transactions faster than Bitcoin’s 10-minute target interval between blocks, although both networks have faced scalability issues as their use increased. Consensus mechanism: Bitcoin uses a PoW consensus mechanism, where miners compete to solve complex mathematical problems to validate transactions and create new blocks. Ethereum, meanwhile, has transitioned to a PoS consensus mechanism, where validators stake their ETH holdings to participate in the validation process. Market profile: While Bitcoin remains the dominant cryptocurrency by market capitalization, Ethereum has a strong developer community and a growing ecosystem of dApps and tokenized assets, which could drive future demand for ETH. How Spot Ethereum ETFs Would Work A spot Ethereum ETF would involve “creation and redemption,” just like other ETFs. Authorized participants, typically large institutional investors, play a crucial role in this process. To create new shares of the ETF, authorized participants would deposit a corresponding amount of ether with the ETF issuer. In exchange, they receive newly minted shares of the ETF. Conversely, when authorized participants want to redeem shares of the ETF, they return the shares to the issuer and receive an equal amount of ether in return. This keeps an ETF’s price in line with the value of the underlying ether. As demand for the ETF shares increases, authorized participants can create more shares by depositing additional ether. Similarly, they can redeem shares and receive ether back if demand decreases. Investors can buy and sell shares of spot Ethereum ETFs on stock exchanges throughout the trading day, as they do with any other ETF or stock. This would make the cryptocurrency fund easy to trade and likely give it abundant liquidity, enabling investors to enter or exit positions throughout the trading day without interacting directly with cryptocurrency exchanges. Benefits of Spot Ethereum ETFs If approved, a spot Ethereum ETF could offer these potential advantages for investors: Accessibility: Spot Ethereum ETFs provide a convenient way for investors to gain exposure to Ethereum. By investing in an ETF, individuals can avoid the complexities of navigating cryptocurrency exchanges, setting up digital wallets, and worrying about the security and storage of their Ethereum holdings.Regulated: ETFs are regulated investments supervised by financial watchdogs. This regulatory framework offers investors more protection and transparency than directly holding cryptocurrencies.Diversification: By allocating a part of their portfolio to Ethereum through an ETF, investors might benefit from the cryptocurrency’s growth and diversify their exposure to different asset classes.Liquidity: A major advantage of spot Ethereum ETFs would be their liquidity. With the ability to trade ETF shares on stock exchanges throughout the trading day, investors could quickly enter or exit positions based on their investment strategies and market conditions. Risks of Spot Ethereum ETFs Investors should also be aware of the potential risks associated with these investments: Volatility: Ethereum, like other cryptocurrencies, is known for its high volatility. The price of ether can fluctuate significantly in short periods, directly impacting the value of spot Ethereum ETFs. Investors should be prepared for potential price swings. Regulatory uncertainty: The legal landscape for cryptocurrencies and related investment products is evolving. In particular, should the SEC classify ether as a security, that would vastly change its market overnight. Regulatory limits: While proponents often note the safety that comes with investing in ETFs under the SEC’s oversight, only the ETFs, not the cryptocurrency, would face the SEC’s full and rigorous oversight. In fact, backers of the spot ETH ETFs have fought against the SEC’s attempts to bring the currency under its purview, namely by treating ether as a security. Counterparty risk: Investors in spot Ethereum ETFs are exposed to counterparty risk arising from the entities involved in the ETF’s operations. Any issues, defaults, or security breaches experienced by these parties could affect the value and integrity of the ETF. Tracking error: While spot Ethereum ETFs will track the price of ether, there might be slight discrepancies or tracking errors. ETF expenses, market inefficiencies, or the timing of ether transactions can contribute to these. Investing in ETH Directly vs. ETH ETFs and Futures Investors can purchase ETH on cryptocurrency exchanges and hold it in a digital wallet. This approach offers direct ownership of the cryptocurrency but also involves securely storing and managing the private keys. While now easier to use and more robust in terms of security, crypto exchanges still face challenges such as lack of regulatory oversight, the threat of hacks and theft, and the potential for bad actors to scam users. Alternatively, investing in spot Ethereum ETFs offers a more accessible and regulated route. ETFs provide investors with exposure to the price movement of ETH without needing to hold the cryptocurrency directly. As of the first half of 2024, only futures-based Ethereum ETFs exist. Investors can forgo futures-based ETFs and trade Ethereum derivatives themselves, such as futures and options contracts, on a cryptocurrency exchange. These instruments allow for leveraged trading and can be used for hedging or speculative purposes. However, trading derivatives on one’s own comes with many risks and complexities. These contracts are often highly leveraged and may not be fully regulated. Liquidity is another factor to consider when trading Ethereum derivatives. While major exchanges generally offer enough liquidity for Ethereum futures and options, the market depth may be lower than ETF or spot trading. This can lead to wider bid-ask spreads and challenges in executing large trades. Different Ways to Invest in Ether Prospective Spot ETH ETF* Futures ETF ETH Futures ETH Underlying Asset Ether held in trust Ethereum futures contracts Ethereum futures contracts Ether Ownership Indirect ownership through the ETF Indirect exposure through futures Direct ownership of futures contracts Direct ownership of cryptocurrency Custody ETF holds ETH on behalf of the investors ETF holds futures contracts Investor holds futures contracts Investor responsible for custody Trading Venue Stock exchange Stock exchange Futures exchange Cryptocurrency exchange Trading Hours During stock exchange hours During stock exchange hours Varies by futures exchange 24/7 Regulation Regulated by securities laws Regulated by securities laws Regulated by futures regulations Largely unregulated Liquidity Depends on ETF trading volume Depends on ETF trading volume Depends on futures trading volume Depends on the cryptocurrency market Minimum Investment Typically one share Typically one share Varies by contract specifications Fractional ETH can be bought Management Fees Applicable (expense ratio) Applicable (expense ratio) Not applicable Not applicable Counterparty Risk Issuer and custodian risk Issuer and futures exchange risk Futures exchange risk Exchange and wallet security risk Regulatory Status Not yet approved (as of March 2024) Approved and trading Approved and trading Not applicable *Spot ETFs have not yet been approved by regulators for trading The Outlook for Spot Ethereum ETFs The prospects of spot Ethereum ETFs are tied to regulatory developments and the overall acceptance of cryptocurrencies as a legitimate asset class. While the SEC has approved spot Bitcoin ETFs, it has yet to do so with applications for spot Ethereum ETFs. In May 2024, the SEC is expected to decide on Ethereum ETF applications by major players like Fidelity, BlackRock, and Grayscale. Analysts have become less optimistic about the approval of Ethereum ETFs in 2024. One sticking point is the practice of staking, where Ethereum holders lock up their funds as collateral to support the operations of the Ethereum blockchain in exchange for rewards. The SEC has cracked down on staking in the past, fining cryptocurrency exchange Kraken and suing Coinbase over their staking offerings. The SEC is also concerned about protecting investors from potentially losing control of their tokens and taking on the risks associated with staking platforms. Adding staking amendments to Ethereum ETF proposals by Fidelity and Grayscale further complicated an already difficult approval process. Cryptocurrency ETFs, including those focused on Ether, are still relatively new and can have significantly more volatility than traditional assets. Spot Crypto ETFs should only be a part of a well-diversified portfolio. Another issue is whether the SEC will classify ether tokens as securities. If this occurs, the asset itself, not just ETFs whose value is tied to it, would fall under the jurisdiction of the SEC and be subject to many of the same securities laws and regulations as stocks. This could change how ether is traded, held, and taxed for investors. It could also impact the development and operation of dApps on Ethereum since these, too, might come under U.S. securities laws. While SEC Chair Gary Gensler and other regulators have been consistent crypto sceptics, the approval of several spot Bitcoin ETFs in early 2024 set a precedent that could ultimately pave the way for Ethereum ETFs. If the SEC finds the issues it faces with ETH ETFs the same as in the Bitcoin ETF approval process, it should be more inclined to grant its approval. ETH ETF proponents, such as Coinbase chief legal officer Paul Grewal and Grayscale chief legal officer Craig Salm, have argued that the SEC has no good reason to deny Ethereum ETF applications given its earlier approval of Bitcoin ETFs. They believe that the SEC can’t fairly distinguish between the approved Bitcoin ETFs and the proposed Ethereum ETFs—the only difference is the underlying asset. However, the specific asset might be the sticking point for the SEC, which could label it a security given the different trading mechanisms it has on its platform from Bitcoin and how certain traders have far greater holdings of ETH than was the case with Bitcoin. How Would a Spot Ethereum ETF Affect the ETH Markets? Spot Ethereum ETFs should increase the liquidity of the ether market by providing more buyers and sellers. More liquidity can lead to more stable prices and less volatility, making ether more attractive to ordinary investors. ETF inflows may also increase the market price of ETH as fund providers will have to buy cryptocurrency in the open market, spiking demand, as occurred with Bitcoin in January 2024. Would Spot Ethereum ETFs Pay Dividends? Unlike spot Bitcoin ETFs, which do not pay dividends, spot Ethereum ETFs might pay dividends from staking. However, this would depend on the specific structure and investment strategy of the ETF and any regulatory restrictions imposed on it.Staking is the holding and “locking up” of a certain amount of ether in a wallet to support the network’s consensus mechanism and earn rewards in the form of newly minted Ethereum. If a spot Ethereum ETF engages in staking, it could generate income from these staking rewards. Can Spot Ethereum ETFs Be Included in Retirement Account Portfolios? Yes. While direct cryptocurrency holdings are not allowed in qualified retirement accounts like individual retirement accounts, ETFs, including spot or futures-based Ethereum ETFs, are permitted. The Bottom Line If approved by regulators, spot Ethereum ETFs would offer investors a means of gaining exposure to the ETH cryptocurrency market through a regulated and accessible fund. By providing accessibility, simplicity, and regulatory oversight, at least of the ETFs themselves, these investments could attract a broader range of investors to the cryptocurrency market. Unlike futures-based Ethereum ETFs, a spot ETF would directly hold ETH tokens and be more cost-effective. However, as with any investment, it is crucial to understand the risks and considerations involved. By carefully evaluating the options available and staying informed about market developments, investors can make well-informed decisions when considering these and other ETFs as part of their investment strategy.
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https://www.investopedia.com/medicaid-roll-purge-pushes-more-people-to-obamacare-8548826
Medicaid Roll Purge Pushes More People to 'Obamacare'
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 enrolled in the Affordable Care Act's subsidized insurance plans than ever before. </li><li>More than 21.3 million people enrolled in Affordable Care Act (ACA) health insurance marketplace plans in 2024, 16% more than the year prior. </li><li>Millions of people were removed from Medicaid rolls this year and many likely received health care through the ACA.</li><li>ACA plans are cheaper for everyone this year since pandemic-era subsidies were extended.</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 than 21.3 million people enrolled in Affordable Care Act (ACA) health insurance marketplace plans for the 2024 open enrollment period, a record high and a 16% surge from 2023, the White House said Wednesday. </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/u7b2Q/2/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Affordable Care Act Enrollment Surges"></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 open enrollment period began in November and ran through Jan. 15, with some states extending it as late as Jan. 31.<br/><br/>Two major factors have increased the appeal of plans under the ACA, informally known as Obamacare, which are privately run health insurance plans subsidized by the federal government.  </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"> First, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/states-kicking-the-most-people-off-medicaid-7866932">millions of people have been removed this year from Medicaid</a> after the expiration of a pandemic-era protection that prevented states that administer the program from removing ineligible beneficiaries. Many of those who lost their Medicaid health coverage can get it through the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/health-insurance-marketplace.asp">ACA marketplace</a> instead.<br/><br/>Second, ACA plans have gotten a lot cheaper since pandemic-era subsidies were extended through 2025 by President Joe Biden’s <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-reduction-act-of-2022-6362263">Inflation Reduction Act</a>. Now, 80% of people who signed up for the ACA found coverage for less than $10 a month, the White House said. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <em>Correction—Feb. 16, 2024: A previous version of this article incorrectly identified the government program that provides healthcare coverage for adults and children with limited income in the headline.</em><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 enrolled in the Affordable Care Act's subsidized insurance plans than ever before. * More than 21.3 million people enrolled in Affordable Care Act (ACA) health insurance marketplace plans in 2024, 16% more than the year prior. * Millions of people were removed from Medicaid rolls this year and many likely received health care through the ACA. * ACA plans are cheaper for everyone this year since pandemic-era subsidies were extended. More than 21.3 million people enrolled in Affordable Care Act (ACA) health insurance marketplace plans for the 2024 open enrollment period, a record high and a 16% surge from 2023, the White House said Wednesday. The open enrollment period began in November and ran through Jan. 15, with some states extending it as late as Jan. 31. Two major factors have increased the appeal of plans under the ACA, informally known as Obamacare, which are privately run health insurance plans subsidized by the federal government.  First, [millions of people have been removed this year from Medicaid](https://www.investopedia.com/states-kicking-the-most-people-off-medicaid-7866932) after the expiration of a pandemic-era protection that prevented states that administer the program from removing ineligible beneficiaries. Many of those who lost their Medicaid health coverage can get it through the [ACA marketplace](https://www.investopedia.com/terms/h/health-insurance-marketplace.asp) instead. Second, ACA plans have gotten a lot cheaper since pandemic-era subsidies were extended through 2025 by President Joe Biden’s [Inflation Reduction Act](https://www.investopedia.com/inflation-reduction-act-of-2022-6362263). Now, 80% of people who signed up for the ACA found coverage for less than $10 a month, the White House said. *Correction—Feb. 16, 2024: A previous version of this article incorrectly identified the government program that provides healthcare coverage for adults and children with limited income in the headline.* Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
Key Takeaways More people enrolled in the Affordable Care Act's subsidized insurance plans than ever before. More than 21.3 million people enrolled in Affordable Care Act (ACA) health insurance marketplace plans in 2024, 16% more than the year prior. Millions of people were removed from Medicaid rolls this year and many likely received health care through the ACA.ACA plans are cheaper for everyone this year since pandemic-era subsidies were extended. More than 21.3 million people enrolled in Affordable Care Act (ACA) health insurance marketplace plans for the 2024 open enrollment period, a record high and a 16% surge from 2023, the White House said Wednesday. The open enrollment period began in November and ran through Jan. 15, with some states extending it as late as Jan. 31.Two major factors have increased the appeal of plans under the ACA, informally known as Obamacare, which are privately run health insurance plans subsidized by the federal government.  First, millions of people have been removed this year from Medicaid after the expiration of a pandemic-era protection that prevented states that administer the program from removing ineligible beneficiaries. Many of those who lost their Medicaid health coverage can get it through the ACA marketplace instead.Second, ACA plans have gotten a lot cheaper since pandemic-era subsidies were extended through 2025 by President Joe Biden’s Inflation Reduction Act. Now, 80% of people who signed up for the ACA found coverage for less than $10 a month, the White House said. Correction—Feb. 16, 2024: A previous version of this article incorrectly identified the government program that provides healthcare coverage for adults and children with limited income in the headline. Do you have a news tip for Investopedia reporters? Please email us at [email protected]
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https://www.investopedia.com/microsoft-to-unbundle-teams-from-office-worldwide-amid-antitrust-concerns-8622828
Microsoft Unbundles Teams From Office Worldwide Amid Antitrust Concerns
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Microsoft is unbundling its collaborative business platform Teams from the rest of its Office suite of products globally.</li><li>The tech giant moved to sell Teams separately in Europe last year to address antitrust concerns, and will now make the change worldwide.</li><li>Companies will be able to alter their subscriptions starting Monday to an Office plan without Teams, or just Teams on its own. </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"> Microsoft (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>) is removing Teams from its Office bundle and will begin selling the collaboration platform separately around the world to address antitrust concerns. </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 products were separated in the European Union (EU) and Switzerland <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-will-split-teams-from-office-to-appease-eu-regulators-7964103">last year to address</a> antitrust investigations which were started over a 2020 complaint from Salesforce's Slack. </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"> "To ensure clarity for our customers, we are extending the steps we took last year to unbundle Teams from M365 and O365 in the European Economic Area and Switzerland to customers globally," a Microsoft spokesperson told Investopedia. </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"> Teams was first added to the Office bundle in 2017, and benefitted from a boom in popularity during the 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"> Starting today, businesses will be able to use their existing package or change to a new configuration as Teams is removed from Office. The price of Office without Teams for new commercial customers ranges from $7.75 to $54.75, with Teams on its own costing $5.25.<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"> Microsoft shares were 0.5% higher at $422.83 as of 2:45 p.m. ET Monday. They've gained 14% year to date and over 47% in the last 12 months. </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—April 1, 2024: This article has been updated to reflect a statement by Microsoft and more recent share price information.</em> </p></div>
### Key Takeaways * Microsoft is unbundling its collaborative business platform Teams from the rest of its Office suite of products globally. * The tech giant moved to sell Teams separately in Europe last year to address antitrust concerns, and will now make the change worldwide. * Companies will be able to alter their subscriptions starting Monday to an Office plan without Teams, or just Teams on its own. Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) is removing Teams from its Office bundle and will begin selling the collaboration platform separately around the world to address antitrust concerns. The products were separated in the European Union (EU) and Switzerland [last year to address](https://www.investopedia.com/microsoft-will-split-teams-from-office-to-appease-eu-regulators-7964103) antitrust investigations which were started over a 2020 complaint from Salesforce's Slack. "To ensure clarity for our customers, we are extending the steps we took last year to unbundle Teams from M365 and O365 in the European Economic Area and Switzerland to customers globally," a Microsoft spokesperson told Investopedia. Teams was first added to the Office bundle in 2017, and benefitted from a boom in popularity during the pandemic. Starting today, businesses will be able to use their existing package or change to a new configuration as Teams is removed from Office. The price of Office without Teams for new commercial customers ranges from $7.75 to $54.75, with Teams on its own costing $5.25. Microsoft shares were 0.5% higher at $422.83 as of 2:45 p.m. ET Monday. They've gained 14% year to date and over 47% in the last 12 months. *UPDATE—April 1, 2024: This article has been updated to reflect a statement by Microsoft and more recent share price information.*
Key Takeaways Microsoft is unbundling its collaborative business platform Teams from the rest of its Office suite of products globally.The tech giant moved to sell Teams separately in Europe last year to address antitrust concerns, and will now make the change worldwide.Companies will be able to alter their subscriptions starting Monday to an Office plan without Teams, or just Teams on its own. Microsoft (MSFT) is removing Teams from its Office bundle and will begin selling the collaboration platform separately around the world to address antitrust concerns. The products were separated in the European Union (EU) and Switzerland last year to address antitrust investigations which were started over a 2020 complaint from Salesforce's Slack. "To ensure clarity for our customers, we are extending the steps we took last year to unbundle Teams from M365 and O365 in the European Economic Area and Switzerland to customers globally," a Microsoft spokesperson told Investopedia. Teams was first added to the Office bundle in 2017, and benefitted from a boom in popularity during the pandemic. Starting today, businesses will be able to use their existing package or change to a new configuration as Teams is removed from Office. The price of Office without Teams for new commercial customers ranges from $7.75 to $54.75, with Teams on its own costing $5.25. Microsoft shares were 0.5% higher at $422.83 as of 2:45 p.m. ET Monday. They've gained 14% year to date and over 47% in the last 12 months. UPDATE—April 1, 2024: This article has been updated to reflect a statement by Microsoft and more recent share price information.
[ [ "MSFT", "https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT" ], [ "last year to address", "https://www.investopedia.com/microsoft-will-split-teams-from-office-to-appease-eu-regulators-7964103" ] ]
https://www.investopedia.com/30-year-mortgage-rates-inch-lower-for-a-third-day-8628138
30-Year Mortgage Rates Inch Lower for a Third Day
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 30-year new purchase mortgage average dipped for a third day Friday, ending the week at 7.22%. The majority of other new purchase <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">mortgage rates</a> were also flat or saw minor movement, though the 15-year average saw a notable climb.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_3-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:76.1%;"> <img alt="Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 8, 2024" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/uMiczCy8WTRfXOdhLppgRYS6TKA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-8-ef4e6a215e7c4cdc92f524a82c474f7f.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/uMiczCy8WTRfXOdhLppgRYS6TKA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-8-ef4e6a215e7c4cdc92f524a82c474f7f.png" data-srcset="https://www.investopedia.com/thmb/VVz_7yJWLns-5PEgFdsYqt9aKqE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-8-ef4e6a215e7c4cdc92f524a82c474f7f.png 750w" data-tracking-container="true" height="1888" id="mntl-sc-block-image_1-0" width="2480"/> <noscript> <img alt="Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 8, 2024" class="img--noscript universal-image__image" height="1888" sizes="750px" src="https://www.investopedia.com/thmb/uMiczCy8WTRfXOdhLppgRYS6TKA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-8-ef4e6a215e7c4cdc92f524a82c474f7f.png" srcset="https://www.investopedia.com/thmb/VVz_7yJWLns-5PEgFdsYqt9aKqE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-8-ef4e6a215e7c4cdc92f524a82c474f7f.png 750w" width="2480"/> </noscript> </div> </div> </figure> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_4-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Mortgage Rates</th> </tr> <tr> <th><b>Loan Type</b></th> <th><b>New Purchase</b></th> <th><b>Refinance</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.22%</td> <td>7.45%</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.08%</td> <td>7.35%</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>6.95%</td> <td>6.95%</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.57%</td> <td>6.82%</td> </tr> <tr> <td>5/6 ARM</td> <td>7.84%</td> <td>7.86%</td> </tr> </tbody> </table> <figcaption>National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Because rates vary widely across lenders, it's always smart to shop around for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">your best mortgage option</a> and compare rates regularly no matter the type of home loan you seek. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--credible-rate-table--mortgage" id="mntl-sc-block_8-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div id="credible-block"></div> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_11-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/mortgage-rates-5094943" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Compare the Best Mortgage Rates Today - May 21, 2024</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-todays-mortgage-rate-averages-new-purchase"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Today's Mortgage Rate Averages: New Purchase </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Rates on 30-year new purchase mortgages gave up another basis point Friday, after inching down 8 points the two previous days. Now down to 7.22%, the average is roughly a tenth of a percentage point above its March low of 7.11%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Rates on 30-year loans remain elevated compared to the start of February, when the 30-year average dipped into high-6% territory. But the average is still considerably below October's historic 23-year peak of 8.45%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_18-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/SoGFm/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="30-Year Mortgage Rates Since June 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> New purchase 15-year mortgages were one of only two loan types that saw a notable increase Friday. Rising 10 basis points, the 15-year average is now 6.57%, which is almost a half percentage point pricier than the seven-month low of 6.10% seen just before the new year. But 15-year loans are still much more affordable than last fall's 7.59% average—a peak since 2000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The jumbo 30-year average meanwhile held steady at 6.95% Friday, after jumping above 7% for a single day mid-week—its first time above that threshold since mid-November. Although daily historical jumbo rates are not available before 2009, it's estimated the 7.52% peak reached last October was the most expensive jumbo 30-year average in more than 20 years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Rates for almost every other new purchase loan type either held steady Friday or moved up just a few basis points. Besides 15-year loans, the only other new purchase average to climb by double-digit basis points was jumbo 15-year rates, which jumped 13 points on average. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_26-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates - New Purchase</th> </tr> <tr> <th>Loan Type</th> <th><b>New Purchase Rates</b></th> <th><b>Daily Change</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.22%</td> <td>-0.01</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.08%</td> <td>+0.05</td> </tr> <tr> <td>VA 30-Year Fixed</td> <td>6.81%</td> <td>+0.03</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>6.95%</td> <td>No Change</td> </tr> <tr> <td>20-Year Fixed</td> <td>7.01%</td> <td>+0.01</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.57%</td> <td>+0.10</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>6.83%</td> <td>+0.03</td> </tr> <tr> <td>Jumbo 15-Year Fixed</td> <td>6.91%</td> <td>+0.13</td> </tr> <tr> <td>10-Year Fixed</td> <td>6.43%</td> <td>+0.03</td> </tr> <tr> <td>10/6 ARM</td> <td>7.68%</td> <td>+0.03</td> </tr> <tr> <td>7/6 ARM</td> <td>7.68%</td> <td>+0.01</td> </tr> <tr> <td>Jumbo 7/6 ARM</td> <td>6.58%</td> <td>No Change</td> </tr> <tr> <td>5/6 ARM</td> <td>7.84%</td> <td>+0.04</td> </tr> <tr> <td>Jumbo 5/6 ARM</td> <td>6.68%</td> <td>No Change</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_28-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/oxK33/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="90-Day Ranges of Best Mortgage Rates"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-the-weekly-freddie-mac-average"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> The Weekly Freddie Mac Average </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates. Last week's reading inched up 3 basis points to 6.82%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its highest level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a <em>weekly</em> average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountpoints.asp">discount points</a>, while Investopedia’s averages only include zero-point loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-todays-mortgage-rate-averages-refinancing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> Today's Mortgage Rate Averages: Refinancing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Refinancing rates were a bit more mixed Friday than their new purchase siblings. The 30-year refi average dipped mostly in line with its counterpart, shedding 2 basis points and leaving the spread between 30-year new purchase and refi rates at a narrow 23 basis points. But the VA and FHA 30-year refi averages saw notable drops, declining 24 and 15 basis points, respectively. </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"> Friday's 15-year refi average meanwhile added back the 6 basis points it lost the day before, while jumbo 30-year refi rates held firm. The other refi average to show more than minor movement was jumbo 15-year loans, whose refi average climbed 13 basis points Friday. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_40-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style="width: 155px;"></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates - Refinance</th> </tr> <tr> <th>Loan Type</th> <th><b>Refinance Rates</b></th> <th>Daily Change</th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.45%</td> <td>-0.02</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.35%</td> <td>-0.15</td> </tr> <tr> <td>VA 30-Year Fixed</td> <td>7.14%</td> <td>-0.24</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>6.95%</td> <td>No Change</td> </tr> <tr> <td>20-Year Fixed</td> <td>7.34%</td> <td>-0.01</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.82%</td> <td>+0.06</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>7.00%</td> <td>+0.03</td> </tr> <tr> <td>Jumbo 15-Year Fixed</td> <td>6.91%</td> <td>+0.13</td> </tr> <tr> <td>10-Year Fixed</td> <td>6.72%</td> <td>+0.06</td> </tr> <tr> <td>10/6 ARM</td> <td>7.82%</td> <td>+0.02</td> </tr> <tr> <td>7/6 ARM</td> <td>7.88%</td> <td>+0.05</td> </tr> <tr> <td>Jumbo 7/6 ARM</td> <td>6.68%</td> <td>No Change</td> </tr> <tr> <td>5/6 ARM</td> <td>7.86%</td> <td>+0.01</td> </tr> <tr> <td>Jumbo 5/6 ARM</td> <td>6.68%</td> <td>No Change</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Calculate monthly payments for different loan scenarios with our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-calculator-5084794">Mortgage Calculator</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_44-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_45-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or may be based on a hypothetical borrower with an ultra-high credit score or for a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it can vary from the averages you see here.</p></div></div></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--mortgage-loan-calculator" id="mntl-sc-block_46-0"><div class="comp mortgage-loan-calculator mntl-block" data-defer="load" id="mortgage-loan-calculator_1-0"></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-mortgage-rates-by-state"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-heading__text"> Mortgage Rates by State </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> The states with the cheapest 30-year new purchase rates Tuesday were Mississippi, Vermont, Louisiana, Rhode Island, Hawaii, Iowa, and New York, while the states with the highest average rates were Minnesota, Arizona, Idaho, Maryland, Nevada, Oregon, and Washington. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_53-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/GJZIA/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Mortgage Rates by State"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <span class="heading-toc" id="toc-what-causes-mortgage-rates-to-rise-or-fall"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_55-0"> <span class="mntl-sc-block-heading__text"> What Causes Mortgage Rates to Rise or Fall? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> <li>The level and direction of the bond market, especially 10-year Treasury yields</li> <li>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve's</a> current monetary policy, especially as it relates to bond buying and funding government-backed mortgages</li> <li>Competition between <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-mortgage-lenders-5076852">mortgage lenders and across loan types</a></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/060115/how-do-open-market-operations-omos-affect-bond-prices.asp">bond-buying policy</a> is a major influencer of mortgage rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Between that time and July 2023, the Fed aggressively raised the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> The Fed has been maintaining the federal funds rate at its current level since July, with a fifth consecutive rate hold announced on March 20.<span class="ql-inline-citation" data-cite="5"></span> Although inflation has come down considerably, it is still above the Fed's target level of 2%. Until the central bank feels confident inflation is falling sufficiently and reliably, it has said it is hesitant to start cutting rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> Still, Fed committee members do collectively expect to reduce rates in 2024. The March 20 meeting included the latest installment of the Fed's "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dot-plot-4581755">dot plot</a>" forecast, which showed that the median expectation among the 19 Fed members is for three rate decreases—totaling 0.75 percentage points—by year's end. The dot plot also shows similar expected rate cuts in 2025 and 2026.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> The Fed will hold six more meetings this year, with the next scheduled for April 30 to May 1.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <span class="heading-toc" id="toc-how-we-track-mortgage-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_76-0"> <span class="mntl-sc-block-heading__text"> How We Track Mortgage Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loantovalue.asp">loan-to-value ratio (LTV)</a> of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760. </p></div>
The 30-year new purchase mortgage average dipped for a third day Friday, ending the week at 7.22%. The majority of other new purchase [mortgage rates](https://www.investopedia.com/mortgage-rates-5094943) were also flat or saw minor movement, though the 15-year average saw a notable climb. ![Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 8, 2024]() ![Line graph showing the last 90 days of the 30-year new purchase mortgage rate average - April 8, 2024](https://www.investopedia.com/thmb/uMiczCy8WTRfXOdhLppgRYS6TKA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-8-ef4e6a215e7c4cdc92f524a82c474f7f.png) | National Averages of Lenders' Best Mortgage Rates | | | | --- | --- | --- | | **Loan Type** | **New Purchase** | **Refinance** | | 30-Year Fixed | 7.22% | 7.45% | | FHA 30-Year Fixed | 7.08% | 7.35% | | Jumbo 30-Year Fixed | 6.95% | 6.95% | | 15-Year Fixed | 6.57% | 6.82% | | 5/6 ARM | 7.84% | 7.86% | National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points. Because rates vary widely across lenders, it's always smart to shop around for [your best mortgage option](https://www.investopedia.com/mortgage-rates-5094943) and compare rates regularly no matter the type of home loan you seek. [Compare the Best Mortgage Rates Today - May 21, 2024](https://www.investopedia.com/mortgage-rates-5094943) ## Today's Mortgage Rate Averages: New Purchase Rates on 30-year new purchase mortgages gave up another basis point Friday, after inching down 8 points the two previous days. Now down to 7.22%, the average is roughly a tenth of a percentage point above its March low of 7.11%. Rates on 30-year loans remain elevated compared to the start of February, when the 30-year average dipped into high-6% territory. But the average is still considerably below October's historic 23-year peak of 8.45%. New purchase 15-year mortgages were one of only two loan types that saw a notable increase Friday. Rising 10 basis points, the 15-year average is now 6.57%, which is almost a half percentage point pricier than the seven-month low of 6.10% seen just before the new year. But 15-year loans are still much more affordable than last fall's 7.59% average—a peak since 2000. The jumbo 30-year average meanwhile held steady at 6.95% Friday, after jumping above 7% for a single day mid-week—its first time above that threshold since mid-November. Although daily historical jumbo rates are not available before 2009, it's estimated the 7.52% peak reached last October was the most expensive jumbo 30-year average in more than 20 years. Rates for almost every other new purchase loan type either held steady Friday or moved up just a few basis points. Besides 15-year loans, the only other new purchase average to climb by double-digit basis points was jumbo 15-year rates, which jumped 13 points on average. | National Averages of Lenders' Best Rates - New Purchase | | | | --- | --- | --- | | Loan Type | **New Purchase Rates** | **Daily Change** | | 30-Year Fixed | 7.22% | -0.01 | | FHA 30-Year Fixed | 7.08% | +0.05 | | VA 30-Year Fixed | 6.81% | +0.03 | | Jumbo 30-Year Fixed | 6.95% | No Change | | 20-Year Fixed | 7.01% | +0.01 | | 15-Year Fixed | 6.57% | +0.10 | | FHA 15-Year Fixed | 6.83% | +0.03 | | Jumbo 15-Year Fixed | 6.91% | +0.13 | | 10-Year Fixed | 6.43% | +0.03 | | 10/6 ARM | 7.68% | +0.03 | | 7/6 ARM | 7.68% | +0.01 | | Jumbo 7/6 ARM | 6.58% | No Change | | 5/6 ARM | 7.84% | +0.04 | | Jumbo 5/6 ARM | 6.68% | No Change | ## The Weekly Freddie Mac Average Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates. Last week's reading inched up 3 basis points to 6.82%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its highest level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January. Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a *weekly* average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with [discount points](https://www.investopedia.com/terms/d/discountpoints.asp), while Investopedia’s averages only include zero-point loans. ## Today's Mortgage Rate Averages: Refinancing Refinancing rates were a bit more mixed Friday than their new purchase siblings. The 30-year refi average dipped mostly in line with its counterpart, shedding 2 basis points and leaving the spread between 30-year new purchase and refi rates at a narrow 23 basis points. But the VA and FHA 30-year refi averages saw notable drops, declining 24 and 15 basis points, respectively. Friday's 15-year refi average meanwhile added back the 6 basis points it lost the day before, while jumbo 30-year refi rates held firm. The other refi average to show more than minor movement was jumbo 15-year loans, whose refi average climbed 13 basis points Friday. | National Averages of Lenders' Best Rates - Refinance | | | | --- | --- | --- | | Loan Type | **Refinance Rates** | Daily Change | | 30-Year Fixed | 7.45% | -0.02 | | FHA 30-Year Fixed | 7.35% | -0.15 | | VA 30-Year Fixed | 7.14% | -0.24 | | Jumbo 30-Year Fixed | 6.95% | No Change | | 20-Year Fixed | 7.34% | -0.01 | | 15-Year Fixed | 6.82% | +0.06 | | FHA 15-Year Fixed | 7.00% | +0.03 | | Jumbo 15-Year Fixed | 6.91% | +0.13 | | 10-Year Fixed | 6.72% | +0.06 | | 10/6 ARM | 7.82% | +0.02 | | 7/6 ARM | 7.88% | +0.05 | | Jumbo 7/6 ARM | 6.68% | No Change | | 5/6 ARM | 7.86% | +0.01 | | Jumbo 5/6 ARM | 6.68% | No Change | Calculate monthly payments for different loan scenarios with our [Mortgage Calculator](https://www.investopedia.com/mortgage-calculator-5084794). ### The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or may be based on a hypothetical borrower with an ultra-high credit score or for a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it can vary from the averages you see here. ## Mortgage Rates by State The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. The states with the cheapest 30-year new purchase rates Tuesday were Mississippi, Vermont, Louisiana, Rhode Island, Hawaii, Iowa, and New York, while the states with the highest average rates were Minnesota, Arizona, Idaho, Maryland, Nevada, Oregon, and Washington. ## What Causes Mortgage Rates to Rise or Fall? Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: * The level and direction of the bond market, especially 10-year Treasury yields * The [Federal Reserve's](https://www.investopedia.com/terms/f/federalreservebank.asp) current monetary policy, especially as it relates to bond buying and funding government-backed mortgages * Competition between [mortgage lenders and across loan types](https://www.investopedia.com/best-mortgage-lenders-5076852) Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This [bond-buying policy](https://www.investopedia.com/ask/answers/060115/how-do-open-market-operations-omos-affect-bond-prices.asp) is a major influencer of mortgage rates. But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022. Between that time and July 2023, the Fed aggressively raised the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. The Fed has been maintaining the federal funds rate at its current level since July, with a fifth consecutive rate hold announced on March 20. Although inflation has come down considerably, it is still above the Fed's target level of 2%. Until the central bank feels confident inflation is falling sufficiently and reliably, it has said it is hesitant to start cutting rates. Still, Fed committee members do collectively expect to reduce rates in 2024. The March 20 meeting included the latest installment of the Fed's "[dot plot](https://www.investopedia.com/dot-plot-4581755)" forecast, which showed that the median expectation among the 19 Fed members is for three rate decreases—totaling 0.75 percentage points—by year's end. The dot plot also shows similar expected rate cuts in 2025 and 2026. The Fed will hold six more meetings this year, with the next scheduled for April 30 to May 1. ## How We Track Mortgage Rates The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a [loan-to-value ratio (LTV)](https://www.investopedia.com/terms/l/loantovalue.asp) of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760.
The 30-year new purchase mortgage average dipped for a third day Friday, ending the week at 7.22%. The majority of other new purchase mortgage rates were also flat or saw minor movement, though the 15-year average saw a notable climb. National Averages of Lenders' Best Mortgage Rates Loan Type New Purchase Refinance 30-Year Fixed 7.22% 7.45% FHA 30-Year Fixed 7.08% 7.35% Jumbo 30-Year Fixed 6.95% 6.95% 15-Year Fixed 6.57% 6.82% 5/6 ARM 7.84% 7.86% National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points. Because rates vary widely across lenders, it's always smart to shop around for your best mortgage option and compare rates regularly no matter the type of home loan you seek. Compare the Best Mortgage Rates Today - May 21, 2024 Today's Mortgage Rate Averages: New Purchase Rates on 30-year new purchase mortgages gave up another basis point Friday, after inching down 8 points the two previous days. Now down to 7.22%, the average is roughly a tenth of a percentage point above its March low of 7.11%. Rates on 30-year loans remain elevated compared to the start of February, when the 30-year average dipped into high-6% territory. But the average is still considerably below October's historic 23-year peak of 8.45%. New purchase 15-year mortgages were one of only two loan types that saw a notable increase Friday. Rising 10 basis points, the 15-year average is now 6.57%, which is almost a half percentage point pricier than the seven-month low of 6.10% seen just before the new year. But 15-year loans are still much more affordable than last fall's 7.59% average—a peak since 2000. The jumbo 30-year average meanwhile held steady at 6.95% Friday, after jumping above 7% for a single day mid-week—its first time above that threshold since mid-November. Although daily historical jumbo rates are not available before 2009, it's estimated the 7.52% peak reached last October was the most expensive jumbo 30-year average in more than 20 years. Rates for almost every other new purchase loan type either held steady Friday or moved up just a few basis points. Besides 15-year loans, the only other new purchase average to climb by double-digit basis points was jumbo 15-year rates, which jumped 13 points on average. National Averages of Lenders' Best Rates - New Purchase Loan Type New Purchase Rates Daily Change 30-Year Fixed 7.22% -0.01 FHA 30-Year Fixed 7.08% +0.05 VA 30-Year Fixed 6.81% +0.03 Jumbo 30-Year Fixed 6.95% No Change 20-Year Fixed 7.01% +0.01 15-Year Fixed 6.57% +0.10 FHA 15-Year Fixed 6.83% +0.03 Jumbo 15-Year Fixed 6.91% +0.13 10-Year Fixed 6.43% +0.03 10/6 ARM 7.68% +0.03 7/6 ARM 7.68% +0.01 Jumbo 7/6 ARM 6.58% No Change 5/6 ARM 7.84% +0.04 Jumbo 5/6 ARM 6.68% No Change The Weekly Freddie Mac Average Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates. Last week's reading inched up 3 basis points to 6.82%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its highest level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January. Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a weekly average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with discount points, while Investopedia’s averages only include zero-point loans. Today's Mortgage Rate Averages: Refinancing Refinancing rates were a bit more mixed Friday than their new purchase siblings. The 30-year refi average dipped mostly in line with its counterpart, shedding 2 basis points and leaving the spread between 30-year new purchase and refi rates at a narrow 23 basis points. But the VA and FHA 30-year refi averages saw notable drops, declining 24 and 15 basis points, respectively. Friday's 15-year refi average meanwhile added back the 6 basis points it lost the day before, while jumbo 30-year refi rates held firm. The other refi average to show more than minor movement was jumbo 15-year loans, whose refi average climbed 13 basis points Friday. National Averages of Lenders' Best Rates - Refinance Loan Type Refinance Rates Daily Change 30-Year Fixed 7.45% -0.02 FHA 30-Year Fixed 7.35% -0.15 VA 30-Year Fixed 7.14% -0.24 Jumbo 30-Year Fixed 6.95% No Change 20-Year Fixed 7.34% -0.01 15-Year Fixed 6.82% +0.06 FHA 15-Year Fixed 7.00% +0.03 Jumbo 15-Year Fixed 6.91% +0.13 10-Year Fixed 6.72% +0.06 10/6 ARM 7.82% +0.02 7/6 ARM 7.88% +0.05 Jumbo 7/6 ARM 6.68% No Change 5/6 ARM 7.86% +0.01 Jumbo 5/6 ARM 6.68% No Change Calculate monthly payments for different loan scenarios with our Mortgage Calculator. The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or may be based on a hypothetical borrower with an ultra-high credit score or for a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it can vary from the averages you see here. Mortgage Rates by State The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. The states with the cheapest 30-year new purchase rates Tuesday were Mississippi, Vermont, Louisiana, Rhode Island, Hawaii, Iowa, and New York, while the states with the highest average rates were Minnesota, Arizona, Idaho, Maryland, Nevada, Oregon, and Washington. What Causes Mortgage Rates to Rise or Fall? Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: The level and direction of the bond market, especially 10-year Treasury yields The Federal Reserve's current monetary policy, especially as it relates to bond buying and funding government-backed mortgages Competition between mortgage lenders and across loan types Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This bond-buying policy is a major influencer of mortgage rates. But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022. Between that time and July 2023, the Fed aggressively raised the federal funds rate to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. The Fed has been maintaining the federal funds rate at its current level since July, with a fifth consecutive rate hold announced on March 20. Although inflation has come down considerably, it is still above the Fed's target level of 2%. Until the central bank feels confident inflation is falling sufficiently and reliably, it has said it is hesitant to start cutting rates. Still, Fed committee members do collectively expect to reduce rates in 2024. The March 20 meeting included the latest installment of the Fed's "dot plot" forecast, which showed that the median expectation among the 19 Fed members is for three rate decreases—totaling 0.75 percentage points—by year's end. The dot plot also shows similar expected rate cuts in 2025 and 2026. The Fed will hold six more meetings this year, with the next scheduled for April 30 to May 1. How We Track Mortgage Rates The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a loan-to-value ratio (LTV) of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760.
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https://www.investopedia.com/terms/b/bank-bill-swap-rate-bbsw.asp
Bank Bill Swap Rate (BBSR) Meaning, Calculation, Example
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-bank-bill-swap-rate-bbsw"></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 Bank Bill Swap Rate (BBSW)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Bank Bill Swap Rate (BBSW), or Bank Bill Swap Reference Rate, is a short-term interest rate used as a benchmark for the pricing of Australian dollar derivatives and securities—most notably, floating rate bonds. </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 Bank Bill Swap Rate (BBSW) is a short-term interest rate used as a benchmark for the pricing of Australian dollar derivatives and securities, most notably floating rate bonds.</li><li>The BBSW is an independent reference rate that's used for pricing securities. Fixed income investors use BBSW since it's the benchmark to price floating rate bonds and other securities.</li><li>There is a risk premium added to the BBSW to compensate for the risk of the securities, as compared with the risk-free rate, which is typically based on government bonds. </li></ul></div></div></div> <span class="heading-toc" id="toc-what-does-the-bbsw-tell-you"></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 the BBSW Tell You? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The BBSW is an independent reference rate that's used for pricing securities. Fixed income investors use BBSW since it's the benchmark to price floating rate bonds and other securities. The BBSW is an average of the bank bill rates supplied by banks for various maturities. In other words, it's the midpoint rate for various bank-eligible securities and is the rate that banks lend to each other in Australia. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-how-is-the-bbsw-calculated"></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 Is the BBSW Calculated? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The BBSW is calculated and published by the Australian Securities Exchange (ASX), which maintains this rate. The bank bill swap rate is Australia's equivalent of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/libor.asp" rel="noopener noreferrer">London Interbank Offered Rate</a> (LIBOR) and is used as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/referencerate.asp" rel="noopener noreferrer">reference rate</a> in much the same way on an institutional level. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> For review, LIBOR is an average value of interest-rates, which is calculated from estimates submitted by the leading global banks on a daily basis. It serves as the first step in calculating interest rates on various loans throughout the world. </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 Intercontinental Exchange, the authority responsible for LIBOR, will stop publishing one-week and two-month USD LIBOR after Dec. 31, 2021. All other LIBOR will be discontinued after June 30, 2023.<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_16-0"> For instance, a variable floating rate may quote 100 basis points over LIBOR, whereas in Australia, they may use 100 basis points over the BBSW. As stated earlier, the BBSW is an average of the bank bill rates supplied by banks for various maturities. </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"> According to the ASX, the BBSW is not as directly linked to the mortgage or other retail lending indexes as is the LIBOR and other similar benchmarks. Its impact in these areas is thus minimal and limited to its general effects on interest rate levels. </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"> Risk Premium </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> There is a risk premium added to the BBSW to compensate for the risk of the securities as compared to the risk-free rate, which is typically based on government bonds. For example, in the U.S., the risk-free rate is typically the U.S. Treasury since it's backed by the U.S. government. </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 credit premium added to the BBSW is typically small, such as five to ten basis points. However, it has exceeded over 300 basis points during the financial crisis of 2008 and the months following. </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"> Prime Banks and Prime Bank Eligible Securities </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> A prime bank is one of several approved financial institutions and includes Australia's four largest banks. The ASX reviews the members of this group annually. Membership requirements, as listed on the ASX, include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <li>Being an authorized deposit-taking institution (ADI) as defined by the Australian Prudential Regulation Authority (APRA)</li><li>Satisfying a credit rating benchmark, specifically Standard &amp; Poor’s short-term rating of A1+ and long-term rating for the senior unsecured debt of at least AA</li><li>Having securities eligible for use by the Reserve Bank of Australia (RBA) in open market operations and standing liquidity facilities</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-example-of-the-bank-bill-swap-rate-bbsw"></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"> Example of the Bank Bill Swap Rate (BBSW) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Let's say that interest rates for bank bills was 4% for the first six months of the year while rates jumped to 5% and remained at 5% for the second half of the year. The average for the year would be 4.5% plus any risk premium. If the risk premium was 15 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/basispoint.asp" rel="noopener noreferrer">basis points</a>, the BBSW would be 4.65%, including the average of bank bill rates and with the risk premium added. </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"> Of course, in reality, there are more than two interest rates to average out in calculating the BBSW, but it's typically considered a midpoint of all of those rates. </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-the-difference-between-sibor-and-bbsw"></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 Difference Between SIBOR and BBSW </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/s/sibor.asp" rel="noopener noreferrer">Singapore Interbank Offered Rate</a>, known by its abbreviation SIBOR, is the benchmark interest rate, stated in Singapore dollars, for lending between banks within the Asian market. The SIBOR is a reference rate for lenders and borrowers that participate directly or indirectly in the Asian economy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The terms of the loans vary from overnight to one year. Notably, the U.K. version, LIBOR, is similar to the SIBOR while the BBSW is the Australian version of LIBOR and SIBOR. </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-limitations-of-using-the-bbsw"></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"> Limitations of Using the BBSW </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> As with any reference rate, the BBSW might not truly reflect the credit risk that exists in the market. Financial benchmarks did not predict the financial crisis of 2008 and the Great Recession that followed. As a result, the risk premium may not always reflect the total market risk and may act as a lagging indicator. </p></div>
## What Is the Bank Bill Swap Rate (BBSW)? The Bank Bill Swap Rate (BBSW), or Bank Bill Swap Reference Rate, is a short-term interest rate used as a benchmark for the pricing of Australian dollar derivatives and securities—most notably, floating rate bonds. ### Key Takeaways * The Bank Bill Swap Rate (BBSW) is a short-term interest rate used as a benchmark for the pricing of Australian dollar derivatives and securities, most notably floating rate bonds. * The BBSW is an independent reference rate that's used for pricing securities. Fixed income investors use BBSW since it's the benchmark to price floating rate bonds and other securities. * There is a risk premium added to the BBSW to compensate for the risk of the securities, as compared with the risk-free rate, which is typically based on government bonds. ## What Does the BBSW Tell You? The BBSW is an independent reference rate that's used for pricing securities. Fixed income investors use BBSW since it's the benchmark to price floating rate bonds and other securities. The BBSW is an average of the bank bill rates supplied by banks for various maturities. In other words, it's the midpoint rate for various bank-eligible securities and is the rate that banks lend to each other in Australia. ## How Is the BBSW Calculated? The BBSW is calculated and published by the Australian Securities Exchange (ASX), which maintains this rate. The bank bill swap rate is Australia's equivalent of [London Interbank Offered Rate](https://www.investopedia.com/terms/l/libor.asp) (LIBOR) and is used as a [reference rate](https://www.investopedia.com/terms/r/referencerate.asp) in much the same way on an institutional level. For review, LIBOR is an average value of interest-rates, which is calculated from estimates submitted by the leading global banks on a daily basis. It serves as the first step in calculating interest rates on various loans throughout the world. ### The Intercontinental Exchange, the authority responsible for LIBOR, will stop publishing one-week and two-month USD LIBOR after Dec. 31, 2021. All other LIBOR will be discontinued after June 30, 2023. For instance, a variable floating rate may quote 100 basis points over LIBOR, whereas in Australia, they may use 100 basis points over the BBSW. As stated earlier, the BBSW is an average of the bank bill rates supplied by banks for various maturities. According to the ASX, the BBSW is not as directly linked to the mortgage or other retail lending indexes as is the LIBOR and other similar benchmarks. Its impact in these areas is thus minimal and limited to its general effects on interest rate levels. ### Risk Premium There is a risk premium added to the BBSW to compensate for the risk of the securities as compared to the risk-free rate, which is typically based on government bonds. For example, in the U.S., the risk-free rate is typically the U.S. Treasury since it's backed by the U.S. government. The credit premium added to the BBSW is typically small, such as five to ten basis points. However, it has exceeded over 300 basis points during the financial crisis of 2008 and the months following. ### Prime Banks and Prime Bank Eligible Securities A prime bank is one of several approved financial institutions and includes Australia's four largest banks. The ASX reviews the members of this group annually. Membership requirements, as listed on the ASX, include: * Being an authorized deposit-taking institution (ADI) as defined by the Australian Prudential Regulation Authority (APRA) * Satisfying a credit rating benchmark, specifically Standard & Poor’s short-term rating of A1+ and long-term rating for the senior unsecured debt of at least AA * Having securities eligible for use by the Reserve Bank of Australia (RBA) in open market operations and standing liquidity facilities ## Example of the Bank Bill Swap Rate (BBSW) Let's say that interest rates for bank bills was 4% for the first six months of the year while rates jumped to 5% and remained at 5% for the second half of the year. The average for the year would be 4.5% plus any risk premium. If the risk premium was 15 [basis points](https://www.investopedia.com/terms/b/basispoint.asp), the BBSW would be 4.65%, including the average of bank bill rates and with the risk premium added. Of course, in reality, there are more than two interest rates to average out in calculating the BBSW, but it's typically considered a midpoint of all of those rates. ## The Difference Between SIBOR and BBSW The [Singapore Interbank Offered Rate](https://www.investopedia.com/terms/s/sibor.asp), known by its abbreviation SIBOR, is the benchmark interest rate, stated in Singapore dollars, for lending between banks within the Asian market. The SIBOR is a reference rate for lenders and borrowers that participate directly or indirectly in the Asian economy. The terms of the loans vary from overnight to one year. Notably, the U.K. version, LIBOR, is similar to the SIBOR while the BBSW is the Australian version of LIBOR and SIBOR. ## Limitations of Using the BBSW As with any reference rate, the BBSW might not truly reflect the credit risk that exists in the market. Financial benchmarks did not predict the financial crisis of 2008 and the Great Recession that followed. As a result, the risk premium may not always reflect the total market risk and may act as a lagging indicator.
What Is the Bank Bill Swap Rate (BBSW)? The Bank Bill Swap Rate (BBSW), or Bank Bill Swap Reference Rate, is a short-term interest rate used as a benchmark for the pricing of Australian dollar derivatives and securities—most notably, floating rate bonds. Key Takeaways The Bank Bill Swap Rate (BBSW) is a short-term interest rate used as a benchmark for the pricing of Australian dollar derivatives and securities, most notably floating rate bonds.The BBSW is an independent reference rate that's used for pricing securities. Fixed income investors use BBSW since it's the benchmark to price floating rate bonds and other securities.There is a risk premium added to the BBSW to compensate for the risk of the securities, as compared with the risk-free rate, which is typically based on government bonds. What Does the BBSW Tell You? The BBSW is an independent reference rate that's used for pricing securities. Fixed income investors use BBSW since it's the benchmark to price floating rate bonds and other securities. The BBSW is an average of the bank bill rates supplied by banks for various maturities. In other words, it's the midpoint rate for various bank-eligible securities and is the rate that banks lend to each other in Australia. How Is the BBSW Calculated? The BBSW is calculated and published by the Australian Securities Exchange (ASX), which maintains this rate. The bank bill swap rate is Australia's equivalent of London Interbank Offered Rate (LIBOR) and is used as a reference rate in much the same way on an institutional level. For review, LIBOR is an average value of interest-rates, which is calculated from estimates submitted by the leading global banks on a daily basis. It serves as the first step in calculating interest rates on various loans throughout the world. The Intercontinental Exchange, the authority responsible for LIBOR, will stop publishing one-week and two-month USD LIBOR after Dec. 31, 2021. All other LIBOR will be discontinued after June 30, 2023. For instance, a variable floating rate may quote 100 basis points over LIBOR, whereas in Australia, they may use 100 basis points over the BBSW. As stated earlier, the BBSW is an average of the bank bill rates supplied by banks for various maturities. According to the ASX, the BBSW is not as directly linked to the mortgage or other retail lending indexes as is the LIBOR and other similar benchmarks. Its impact in these areas is thus minimal and limited to its general effects on interest rate levels. Risk Premium There is a risk premium added to the BBSW to compensate for the risk of the securities as compared to the risk-free rate, which is typically based on government bonds. For example, in the U.S., the risk-free rate is typically the U.S. Treasury since it's backed by the U.S. government. The credit premium added to the BBSW is typically small, such as five to ten basis points. However, it has exceeded over 300 basis points during the financial crisis of 2008 and the months following. Prime Banks and Prime Bank Eligible Securities A prime bank is one of several approved financial institutions and includes Australia's four largest banks. The ASX reviews the members of this group annually. Membership requirements, as listed on the ASX, include: Being an authorized deposit-taking institution (ADI) as defined by the Australian Prudential Regulation Authority (APRA)Satisfying a credit rating benchmark, specifically Standard & Poor’s short-term rating of A1+ and long-term rating for the senior unsecured debt of at least AAHaving securities eligible for use by the Reserve Bank of Australia (RBA) in open market operations and standing liquidity facilities Example of the Bank Bill Swap Rate (BBSW) Let's say that interest rates for bank bills was 4% for the first six months of the year while rates jumped to 5% and remained at 5% for the second half of the year. The average for the year would be 4.5% plus any risk premium. If the risk premium was 15 basis points, the BBSW would be 4.65%, including the average of bank bill rates and with the risk premium added. Of course, in reality, there are more than two interest rates to average out in calculating the BBSW, but it's typically considered a midpoint of all of those rates. The Difference Between SIBOR and BBSW The Singapore Interbank Offered Rate, known by its abbreviation SIBOR, is the benchmark interest rate, stated in Singapore dollars, for lending between banks within the Asian market. The SIBOR is a reference rate for lenders and borrowers that participate directly or indirectly in the Asian economy. The terms of the loans vary from overnight to one year. Notably, the U.K. version, LIBOR, is similar to the SIBOR while the BBSW is the Australian version of LIBOR and SIBOR. Limitations of Using the BBSW As with any reference rate, the BBSW might not truly reflect the credit risk that exists in the market. Financial benchmarks did not predict the financial crisis of 2008 and the Great Recession that followed. As a result, the risk premium may not always reflect the total market risk and may act as a lagging indicator.
[ [ "London Interbank Offered Rate", "https://www.investopedia.com/terms/l/libor.asp" ], [ "reference rate", "https://www.investopedia.com/terms/r/referencerate.asp" ], [ "basis points", "https://www.investopedia.com/terms/b/basispoint.asp" ], [ "Singapore Interbank Offered Rate", "https://www.investopedia.com/terms/s/sibor.asp" ] ]
https://www.investopedia.com/articles/insurance/09/involuntary-unemployment-credit-card-insurance.asp
Involuntary Unemployment Credit Card Insurance: Is It Worth It?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-involuntary-unemployment-credit-card-iucc-insurance-"></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 Involuntary Unemployment Credit Card (IUCC) Insurance ? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Involuntary unemployment credit card (IUCC) insurance promises to make payments on your <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> if you are out of work. While that can seem like a great idea, it also comes at a cost. This article explains how it works and offers some possible alternatives. </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>Involuntary unemployment credit card (IUCC) insurance promises to cover your minimum monthly credit card payment if you are laid off from work.</li><li>It doesn't apply if you quit your job or are self-employed.</li><li>IUCC insurance often costs about 1% of your total credit card balance per month.</li><li>These policies are sold by credit card companies to their customers but underwritten by third-party insurance companies.</li><li>IUCC is not as common in the U.S. as it once was, having been displaced by newer debt protection or payment protection plans.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-involuntary-unemployment-credit-card-iucc-insurance-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 Involuntary Unemployment Credit Card (IUCC) Insurance Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Involuntary unemployment credit card (IUCC) insurance is typically offered by credit card companies to their cardholders but underwritten by third-party insurance companies. It promises to cover the minimum monthly payment on your card for a certain period of time and/or up to a certain dollar amount if you lose your job through no fault of your own but not if you quit or if you are self-employed. The cost varies from company to company but is often about 1% of your outstanding balance each month. You must purchase it while you are still employed, and there may be a waiting period before benefits begin. </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"> IUCC insurance is often packaged and sold with other forms of credit insurance, such as as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_life_insurance.asp">credit life</a> and credit disability coverage. While still available in Canada and elsewhere, it has largely been eclipsed in the United States by so-called debt protection or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payment-protection-plan.asp">payment protection plans</a> sold directly by credit card issuers without the involvement of third-party insurers. According to a 2011 report from the U.S. Government Accountability Office, "Ten years ago, the largest credit card issuers rarely offered debt protection products and instead offered credit insurance, but today most issuers sell primarily debt protection products and rarely offer credit insurance to new customers."<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"> If your credit card issuer still offers involuntary unemployment credit card insurance, whether it might make sense for you depends on a number of factors. Many of them apply to payment protection plans, as well. Among them: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> <li>How likely you are to be laid off—and how soon</li><li>How long you are likely to be out of work if you are laid off</li><li>How large a credit card balance you are currently carrying</li><li>What the insurance costs per month</li><li>Whether you have other financial resources you could draw on to make your credit card payments until you start getting a regular paycheck again</li> </ol> <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"> Let's say you have an outstanding balance of $5,000 on your credit card and your required minimum monthly payment is 3% of the balance, or $150. Your credit card company offers you IUCC insurance for a premium equal to 1% of your balance each month, or $50. Counting the insurance premium, you will have to pay at least $200 per month on your card until such time as you are laid off (if that ever happens). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> If the layoff doesn't occur for six months, you'd pay a total of $300 ($50 x 6) for the insurance coverage. Had you saved that $300 instead, you could have used it to pay the next two months' worth of minimum payments, which might cover you until you're back at work again. </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-alternatives-to-iucc-insurance"></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"> Alternatives to IUCC Insurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Buying insurance isn't the only way to cover your credit card payments. Here are some alternatives, all of which also apply to the newer and more widely available payment protection plans that card issuers now offer. </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>Build 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.</li> <li>Try to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-pay-off-credit-card-debt-5070047">pay down your credit cards</a>, ideally paying your balance in full each month so you don't incur interest charges.</li> <li>Think about expenses you could do away with if you no longer had a job.</li> <li>If you believe there's any chance that your job is in jeopardy, start looking and putting out feelers now. Don't wait for the boss to show up at your door with a grim look on their face.</li> </ul> <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-happens-if-you-dont-make-your-minimum-monthly-credit-card-payment"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Happens if You Don't Make Your Minimum Monthly Credit Card Payment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you don't make at least the minimum monthly payment on your credit card, the card issuer can report you to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditbureau.asp">credit bureaus</a> as delinquent. That will be reflected in your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit reports</a> and can have a serious effect on your <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a>, especially if it happens repeatedly.</p><p>Credit scores are based on a number of factors, the most important of which is your payment history. A consistent record of timely payments will benefit your score, while late or missing payments will hurt it.<span class="ql-inline-citation" data-cite="3"></span></p><p>A low credit score can not only make it difficult to obtain credit in the future but may also affect the rates you pay for insurance, whether a landlord will rent to you, and even whether an employer will hire you.</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-how-can-you-avoid-missing-credit-card-payments"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can You Avoid Missing Credit Card Payments?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are a variety of ways to make sure you never miss your monthly credit card payment, from low tech to high. On the low tech side, you can simply make notations on your calendar of when your bill is typically due each month. You could also do that with the calendar on your phone or computer or set a reminder to automatically alert you sufficiently in advance.</p><p>Another way is arrange 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>, or autopay, on your credit card account. The money will be withdrawn from your checking account automatically each month when your credit card bill comes due. You can set autopay to make the minimum payment or another amount of your choosing.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_28-0"><span class="heading-toc" id="toc-how-much-do-you-need-in-an-emergency-fund"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Do You Need in an Emergency Fund?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Financial experts often advise saving at least three to six months' worth of living expenses in a relatively <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidasset.asp">liquid account</a> as an emergency fund. However, the amount you might need in such a fund will also depend on whether you have other financial resources that you could draw on in a pinch. If three to six months of living expenses seems like an impossible goal, an emergency fund of any amount will be better than none.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Even if you can find it, involuntary unemployment credit card insurance may not be the best way to protect yourself and your credit in the event of a layoff. While your job might seem totally secure today it's always smart to plan ahead for what you'd do if you lost it. Getting your finances in order now can be the best form of insurance there is. </p></div>
## What Is Involuntary Unemployment Credit Card (IUCC) Insurance ? Involuntary unemployment credit card (IUCC) insurance promises to make payments on your [credit card balances](https://www.investopedia.com/terms/c/credit-card-balance.asp) if you are out of work. While that can seem like a great idea, it also comes at a cost. This article explains how it works and offers some possible alternatives. ### Key Takeaways * Involuntary unemployment credit card (IUCC) insurance promises to cover your minimum monthly credit card payment if you are laid off from work. * It doesn't apply if you quit your job or are self-employed. * IUCC insurance often costs about 1% of your total credit card balance per month. * These policies are sold by credit card companies to their customers but underwritten by third-party insurance companies. * IUCC is not as common in the U.S. as it once was, having been displaced by newer debt protection or payment protection plans. ## How Involuntary Unemployment Credit Card (IUCC) Insurance Works Involuntary unemployment credit card (IUCC) insurance is typically offered by credit card companies to their cardholders but underwritten by third-party insurance companies. It promises to cover the minimum monthly payment on your card for a certain period of time and/or up to a certain dollar amount if you lose your job through no fault of your own but not if you quit or if you are self-employed. The cost varies from company to company but is often about 1% of your outstanding balance each month. You must purchase it while you are still employed, and there may be a waiting period before benefits begin. IUCC insurance is often packaged and sold with other forms of credit insurance, such as as [credit life](https://www.investopedia.com/terms/c/credit_life_insurance.asp) and credit disability coverage. While still available in Canada and elsewhere, it has largely been eclipsed in the United States by so-called debt protection or [payment protection plans](https://www.investopedia.com/terms/p/payment-protection-plan.asp) sold directly by credit card issuers without the involvement of third-party insurers. According to a 2011 report from the U.S. Government Accountability Office, "Ten years ago, the largest credit card issuers rarely offered debt protection products and instead offered credit insurance, but today most issuers sell primarily debt protection products and rarely offer credit insurance to new customers." If your credit card issuer still offers involuntary unemployment credit card insurance, whether it might make sense for you depends on a number of factors. Many of them apply to payment protection plans, as well. Among them: 1. How likely you are to be laid off—and how soon 2. How long you are likely to be out of work if you are laid off 3. How large a credit card balance you are currently carrying 4. What the insurance costs per month 5. Whether you have other financial resources you could draw on to make your credit card payments until you start getting a regular paycheck again Let's say you have an outstanding balance of $5,000 on your credit card and your required minimum monthly payment is 3% of the balance, or $150. Your credit card company offers you IUCC insurance for a premium equal to 1% of your balance each month, or $50. Counting the insurance premium, you will have to pay at least $200 per month on your card until such time as you are laid off (if that ever happens). If the layoff doesn't occur for six months, you'd pay a total of $300 ($50 x 6) for the insurance coverage. Had you saved that $300 instead, you could have used it to pay the next two months' worth of minimum payments, which might cover you until you're back at work again. ## Alternatives to IUCC Insurance Buying insurance isn't the only way to cover your credit card payments. Here are some alternatives, all of which also apply to the newer and more widely available payment protection plans that card issuers now offer. * Build an [emergency fund](https://www.investopedia.com/terms/e/emergency_fund.asp) if you don't already have one. * Try to [pay down your credit cards](https://www.investopedia.com/how-to-pay-off-credit-card-debt-5070047), ideally paying your balance in full each month so you don't incur interest charges. * Think about expenses you could do away with if you no longer had a job. * If you believe there's any chance that your job is in jeopardy, start looking and putting out feelers now. Don't wait for the boss to show up at your door with a grim look on their face. ## What Happens if You Don't Make Your Minimum Monthly Credit Card Payment? If you don't make at least the minimum monthly payment on your credit card, the card issuer can report you to the [credit bureaus](https://www.investopedia.com/terms/c/creditbureau.asp) as delinquent. That will be reflected in your [credit reports](https://www.investopedia.com/terms/c/creditreport.asp) and can have a serious effect on your [credit score](https://www.investopedia.com/terms/c/credit_score.asp), especially if it happens repeatedly. Credit scores are based on a number of factors, the most important of which is your payment history. A consistent record of timely payments will benefit your score, while late or missing payments will hurt it. A low credit score can not only make it difficult to obtain credit in the future but may also affect the rates you pay for insurance, whether a landlord will rent to you, and even whether an employer will hire you. ## How Can You Avoid Missing Credit Card Payments? There are a variety of ways to make sure you never miss your monthly credit card payment, from low tech to high. On the low tech side, you can simply make notations on your calendar of when your bill is typically due each month. You could also do that with the calendar on your phone or computer or set a reminder to automatically alert you sufficiently in advance. Another way is arrange for [automatic bill payment](https://www.investopedia.com/terms/a/automatic-bill-payment.asp), or autopay, on your credit card account. The money will be withdrawn from your checking account automatically each month when your credit card bill comes due. You can set autopay to make the minimum payment or another amount of your choosing. ## How Much Do You Need in an Emergency Fund? Financial experts often advise saving at least three to six months' worth of living expenses in a relatively [liquid account](https://www.investopedia.com/terms/l/liquidasset.asp) as an emergency fund. However, the amount you might need in such a fund will also depend on whether you have other financial resources that you could draw on in a pinch. If three to six months of living expenses seems like an impossible goal, an emergency fund of any amount will be better than none. ## The Bottom Line Even if you can find it, involuntary unemployment credit card insurance may not be the best way to protect yourself and your credit in the event of a layoff. While your job might seem totally secure today it's always smart to plan ahead for what you'd do if you lost it. Getting your finances in order now can be the best form of insurance there is.
What Is Involuntary Unemployment Credit Card (IUCC) Insurance ? Involuntary unemployment credit card (IUCC) insurance promises to make payments on your credit card balances if you are out of work. While that can seem like a great idea, it also comes at a cost. This article explains how it works and offers some possible alternatives. Key Takeaways Involuntary unemployment credit card (IUCC) insurance promises to cover your minimum monthly credit card payment if you are laid off from work.It doesn't apply if you quit your job or are self-employed.IUCC insurance often costs about 1% of your total credit card balance per month.These policies are sold by credit card companies to their customers but underwritten by third-party insurance companies.IUCC is not as common in the U.S. as it once was, having been displaced by newer debt protection or payment protection plans. How Involuntary Unemployment Credit Card (IUCC) Insurance Works Involuntary unemployment credit card (IUCC) insurance is typically offered by credit card companies to their cardholders but underwritten by third-party insurance companies. It promises to cover the minimum monthly payment on your card for a certain period of time and/or up to a certain dollar amount if you lose your job through no fault of your own but not if you quit or if you are self-employed. The cost varies from company to company but is often about 1% of your outstanding balance each month. You must purchase it while you are still employed, and there may be a waiting period before benefits begin. IUCC insurance is often packaged and sold with other forms of credit insurance, such as as credit life and credit disability coverage. While still available in Canada and elsewhere, it has largely been eclipsed in the United States by so-called debt protection or payment protection plans sold directly by credit card issuers without the involvement of third-party insurers. According to a 2011 report from the U.S. Government Accountability Office, "Ten years ago, the largest credit card issuers rarely offered debt protection products and instead offered credit insurance, but today most issuers sell primarily debt protection products and rarely offer credit insurance to new customers." If your credit card issuer still offers involuntary unemployment credit card insurance, whether it might make sense for you depends on a number of factors. Many of them apply to payment protection plans, as well. Among them: How likely you are to be laid off—and how soonHow long you are likely to be out of work if you are laid offHow large a credit card balance you are currently carryingWhat the insurance costs per monthWhether you have other financial resources you could draw on to make your credit card payments until you start getting a regular paycheck again Let's say you have an outstanding balance of $5,000 on your credit card and your required minimum monthly payment is 3% of the balance, or $150. Your credit card company offers you IUCC insurance for a premium equal to 1% of your balance each month, or $50. Counting the insurance premium, you will have to pay at least $200 per month on your card until such time as you are laid off (if that ever happens). If the layoff doesn't occur for six months, you'd pay a total of $300 ($50 x 6) for the insurance coverage. Had you saved that $300 instead, you could have used it to pay the next two months' worth of minimum payments, which might cover you until you're back at work again. Alternatives to IUCC Insurance Buying insurance isn't the only way to cover your credit card payments. Here are some alternatives, all of which also apply to the newer and more widely available payment protection plans that card issuers now offer. Build an emergency fund if you don't already have one. Try to pay down your credit cards, ideally paying your balance in full each month so you don't incur interest charges. Think about expenses you could do away with if you no longer had a job. If you believe there's any chance that your job is in jeopardy, start looking and putting out feelers now. Don't wait for the boss to show up at your door with a grim look on their face. What Happens if You Don't Make Your Minimum Monthly Credit Card Payment? If you don't make at least the minimum monthly payment on your credit card, the card issuer can report you to the credit bureaus as delinquent. That will be reflected in your credit reports and can have a serious effect on your credit score, especially if it happens repeatedly.Credit scores are based on a number of factors, the most important of which is your payment history. A consistent record of timely payments will benefit your score, while late or missing payments will hurt it.A low credit score can not only make it difficult to obtain credit in the future but may also affect the rates you pay for insurance, whether a landlord will rent to you, and even whether an employer will hire you. How Can You Avoid Missing Credit Card Payments? There are a variety of ways to make sure you never miss your monthly credit card payment, from low tech to high. On the low tech side, you can simply make notations on your calendar of when your bill is typically due each month. You could also do that with the calendar on your phone or computer or set a reminder to automatically alert you sufficiently in advance.Another way is arrange for automatic bill payment, or autopay, on your credit card account. The money will be withdrawn from your checking account automatically each month when your credit card bill comes due. You can set autopay to make the minimum payment or another amount of your choosing. How Much Do You Need in an Emergency Fund? Financial experts often advise saving at least three to six months' worth of living expenses in a relatively liquid account as an emergency fund. However, the amount you might need in such a fund will also depend on whether you have other financial resources that you could draw on in a pinch. If three to six months of living expenses seems like an impossible goal, an emergency fund of any amount will be better than none. The Bottom Line Even if you can find it, involuntary unemployment credit card insurance may not be the best way to protect yourself and your credit in the event of a layoff. While your job might seem totally secure today it's always smart to plan ahead for what you'd do if you lost it. Getting your finances in order now can be the best form of insurance there is.
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https://www.investopedia.com/can-you-pay-a-credit-card-with-a-credit-card-5070049
Can You Pay a Credit Card With a 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"> Racking up credit card debt is a slippery slope. While there are a lot of conventional solutions to handling large amounts of debt, it’s important not to rule out other methods. Oftentimes, by exploring new options, you can find a better solution to your credit card debt dilemma. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> You can't pay off your existing credit card balance with another credit card. However, you may be able to transfer the balance to another card with a lower interest rate.  </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"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Credit card companies won’t allow you to pay off your existing balance with another credit card. </li><li>Balance transfers, which can be used to move debt from one card to another with a lower interest rate, can be a good option for individuals with high credit card debt. </li><li>Cash advances are another option where consumers can take out cash against another line of credit and use that money to pay off an existing credit card. </li><li>Neither of these strategies is a substitute for healthy financial planning and management, and they may not address overall problems with credit card debt. </li></ul></div></div></div> <span class="heading-toc" id="toc-can-you-pay-off-a-credit-card-with-another-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"> Can You Pay Off a Credit Card With Another Credit Card? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <br/>The short answer is no. Credit card companies <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://creditcards.usnews.com/articles/can-you-pay-a-credit-card-bill-with-another-credit-card">don’t allow you </a>to make minimum monthly payments, or to pay off an outstanding balance, with another credit card from a different company. Often, the fees for these types of transactions are too high for credit card companies to allow it. Also, it could be a questionable financial move that credit card companies want consumers to avoid.  </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, however, two main strategies you can use to pay off a credit card that don’t involve paying more than your minimum required monthly payment. Both balance transfers and cash advances can be two quick ways to try and reduce your outstanding debt on an existing credit card.<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> <span class="heading-toc" id="toc-what-is-a-balance-transfer"></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"> What Is a Balance Transfer? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-cards/balance-transfer-credit-card/"><br/>Balance transfers</a> are a great option for individuals looking to move existing debt from one card to another that has a lower interest rate and other financial incentives. Many people will opt for a card where they can get the most perks and other financial benefits, like cash back on everyday spending and better rewards programs. A balance transfer is exactly what it sounds like: your balance on one card will be transferred to another for a fee. Before deciding to go this route, do the math.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Often, with fees and reduced interest rates, you may end up paying something similar to what you owed before. There are also several other pros and cons to be aware of.  </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-pros-of-balance-transfers"></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"> Pros of Balance Transfers </span> </h2> <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"> Interest-free introductory periods </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Many card issuing companies will offer 12 to 18 month interest-free introductory periods to try and entice you to transfer your balance. This can be a great tool if you’re looking to save money. Especially if you’re trying to pay down a high credit card balance, starting with an interest-free period can allow you to make payments on the balance without accruing any additional fees and interest. Keep in mind that this tool is used to try and entice you to transfer your balance to a new company. Use it as a way to save money, not just as a financial cushion.  </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"> They can save you money </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> If you can find the right deal, transferring your balance could save you a lot of money in the long run. Some credit issuers may offer you a better APR rate compared to what’s being applied to your current balance. Lower interest rates mean you can save money as you begin to pay off your balance. This, coupled with interest-free introductory periods, makes a balance transfer a potentially useful option when looking to address high amounts of credit card debt.  </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"> Better rewards programs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Even if the interest rates are roughly similar, and you’re not looking to take advantage of paying down your balance during an interest-free introductory period, some credit cards may just have better perks and rewards programs you want to take advantage of. Look for cash back options, frequent flier packages and other points-based rewards systems. These can sometimes make all the difference when getting the most out of your credit card and credit issuing company.  </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-cons-of-balance-transfers"></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"> Cons of Balance Transfers </span> </h2> <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"> Transfer fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> There’s usually a fee associated with transferring your balance. Make sure you do your research so you can determine if the fee is worth you moving to another credit card. Oftentimes, it could be negligible compared to what you could save during the interest-free period.  </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"> You could be declined </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> If you have a questionable credit history and a low credit score, the credit issuing company may decline your balance transfer. Depending on your individual situation, you’ll need a credit score of at least 670<span class="ql-inline-citation" data-cite="1"></span> in order to initiate a balance transfer.  </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-what-is-a-cash-advance"></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"> What Is a Cash Advance? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <br/>Credit issuers provide individuals with the option to take a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashadvance.asp">cash advance </a>out against their line of credit. This cash-now loan is different from a normal credit card purchase, and it likely is subject to an entirely different interest rate. On average, you’ll pay about 24%<span class="ql-inline-citation" data-cite="2"></span> for the cash advance, which is 9% higher than the average APR. Keep in mind the amount you borrow will contribute to what you owe at the end of each billing cycle related to your monthly balance.  </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"> Cash advances can be seen as a riskier way to pay off another credit card compared to balance transfers. As with researching balance transfers, do the math before you commit to a cash advance with your credit issuer. It may not be worth it to take out cash at a 24% interest rate in order to pay off another credit card. It’s also important, however, to be aware of all the pros and cons </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-pro-of-cash-advances"></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"> Pro of Cash Advances </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"> It’s a fast option </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> A cash advance will technically give you the ability to pay off another credit card, which could have a very high interest rate. Depending on your situation, you would be able to get the cash you need to pay down this card as quickly as possible. This would help you save on interest on that particular credit card in the long run.  </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-cons-of-cash-advances"></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"> Cons of Cash Advances </span> </h2> <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"> It’s expensive </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> The high interest rate associated with cash advances makes it a difficult tool to resort to when trying to pay off other credit cards. The advantage of a cash advance is you can get it immediately, but that comes at a price. An interest rate 9% above the average APR for most credit cards can build a significant balance over time.  </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"> There may be additional fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Companies often charge a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/111714/8-alternatives-credit-card-cash-advance.asp" rel="noopener noreferrer">flat rate or a percentage fee</a> in addition to the interest rate on cash advances. It’s important to read the fine print before deciding to use a cash advance.  </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"> It may not solve your problem </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> It’s important to do the math before initiating a cash advance to pay off another credit card. At 24% interest, taking a cash advance against your line of credit is one of the most expensive forms of debt available. It shouldn’t be used casually, and there’s more likelihood of ending up in even more financial trouble compared to pursuing a balance transfer. As an alternative, you may wish to consider a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-debt-relief-companies-4846588" rel="noopener noreferrer">debt relief company</a>. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-whats-the-best-way-to-pay-your-credit-card-bills"></span> <h2 class="mntl-sc-block-questionandanswer__question">What's the best way to pay your credit card bills?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While there are a few options, paying your credit card bills with cash is the only way to avoid extra fees and interest. If that's not a possibility, look into using a cash advance or balance transfer to help you get your costs under control.</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-can-i-use-a-credit-card-to-pay-another-credit-card"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I use a credit card to pay another credit card?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No, you cannot use a credit card to pay other credit card bills. However, credit cards often have options like cash advance or balance transfer that give you access to "cash" funds. If you are short on money to pay your bills, you can use these funds to pay off your balance. Of course, this will end up costing you in fees and interest, so be careful.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-is-it-worth-it-to-get-a-balance-transfer"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is it worth it to get a balance transfer?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A balance transfer can help you get control over your finances, but only when you are committed to improving your credit situation. There are fees and interest associated with balance transfers, so make sure that those extra costs will be worth it for you.</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"> You can't pay off one credit card with another. However, you may be able to transfer the balance to a new card, or take a cash advance. </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"> While these are two unique options, the balance transfer has far more potential to be a useful financial tool against credit card debt. The easiest way to pay down credit card debt, however, is making monthly payments that are greater than your required minimum amount. </p></div>
Racking up credit card debt is a slippery slope. While there are a lot of conventional solutions to handling large amounts of debt, it’s important not to rule out other methods. Oftentimes, by exploring new options, you can find a better solution to your credit card debt dilemma. You can't pay off your existing credit card balance with another credit card. However, you may be able to transfer the balance to another card with a lower interest rate.  ### * Credit card companies won’t allow you to pay off your existing balance with another credit card. * Balance transfers, which can be used to move debt from one card to another with a lower interest rate, can be a good option for individuals with high credit card debt. * Cash advances are another option where consumers can take out cash against another line of credit and use that money to pay off an existing credit card. * Neither of these strategies is a substitute for healthy financial planning and management, and they may not address overall problems with credit card debt. ## Can You Pay Off a Credit Card With Another Credit Card? The short answer is no. Credit card companies [don’t allow you](https://creditcards.usnews.com/articles/can-you-pay-a-credit-card-bill-with-another-credit-card) to make minimum monthly payments, or to pay off an outstanding balance, with another credit card from a different company. Often, the fees for these types of transactions are too high for credit card companies to allow it. Also, it could be a questionable financial move that credit card companies want consumers to avoid.  There are, however, two main strategies you can use to pay off a credit card that don’t involve paying more than your minimum required monthly payment. Both balance transfers and cash advances can be two quick ways to try and reduce your outstanding debt on an existing credit card.  ## What Is a Balance Transfer? [Balance transfers](https://www.investopedia.com/credit-cards/balance-transfer-credit-card/) are a great option for individuals looking to move existing debt from one card to another that has a lower interest rate and other financial incentives. Many people will opt for a card where they can get the most perks and other financial benefits, like cash back on everyday spending and better rewards programs. A balance transfer is exactly what it sounds like: your balance on one card will be transferred to another for a fee. Before deciding to go this route, do the math. Often, with fees and reduced interest rates, you may end up paying something similar to what you owed before. There are also several other pros and cons to be aware of.  ## Pros of Balance Transfers ### Interest-free introductory periods Many card issuing companies will offer 12 to 18 month interest-free introductory periods to try and entice you to transfer your balance. This can be a great tool if you’re looking to save money. Especially if you’re trying to pay down a high credit card balance, starting with an interest-free period can allow you to make payments on the balance without accruing any additional fees and interest. Keep in mind that this tool is used to try and entice you to transfer your balance to a new company. Use it as a way to save money, not just as a financial cushion.  ### They can save you money If you can find the right deal, transferring your balance could save you a lot of money in the long run. Some credit issuers may offer you a better APR rate compared to what’s being applied to your current balance. Lower interest rates mean you can save money as you begin to pay off your balance. This, coupled with interest-free introductory periods, makes a balance transfer a potentially useful option when looking to address high amounts of credit card debt.  ### Better rewards programs Even if the interest rates are roughly similar, and you’re not looking to take advantage of paying down your balance during an interest-free introductory period, some credit cards may just have better perks and rewards programs you want to take advantage of. Look for cash back options, frequent flier packages and other points-based rewards systems. These can sometimes make all the difference when getting the most out of your credit card and credit issuing company.  ## Cons of Balance Transfers ### Transfer fees There’s usually a fee associated with transferring your balance. Make sure you do your research so you can determine if the fee is worth you moving to another credit card. Oftentimes, it could be negligible compared to what you could save during the interest-free period.  ### You could be declined If you have a questionable credit history and a low credit score, the credit issuing company may decline your balance transfer. Depending on your individual situation, you’ll need a credit score of at least 670 in order to initiate a balance transfer.  ## What Is a Cash Advance? Credit issuers provide individuals with the option to take a [cash advance](https://www.investopedia.com/terms/c/cashadvance.asp) out against their line of credit. This cash-now loan is different from a normal credit card purchase, and it likely is subject to an entirely different interest rate. On average, you’ll pay about 24% for the cash advance, which is 9% higher than the average APR. Keep in mind the amount you borrow will contribute to what you owe at the end of each billing cycle related to your monthly balance.  Cash advances can be seen as a riskier way to pay off another credit card compared to balance transfers. As with researching balance transfers, do the math before you commit to a cash advance with your credit issuer. It may not be worth it to take out cash at a 24% interest rate in order to pay off another credit card. It’s also important, however, to be aware of all the pros and cons ## Pro of Cash Advances ### It’s a fast option A cash advance will technically give you the ability to pay off another credit card, which could have a very high interest rate. Depending on your situation, you would be able to get the cash you need to pay down this card as quickly as possible. This would help you save on interest on that particular credit card in the long run.  ## Cons of Cash Advances ### It’s expensive The high interest rate associated with cash advances makes it a difficult tool to resort to when trying to pay off other credit cards. The advantage of a cash advance is you can get it immediately, but that comes at a price. An interest rate 9% above the average APR for most credit cards can build a significant balance over time.  ### There may be additional fees Companies often charge a [flat rate or a percentage fee](https://www.investopedia.com/articles/personal-finance/111714/8-alternatives-credit-card-cash-advance.asp) in addition to the interest rate on cash advances. It’s important to read the fine print before deciding to use a cash advance.  ### It may not solve your problem It’s important to do the math before initiating a cash advance to pay off another credit card. At 24% interest, taking a cash advance against your line of credit is one of the most expensive forms of debt available. It shouldn’t be used casually, and there’s more likelihood of ending up in even more financial trouble compared to pursuing a balance transfer. As an alternative, you may wish to consider a [debt relief company](https://www.investopedia.com/best-debt-relief-companies-4846588). ## What's the best way to pay your credit card bills? While there are a few options, paying your credit card bills with cash is the only way to avoid extra fees and interest. If that's not a possibility, look into using a cash advance or balance transfer to help you get your costs under control. ## Can I use a credit card to pay another credit card? No, you cannot use a credit card to pay other credit card bills. However, credit cards often have options like cash advance or balance transfer that give you access to "cash" funds. If you are short on money to pay your bills, you can use these funds to pay off your balance. Of course, this will end up costing you in fees and interest, so be careful. ## Is it worth it to get a balance transfer? A balance transfer can help you get control over your finances, but only when you are committed to improving your credit situation. There are fees and interest associated with balance transfers, so make sure that those extra costs will be worth it for you. ## The Bottom Line You can't pay off one credit card with another. However, you may be able to transfer the balance to a new card, or take a cash advance. While these are two unique options, the balance transfer has far more potential to be a useful financial tool against credit card debt. The easiest way to pay down credit card debt, however, is making monthly payments that are greater than your required minimum amount.
Racking up credit card debt is a slippery slope. While there are a lot of conventional solutions to handling large amounts of debt, it’s important not to rule out other methods. Oftentimes, by exploring new options, you can find a better solution to your credit card debt dilemma. You can't pay off your existing credit card balance with another credit card. However, you may be able to transfer the balance to another card with a lower interest rate.  Credit card companies won’t allow you to pay off your existing balance with another credit card. Balance transfers, which can be used to move debt from one card to another with a lower interest rate, can be a good option for individuals with high credit card debt. Cash advances are another option where consumers can take out cash against another line of credit and use that money to pay off an existing credit card. Neither of these strategies is a substitute for healthy financial planning and management, and they may not address overall problems with credit card debt.  Can You Pay Off a Credit Card With Another Credit Card? The short answer is no. Credit card companies don’t allow you to make minimum monthly payments, or to pay off an outstanding balance, with another credit card from a different company. Often, the fees for these types of transactions are too high for credit card companies to allow it. Also, it could be a questionable financial move that credit card companies want consumers to avoid.  There are, however, two main strategies you can use to pay off a credit card that don’t involve paying more than your minimum required monthly payment. Both balance transfers and cash advances can be two quick ways to try and reduce your outstanding debt on an existing credit card.  What Is a Balance Transfer? Balance transfers are a great option for individuals looking to move existing debt from one card to another that has a lower interest rate and other financial incentives. Many people will opt for a card where they can get the most perks and other financial benefits, like cash back on everyday spending and better rewards programs. A balance transfer is exactly what it sounds like: your balance on one card will be transferred to another for a fee. Before deciding to go this route, do the math. Often, with fees and reduced interest rates, you may end up paying something similar to what you owed before. There are also several other pros and cons to be aware of.  Pros of Balance Transfers Interest-free introductory periods Many card issuing companies will offer 12 to 18 month interest-free introductory periods to try and entice you to transfer your balance. This can be a great tool if you’re looking to save money. Especially if you’re trying to pay down a high credit card balance, starting with an interest-free period can allow you to make payments on the balance without accruing any additional fees and interest. Keep in mind that this tool is used to try and entice you to transfer your balance to a new company. Use it as a way to save money, not just as a financial cushion.  They can save you money If you can find the right deal, transferring your balance could save you a lot of money in the long run. Some credit issuers may offer you a better APR rate compared to what’s being applied to your current balance. Lower interest rates mean you can save money as you begin to pay off your balance. This, coupled with interest-free introductory periods, makes a balance transfer a potentially useful option when looking to address high amounts of credit card debt.  Better rewards programs Even if the interest rates are roughly similar, and you’re not looking to take advantage of paying down your balance during an interest-free introductory period, some credit cards may just have better perks and rewards programs you want to take advantage of. Look for cash back options, frequent flier packages and other points-based rewards systems. These can sometimes make all the difference when getting the most out of your credit card and credit issuing company.  Cons of Balance Transfers Transfer fees There’s usually a fee associated with transferring your balance. Make sure you do your research so you can determine if the fee is worth you moving to another credit card. Oftentimes, it could be negligible compared to what you could save during the interest-free period.  You could be declined If you have a questionable credit history and a low credit score, the credit issuing company may decline your balance transfer. Depending on your individual situation, you’ll need a credit score of at least 670 in order to initiate a balance transfer.  What Is a Cash Advance? Credit issuers provide individuals with the option to take a cash advance out against their line of credit. This cash-now loan is different from a normal credit card purchase, and it likely is subject to an entirely different interest rate. On average, you’ll pay about 24% for the cash advance, which is 9% higher than the average APR. Keep in mind the amount you borrow will contribute to what you owe at the end of each billing cycle related to your monthly balance.  Cash advances can be seen as a riskier way to pay off another credit card compared to balance transfers. As with researching balance transfers, do the math before you commit to a cash advance with your credit issuer. It may not be worth it to take out cash at a 24% interest rate in order to pay off another credit card. It’s also important, however, to be aware of all the pros and cons Pro of Cash Advances It’s a fast option A cash advance will technically give you the ability to pay off another credit card, which could have a very high interest rate. Depending on your situation, you would be able to get the cash you need to pay down this card as quickly as possible. This would help you save on interest on that particular credit card in the long run.  Cons of Cash Advances It’s expensive The high interest rate associated with cash advances makes it a difficult tool to resort to when trying to pay off other credit cards. The advantage of a cash advance is you can get it immediately, but that comes at a price. An interest rate 9% above the average APR for most credit cards can build a significant balance over time.  There may be additional fees Companies often charge a flat rate or a percentage fee in addition to the interest rate on cash advances. It’s important to read the fine print before deciding to use a cash advance.  It may not solve your problem It’s important to do the math before initiating a cash advance to pay off another credit card. At 24% interest, taking a cash advance against your line of credit is one of the most expensive forms of debt available. It shouldn’t be used casually, and there’s more likelihood of ending up in even more financial trouble compared to pursuing a balance transfer. As an alternative, you may wish to consider a debt relief company. What's the best way to pay your credit card bills? While there are a few options, paying your credit card bills with cash is the only way to avoid extra fees and interest. If that's not a possibility, look into using a cash advance or balance transfer to help you get your costs under control. Can I use a credit card to pay another credit card? No, you cannot use a credit card to pay other credit card bills. However, credit cards often have options like cash advance or balance transfer that give you access to "cash" funds. If you are short on money to pay your bills, you can use these funds to pay off your balance. Of course, this will end up costing you in fees and interest, so be careful. Is it worth it to get a balance transfer? A balance transfer can help you get control over your finances, but only when you are committed to improving your credit situation. There are fees and interest associated with balance transfers, so make sure that those extra costs will be worth it for you. The Bottom Line You can't pay off one credit card with another. However, you may be able to transfer the balance to a new card, or take a cash advance. While these are two unique options, the balance transfer has far more potential to be a useful financial tool against credit card debt. The easiest way to pay down credit card debt, however, is making monthly payments that are greater than your required minimum amount.
[ [ "don’t allow you", "https://creditcards.usnews.com/articles/can-you-pay-a-credit-card-bill-with-another-credit-card" ], [ "Balance transfers", "https://www.investopedia.com/credit-cards/balance-transfer-credit-card/" ], [ "cash advance", "https://www.investopedia.com/terms/c/cashadvance.asp" ], [ "flat rate or a percentage fee", "https://www.investopedia.com/articles/personal-finance/111714/8-alternatives-credit-card-cash-advance.asp" ], [ "debt relief company", "https://www.investopedia.com/best-debt-relief-companies-4846588" ] ]
https://www.investopedia.com/terms/d/dedicatedportfolio.asp
Dedicated Portfolio: Meaning, Pros and Cons, Example
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-dedicated-portfolio"></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 Dedicated Portfolio? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A dedicated portfolio is an investment portfolio where the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp" rel="noopener noreferrer">cash flows</a> are designed to match the anticipated <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/total-liabilities.asp" rel="noopener noreferrer">liabilities</a>. Dedicated portfolios are usually passively managed and are composed of stable, investment-grade fixed-income assets. </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-dedicated-portfolio"></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 Dedicated Portfolio </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Dedicated portfolios were promoted by financial researcher Martin L. Leibowitz, who wrote extensively about the idea, calling it a cash-matching strategy.<span class="ql-inline-citation" data-cite="1"></span> In a dedicated portfolio, bonds and other fixed-income instruments are bought and usually held until maturity. The goal is to create a cash flow from the coupons that match payments that need to be made over a set time. </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"> Dedicated portfolios use investment-grade <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp" rel="noopener noreferrer">securities</a> to minimize the risk of default. The security and stability of investment-grade securities can limit returns, however. </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-advantages-of-a-dedicated-portfolio"></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"> Advantages of a Dedicated Portfolio </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Dedicated portfolios are most appropriate for investors who need a reliable source of income for the future. They can provide predictable cash flow while reducing market risk, reinvestment risk, inflation risk, default risk, and liquidity risk. </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-drawbacks-of-a-dedicated-portfolio"></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"> Drawbacks of a Dedicated Portfolio </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Determining the least expensive portfolio with a matching duration and coupon can be mathematically challenging. Constructing dedicated portfolios requires fixed-income expertise, high-level math, and optimization-theory knowledge and understanding of liabilities. Also, many forms of bonds are not appropriate for dedicated portfolios. </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-example-of-a-dedicated-portfolio"></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 Dedicated Portfolio </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Assume a company has a pension fund, and that it expects to make payments beginning in 20 years. The company could determine the expected liabilities, then build a portfolio that—based on the overall value plus interest payments—would generate the correct amount of cash to pay the liabilities with little investment risk. </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-liability-driven-investingldi"></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"> Liability-Driven Investing—LDI </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> A popular application of a dedicated portfolio in retirement investing is called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/ldi.asp" rel="noopener noreferrer">liability-driven investing</a>. These plans use a "glide path" that aims to reduce risks—such as interest rate or market risks—over time and to achieve returns that either match or exceed the growth of anticipated pension plan liabilities. </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"> Liability-driven investing strategies differ from a “benchmark-driven” strategy, which is based on achieving better returns than an external index such as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp" rel="noopener noreferrer">S&amp;P 500</a> or a set of benchmarks representing various investment asset classes. Liability-driven investing is appropriate for situations where future liabilities can be predicted with some degree of accuracy. For individuals, the classic example would be the stream of withdrawals from a retirement portfolio over time beginning at retirement age. For companies, the classic example would be a pension fund that must make future payouts to pensioners over their expected lifetimes. </p></div>
## What Is a Dedicated Portfolio? A dedicated portfolio is an investment portfolio where the [cash flows](https://www.investopedia.com/terms/c/cashflow.asp) are designed to match the anticipated [liabilities](https://www.investopedia.com/terms/t/total-liabilities.asp). Dedicated portfolios are usually passively managed and are composed of stable, investment-grade fixed-income assets. ## Understanding Dedicated Portfolio Dedicated portfolios were promoted by financial researcher Martin L. Leibowitz, who wrote extensively about the idea, calling it a cash-matching strategy. In a dedicated portfolio, bonds and other fixed-income instruments are bought and usually held until maturity. The goal is to create a cash flow from the coupons that match payments that need to be made over a set time. Dedicated portfolios use investment-grade [securities](https://www.investopedia.com/terms/s/security.asp) to minimize the risk of default. The security and stability of investment-grade securities can limit returns, however. ## Advantages of a Dedicated Portfolio Dedicated portfolios are most appropriate for investors who need a reliable source of income for the future. They can provide predictable cash flow while reducing market risk, reinvestment risk, inflation risk, default risk, and liquidity risk. ## Drawbacks of a Dedicated Portfolio Determining the least expensive portfolio with a matching duration and coupon can be mathematically challenging. Constructing dedicated portfolios requires fixed-income expertise, high-level math, and optimization-theory knowledge and understanding of liabilities. Also, many forms of bonds are not appropriate for dedicated portfolios. ## Example of a Dedicated Portfolio Assume a company has a pension fund, and that it expects to make payments beginning in 20 years. The company could determine the expected liabilities, then build a portfolio that—based on the overall value plus interest payments—would generate the correct amount of cash to pay the liabilities with little investment risk. ## Liability-Driven Investing—LDI A popular application of a dedicated portfolio in retirement investing is called [liability-driven investing](https://www.investopedia.com/terms/l/ldi.asp). These plans use a "glide path" that aims to reduce risks—such as interest rate or market risks—over time and to achieve returns that either match or exceed the growth of anticipated pension plan liabilities. Liability-driven investing strategies differ from a “benchmark-driven” strategy, which is based on achieving better returns than an external index such as the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) or a set of benchmarks representing various investment asset classes. Liability-driven investing is appropriate for situations where future liabilities can be predicted with some degree of accuracy. For individuals, the classic example would be the stream of withdrawals from a retirement portfolio over time beginning at retirement age. For companies, the classic example would be a pension fund that must make future payouts to pensioners over their expected lifetimes.
What Is a Dedicated Portfolio? A dedicated portfolio is an investment portfolio where the cash flows are designed to match the anticipated liabilities. Dedicated portfolios are usually passively managed and are composed of stable, investment-grade fixed-income assets. Understanding Dedicated Portfolio Dedicated portfolios were promoted by financial researcher Martin L. Leibowitz, who wrote extensively about the idea, calling it a cash-matching strategy. In a dedicated portfolio, bonds and other fixed-income instruments are bought and usually held until maturity. The goal is to create a cash flow from the coupons that match payments that need to be made over a set time. Dedicated portfolios use investment-grade securities to minimize the risk of default. The security and stability of investment-grade securities can limit returns, however. Advantages of a Dedicated Portfolio Dedicated portfolios are most appropriate for investors who need a reliable source of income for the future. They can provide predictable cash flow while reducing market risk, reinvestment risk, inflation risk, default risk, and liquidity risk. Drawbacks of a Dedicated Portfolio Determining the least expensive portfolio with a matching duration and coupon can be mathematically challenging. Constructing dedicated portfolios requires fixed-income expertise, high-level math, and optimization-theory knowledge and understanding of liabilities. Also, many forms of bonds are not appropriate for dedicated portfolios. Example of a Dedicated Portfolio Assume a company has a pension fund, and that it expects to make payments beginning in 20 years. The company could determine the expected liabilities, then build a portfolio that—based on the overall value plus interest payments—would generate the correct amount of cash to pay the liabilities with little investment risk. Liability-Driven Investing—LDI A popular application of a dedicated portfolio in retirement investing is called liability-driven investing. These plans use a "glide path" that aims to reduce risks—such as interest rate or market risks—over time and to achieve returns that either match or exceed the growth of anticipated pension plan liabilities. Liability-driven investing strategies differ from a “benchmark-driven” strategy, which is based on achieving better returns than an external index such as the S&P 500 or a set of benchmarks representing various investment asset classes. Liability-driven investing is appropriate for situations where future liabilities can be predicted with some degree of accuracy. For individuals, the classic example would be the stream of withdrawals from a retirement portfolio over time beginning at retirement age. For companies, the classic example would be a pension fund that must make future payouts to pensioners over their expected lifetimes.
[ [ "cash flows", "https://www.investopedia.com/terms/c/cashflow.asp" ], [ "liabilities", "https://www.investopedia.com/terms/t/total-liabilities.asp" ], [ "securities", "https://www.investopedia.com/terms/s/security.asp" ], [ "liability-driven investing", "https://www.investopedia.com/terms/l/ldi.asp" ], [ "S&P 500", "https://www.investopedia.com/terms/s/sp500.asp" ] ]
https://www.investopedia.com/articles/basics/06/invertedyieldcurve.asp
The Impact of an Inverted Yield Curve
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 term <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> refers to the relationship between the short- and long-term interest rates of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixed-incomesecurity.asp">fixed-income securities</a> issued by the U.S. Treasury. An <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/invertedyieldcurve.asp">inverted yield curve</a> occurs when short-term interest rates exceed long-term rates.<span class="ql-inline-citation" data-cite="16"></span> Under normal circumstances, the yield curve is not inverted since debt with longer maturities typically carry higher interest rates than nearer-term ones. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> From an economic perspective, an inverted yield curve is a noteworthy and uncommon event because it suggests that the near-term is riskier than the long term. Below, we explain this rare phenomenon, discuss its impact on consumers and investors, and tell you how to adjust your portfolio to account for it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A yield curve illustrates the interest rates on bonds of increasing maturities.</li><li>An inverted yield curve occurs when short-term debt instruments carry higher yields than long-term instruments of the same credit risk profile.</li><li>Inverted yield curves are unusual since longer-term debt should carry greater risk and higher interest rates, so when they occur there are implications for consumers and investors alike.</li><li>An inverted Treasury yield curve is one of the most reliable leading indicators of an impending recession.<span class="ql-inline-citation" data-cite="16"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-interest-rates-and-yield-curves"></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"> Interest Rates and Yield Curves </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Typically, short-term interest rates are lower than long-term rates, so the yield curve slopes upwards, reflecting higher yields for longer-term investments.<span class="ql-inline-citation" data-cite="17"></span> This is referred to as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/normalyieldcurve.asp">normal yield curve</a>. When the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yieldspread.asp">spread</a> between short-term and long-term interest rates narrows, the yield curve begins to flatten. A <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/flatyieldcurve.asp">flat yield curve</a> is often seen during the transition from a normal yield curve to an inverted one. </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-landscape figure-high-res" id="mntl-sc-block_10-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:63.3%;"> <img alt="Yield Curve" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/BsjN9dtR7rLsfHNfAzLzxQBBhbM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YieldCurve3-b41980c37e9d475f9a0c6a68b0e92688.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/BsjN9dtR7rLsfHNfAzLzxQBBhbM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YieldCurve3-b41980c37e9d475f9a0c6a68b0e92688.png" data-srcset="https://www.investopedia.com/thmb/e9G8rNCUypBzIyky_J-E3LfoUuw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/YieldCurve3-b41980c37e9d475f9a0c6a68b0e92688.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_1-0" width="6250"/> <noscript> <img alt="Yield Curve" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/BsjN9dtR7rLsfHNfAzLzxQBBhbM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YieldCurve3-b41980c37e9d475f9a0c6a68b0e92688.png" srcset="https://www.investopedia.com/thmb/e9G8rNCUypBzIyky_J-E3LfoUuw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/YieldCurve3-b41980c37e9d475f9a0c6a68b0e92688.png 750w" width="6250"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-text">A normal yield curve.</span> <span class="figure-article-caption-owner">Image by Julie Bang © Investopedia 2019</span> </figcaption></figure> <span class="heading-toc" id="toc-what-does-an-inverted-yield-curve-suggest"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> What Does an Inverted Yield Curve Suggest? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Historically, an inverted yield curve has been viewed as an indicator of a pending economic recession. When short-term interest rates exceed long-term rates, <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketsentiment.asp">market sentiment</a> suggests that the long-term outlook is poor and that the yields offered by long-term <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedincome.asp">fixed income</a> will continue to fall.<span class="ql-inline-citation" data-cite="16"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> More recently, this viewpoint has been called into question, as foreign purchases of securities issued by the U.S. Treasury have created a high and sustained level of demand for products backed by U.S. government debt.<span class="ql-inline-citation" data-cite="18"></span> When investors are aggressively seeking <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>, the debtor can offer lower interest rates. When this occurs, many argue that it is the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/law-of-supply-demand.asp">laws of supply and demand</a>, rather than impending economic doom and gloom, that enable lenders to attract buyers without having to pay higher interest rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_16-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:63.3%;"> <img alt="Inverted Yield Curve" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/sYqCMgk_W33JXjhuIcZ_pffsIuA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/InvertedYieldCurve3-a2dd4a71cac949d6bd03c2bca892e683.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/sYqCMgk_W33JXjhuIcZ_pffsIuA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/InvertedYieldCurve3-a2dd4a71cac949d6bd03c2bca892e683.png" data-srcset="https://www.investopedia.com/thmb/oas88q3lQ2WW9MdTFP7IOoKX6Fg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/InvertedYieldCurve3-a2dd4a71cac949d6bd03c2bca892e683.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_2-0" width="6250"/> <noscript> <img alt="Inverted Yield Curve" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/sYqCMgk_W33JXjhuIcZ_pffsIuA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/InvertedYieldCurve3-a2dd4a71cac949d6bd03c2bca892e683.png" srcset="https://www.investopedia.com/thmb/oas88q3lQ2WW9MdTFP7IOoKX6Fg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/InvertedYieldCurve3-a2dd4a71cac949d6bd03c2bca892e683.png 750w" width="6250"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_2-0"> <span class="figure-article-caption-text">An inverted yield curve: note the inverse relationship between yield and maturity.</span> <span class="figure-article-caption-owner">Image by Julie Bang © Investopedia 2019</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Inverted yield curves have been relatively rare, due in large part to longer-than-average periods between recessions since the early 1990s. For example, the economic expansions that began in March 1991, November 2001, and June 2009 were three of the four longest economic expansions since World War II.<span class="ql-inline-citation" data-cite="2"></span> During these long periods, the question often arises as to whether an inverted yield curve can happen again. </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/terms/e/economic-cycle.asp">Economic cycles</a>, regardless of their length, have historically transitioned from growth to recession and back again. Inverted yield curves are an essential element of these cycles, preceding every recession since 1956.<span class="ql-inline-citation" data-cite="4"></span> Considering the consistency of this pattern, an inverted yield will likely form again if the current expansion fades to recession. </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"> Upward sloping yield curves are a natural extension of the higher risks associated with long maturities. In a growing economy, investors also demand higher yields at the long end of the curve to compensate for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/opportunitycost.asp">opportunity cost</a> of investing in bonds versus other asset classes, and to maintain an acceptable spread over inflation rates. </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"> As the economic cycle begins to slow, perhaps due to interest rate hikes by the Federal Reserve, the upward slope of the yield curve tends to flatten as short-term rates increase and longer yields stay stable or decline slightly.<span class="ql-inline-citation" data-cite="19"></span> In this environment, investors see long-term yields as an acceptable substitute for the potential of lower returns in equities and other asset classes, which tend to increase bond prices and reduce yields. </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-the-formation-of-an-inverted-yield-curve"></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"> The Formation of an Inverted Yield Curve </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> As concerns of an impending recession increase, investors tend to buy long Treasury bonds based on the premise that they offer a safe harbor from falling equities markets, provide <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/preservationofcapital.asp">preservation of capital</a>, and have the potential for appreciation in value as interest rates decline. As a result of the rotation to long maturities, yields can fall below short-term rates, forming an inverted yield curve. Since 1955, equities have peaked six times after the start of an inversion, and the economy has fallen into recession within six to 24 months.<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_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> An inverted yield curve appeared in August 2006, as the Fed raised short-term interest rates in response to overheating equity, real estate, and mortgage markets.<span class="ql-inline-citation" data-cite="4"></span> The inversion of the yield curve preceded the peak of the Standard &amp; Poor’s 500 in October 2007 by 14 months and the official start of the recession in December 2007 by 16 months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> In 2019, the yield curve again inverted, worrying economists about another downturn. In early 2020, the COVID-19 pandemic did, in fact, trigger a global recession; however, no economists think that the yield curve was able to predict the pandemic. The COVID-19 downturn did quickly rebound to new record highs into 2022.<span class="ql-inline-citation" data-cite="4"></span> During that period, the yield curve's shape has remained volatile, with some predicting the curve to invert again in 2022. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> If history is any precedent, the current <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/businesscycle.asp">business cycle</a> will progress, and slowing in the economy may eventually become evident. If concerns of the next recession rise to the point where investors see the purchase of long-dated Treasuries as the best option for their portfolios, there is a high likelihood that the next inverted yield curve will take shape. </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-inverted-yield-curve-impact-on-consumers"></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"> Inverted Yield Curve Impact on Consumers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> In addition to its impact on investors, an inverted yield curve also has an impact on consumers. For example, homebuyers financing their properties with <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</a> (ARMs) have interest-rate schedules that are periodically updated based on short-term interest rates. When short-term rates are higher than long-term rates, payments on ARMs tend to rise. When this occurs, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedinterestrate.asp" rel="noopener noreferrer">fixed-rate</a> loans may be more attractive than adjustable-rate loans. </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 data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lineofcredit.asp" rel="noopener noreferrer">Lines of credit</a> are affected in a similar manner. In both cases, consumers must dedicate a larger portion of their incomes toward servicing existing debt. This reduces expendable income and has a negative effect on the economy as a whole. </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-inverted-yield-curve-impact-on-fixed-income-investors"></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"> Inverted Yield Curve Impact on Fixed-Income Investors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> A yield curve inversion has the greatest impact on fixed-income investors. In normal circumstances, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/longterminvestments.asp">long-term investments</a> have higher yields; because investors are risking their money for longer periods of time, they are rewarded with higher payouts. An inverted curve eliminates the risk premium for long-term investments, allowing investors to get better returns with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shorterminvestments.asp">short-term investments</a>. </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"> When the spread between U.S. Treasuries (a risk-free investment) and higher-risk corporate alternatives is at historical lows, it is often an easy decision to invest in lower-risk vehicles. In such cases, purchasing a Treasury-backed security provides a yield similar to the yield on <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>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporatebond.asp">corporate bonds</a>, <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</a> (REITs), and other debt instruments, but without the risk inherent in these vehicles. Money market funds and certificates of deposit (CDs) may also be attractive – particularly when a one-year CD is paying yields comparable to those on a 10-year Treasury bond. </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-inverted-yield-curve-impact-on-equity-investors"></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"> Inverted Yield Curve Impact on Equity Investors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> When the yield curve becomes inverted, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/profitmargin.asp">profit margins</a> fall for companies that borrow cash at short-term rates and lend at long-term rates, such as community banks. Likewise, hedge funds are often forced to take on increased risk in order to achieve their desired level of returns. </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 fact, a bad bet on Russian interest rates is largely credited for the demise of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/longtermcapital.asp">Long-Term Capital Management</a>, a well-known hedge fund run by bond trader John Meriwether.<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_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Despite their consequences for some parties, yield-curve inversions tend to have less impact on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumerstaples.asp">consumer staples</a> and healthcare companies, which are not interest-rate dependent. This relationship becomes clear when an inverted yield curve precedes a recession. When this occurs, investors tend to turn to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/defensivestock.asp">defensive stocks</a>, such as those in the food, oil, and tobacco industries, which are often less affected by downturns in the economy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> <li>In 2019, the yield curve briefly inverted.<span class="ql-inline-citation" data-cite="5"></span> Signals of inflationary pressure from a tight labor market and a series of interest rate hikes by the Federal Reserve from 2017 to 2019 raised expectations of a recession. Those expectations eventually led the Fed to walk back the interest rate increases.<span class="ql-inline-citation" data-cite="19"></span> The COVID-19 pandemic, however, in the Spring of 2020, did lead to a brief recession.<span class="ql-inline-citation" data-cite="23"></span></li> <li>In 2006, the yield curve was inverted during much of the year. Long-term Treasury bonds went on to outperform stocks during 2007. In 2008, long-term Treasuries soared as the stock market crashed.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="7"></span> In this case, the<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/great-recession.asp"> Great Recession</a> arrived and turned out to be worse than expected.</li> <li>In 1998, the yield curve briefly inverted.<span class="ql-inline-citation" data-cite="4"></span> For a few weeks, Treasury bond prices surged after the Russian debt default. Quick interest rate cuts by the Federal Reserve helped to prevent a recession in the United States. However, the Fed's actions may have contributed to the subsequent <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>.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-what-economic-theories-are-used-to-describe-the-yield-curve"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Economic Theories Are Used to Describe the Yield Curve?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Two economic theories have been used to explain the shape of the yield curve; the pure expectations theory and the<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquiditypreference.asp"> liquidity preference theory</a>. Pure expectations theory posits that long-term rates are simply an aggregated average of expected short-term rates over time. Liquidity preference theory instead suggests that longer-term bonds tie up money for a greater period and investors must be compensated for this lack of liquidity with higher yields.</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-when-was-the-last-time-the-yield-curve-was-inverted"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Was the Last time the Yield Curve Was Inverted?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The yield curve inverted for the first time since 2019 on March 31, 2022, when the 2-year yield rose above the 10-year yield.<span class="ql-inline-citation" data-cite="21"></span> The inversion followed shortly after the Federal Open Markets Committee began raising the target federal funds rate to control inflation.<span class="ql-inline-citation" data-cite="15"></span> The curve has remained inverted through much of 2022.</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-well-do-inverted-yield-curves-predict-recessions"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Well Do Inverted Yield Curves Predict Recessions?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An inverted yield curve in U.S. Treasuries has predicted every recession since 1955, with only one false signal during that time.<span class="ql-inline-citation" data-cite="20"></span> It even "predicted" the economic downturn that followed the COVID-19 pandemic (although most economists attribute this to luck, and not the fact that it can predict natural disasters).</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"> While experts question whether or not an inverted yield curve remains a strong indicator of pending economic recession, keep in mind that history is littered with portfolios that were devastated when investors followed predictions about how "it's different this time" without question. Most recently, shortsighted equity investors spouting this motto participated in the "tech wreck," snapping up shares in tech companies at inflated prices even though these firms had no hope of ever making a profit. </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"> If you want to be a smart investor, ignore the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/noise.asp">noise</a>. Instead of spending time and effort trying to figure out what the future will bring, construct your portfolio based on long-term thinking and long-term convictions—not short-term market movements. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> For your short-term income needs, do the obvious: choose the investment with the highest yield, but keep in mind that inversions are an anomaly and they don't last forever. When the inversion ends, adjust your portfolio accordingly. </p></div>
The term [yield curve](https://www.investopedia.com/terms/y/yieldcurve.asp) refers to the relationship between the short- and long-term interest rates of [fixed-income securities](https://www.investopedia.com/terms/f/fixed-incomesecurity.asp) issued by the U.S. Treasury. An [inverted yield curve](https://www.investopedia.com/terms/i/invertedyieldcurve.asp) occurs when short-term interest rates exceed long-term rates. Under normal circumstances, the yield curve is not inverted since debt with longer maturities typically carry higher interest rates than nearer-term ones. From an economic perspective, an inverted yield curve is a noteworthy and uncommon event because it suggests that the near-term is riskier than the long term. Below, we explain this rare phenomenon, discuss its impact on consumers and investors, and tell you how to adjust your portfolio to account for it. ### Key Takeaways * A yield curve illustrates the interest rates on bonds of increasing maturities. * An inverted yield curve occurs when short-term debt instruments carry higher yields than long-term instruments of the same credit risk profile. * Inverted yield curves are unusual since longer-term debt should carry greater risk and higher interest rates, so when they occur there are implications for consumers and investors alike. * An inverted Treasury yield curve is one of the most reliable leading indicators of an impending recession. ## Interest Rates and Yield Curves Typically, short-term interest rates are lower than long-term rates, so the yield curve slopes upwards, reflecting higher yields for longer-term investments. This is referred to as a [normal yield curve](https://www.investopedia.com/terms/n/normalyieldcurve.asp). When the [spread](https://www.investopedia.com/terms/y/yieldspread.asp) between short-term and long-term interest rates narrows, the yield curve begins to flatten. A [flat yield curve](https://www.investopedia.com/terms/f/flatyieldcurve.asp) is often seen during the transition from a normal yield curve to an inverted one. ![Yield Curve]() ![Yield Curve](https://www.investopedia.com/thmb/BsjN9dtR7rLsfHNfAzLzxQBBhbM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/YieldCurve3-b41980c37e9d475f9a0c6a68b0e92688.png) A normal yield curve. Image by Julie Bang © Investopedia 2019 ## What Does an Inverted Yield Curve Suggest? Historically, an inverted yield curve has been viewed as an indicator of a pending economic recession. When short-term interest rates exceed long-term rates, [market sentiment](https://www.investopedia.com/terms/m/marketsentiment.asp) suggests that the long-term outlook is poor and that the yields offered by long-term [fixed income](https://www.investopedia.com/terms/f/fixedincome.asp) will continue to fall. More recently, this viewpoint has been called into question, as foreign purchases of securities issued by the U.S. Treasury have created a high and sustained level of demand for products backed by U.S. government debt. When investors are aggressively seeking [debt instruments](https://www.investopedia.com/terms/d/debtinstrument.asp), the debtor can offer lower interest rates. When this occurs, many argue that it is the [laws of supply and demand](https://www.investopedia.com/terms/l/law-of-supply-demand.asp), rather than impending economic doom and gloom, that enable lenders to attract buyers without having to pay higher interest rates. ![Inverted Yield Curve]() ![Inverted Yield Curve](https://www.investopedia.com/thmb/sYqCMgk_W33JXjhuIcZ_pffsIuA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/InvertedYieldCurve3-a2dd4a71cac949d6bd03c2bca892e683.png) An inverted yield curve: note the inverse relationship between yield and maturity. Image by Julie Bang © Investopedia 2019 Inverted yield curves have been relatively rare, due in large part to longer-than-average periods between recessions since the early 1990s. For example, the economic expansions that began in March 1991, November 2001, and June 2009 were three of the four longest economic expansions since World War II. During these long periods, the question often arises as to whether an inverted yield curve can happen again. [Economic cycles](https://www.investopedia.com/terms/e/economic-cycle.asp), regardless of their length, have historically transitioned from growth to recession and back again. Inverted yield curves are an essential element of these cycles, preceding every recession since 1956. Considering the consistency of this pattern, an inverted yield will likely form again if the current expansion fades to recession. Upward sloping yield curves are a natural extension of the higher risks associated with long maturities. In a growing economy, investors also demand higher yields at the long end of the curve to compensate for the [opportunity cost](https://www.investopedia.com/terms/o/opportunitycost.asp) of investing in bonds versus other asset classes, and to maintain an acceptable spread over inflation rates. As the economic cycle begins to slow, perhaps due to interest rate hikes by the Federal Reserve, the upward slope of the yield curve tends to flatten as short-term rates increase and longer yields stay stable or decline slightly. In this environment, investors see long-term yields as an acceptable substitute for the potential of lower returns in equities and other asset classes, which tend to increase bond prices and reduce yields. ## The Formation of an Inverted Yield Curve As concerns of an impending recession increase, investors tend to buy long Treasury bonds based on the premise that they offer a safe harbor from falling equities markets, provide [preservation of capital](https://www.investopedia.com/terms/p/preservationofcapital.asp), and have the potential for appreciation in value as interest rates decline. As a result of the rotation to long maturities, yields can fall below short-term rates, forming an inverted yield curve. Since 1955, equities have peaked six times after the start of an inversion, and the economy has fallen into recession within six to 24 months. An inverted yield curve appeared in August 2006, as the Fed raised short-term interest rates in response to overheating equity, real estate, and mortgage markets. The inversion of the yield curve preceded the peak of the Standard & Poor’s 500 in October 2007 by 14 months and the official start of the recession in December 2007 by 16 months. In 2019, the yield curve again inverted, worrying economists about another downturn. In early 2020, the COVID-19 pandemic did, in fact, trigger a global recession; however, no economists think that the yield curve was able to predict the pandemic. The COVID-19 downturn did quickly rebound to new record highs into 2022. During that period, the yield curve's shape has remained volatile, with some predicting the curve to invert again in 2022. If history is any precedent, the current [business cycle](https://www.investopedia.com/terms/b/businesscycle.asp) will progress, and slowing in the economy may eventually become evident. If concerns of the next recession rise to the point where investors see the purchase of long-dated Treasuries as the best option for their portfolios, there is a high likelihood that the next inverted yield curve will take shape. ## Inverted Yield Curve Impact on Consumers In addition to its impact on investors, an inverted yield curve also has an impact on consumers. For example, homebuyers financing their properties with [adjustable-rate mortgages](https://www.investopedia.com/terms/a/arm.asp) (ARMs) have interest-rate schedules that are periodically updated based on short-term interest rates. When short-term rates are higher than long-term rates, payments on ARMs tend to rise. When this occurs, [fixed-rate](https://www.investopedia.com/terms/f/fixedinterestrate.asp) loans may be more attractive than adjustable-rate loans. [Lines of credit](https://www.investopedia.com/terms/l/lineofcredit.asp) are affected in a similar manner. In both cases, consumers must dedicate a larger portion of their incomes toward servicing existing debt. This reduces expendable income and has a negative effect on the economy as a whole. ## Inverted Yield Curve Impact on Fixed-Income Investors A yield curve inversion has the greatest impact on fixed-income investors. In normal circumstances, [long-term investments](https://www.investopedia.com/terms/l/longterminvestments.asp) have higher yields; because investors are risking their money for longer periods of time, they are rewarded with higher payouts. An inverted curve eliminates the risk premium for long-term investments, allowing investors to get better returns with [short-term investments](https://www.investopedia.com/terms/s/shorterminvestments.asp). When the spread between U.S. Treasuries (a risk-free investment) and higher-risk corporate alternatives is at historical lows, it is often an easy decision to invest in lower-risk vehicles. In such cases, purchasing a Treasury-backed security provides a yield similar to the yield on [junk bonds](https://www.investopedia.com/terms/j/junkbond.asp), [corporate bonds](https://www.investopedia.com/terms/c/corporatebond.asp), [real estate investment trusts](https://www.investopedia.com/terms/r/reit.asp) (REITs), and other debt instruments, but without the risk inherent in these vehicles. Money market funds and certificates of deposit (CDs) may also be attractive – particularly when a one-year CD is paying yields comparable to those on a 10-year Treasury bond. ## Inverted Yield Curve Impact on Equity Investors When the yield curve becomes inverted, [profit margins](https://www.investopedia.com/terms/p/profitmargin.asp) fall for companies that borrow cash at short-term rates and lend at long-term rates, such as community banks. Likewise, hedge funds are often forced to take on increased risk in order to achieve their desired level of returns. In fact, a bad bet on Russian interest rates is largely credited for the demise of [Long-Term Capital Management](https://www.investopedia.com/terms/l/longtermcapital.asp), a well-known hedge fund run by bond trader John Meriwether. Despite their consequences for some parties, yield-curve inversions tend to have less impact on [consumer staples](https://www.investopedia.com/terms/c/consumerstaples.asp) and healthcare companies, which are not interest-rate dependent. This relationship becomes clear when an inverted yield curve precedes a recession. When this occurs, investors tend to turn to [defensive stocks](https://www.investopedia.com/terms/d/defensivestock.asp), such as those in the food, oil, and tobacco industries, which are often less affected by downturns in the economy. * In 2019, the yield curve briefly inverted. Signals of inflationary pressure from a tight labor market and a series of interest rate hikes by the Federal Reserve from 2017 to 2019 raised expectations of a recession. Those expectations eventually led the Fed to walk back the interest rate increases. The COVID-19 pandemic, however, in the Spring of 2020, did lead to a brief recession. * In 2006, the yield curve was inverted during much of the year. Long-term Treasury bonds went on to outperform stocks during 2007. In 2008, long-term Treasuries soared as the stock market crashed. In this case, the[Great Recession](https://www.investopedia.com/terms/g/great-recession.asp) arrived and turned out to be worse than expected. * In 1998, the yield curve briefly inverted. For a few weeks, Treasury bond prices surged after the Russian debt default. Quick interest rate cuts by the Federal Reserve helped to prevent a recession in the United States. However, the Fed's actions may have contributed to the subsequent [dotcom bubble](https://www.investopedia.com/terms/d/dotcom-bubble.asp). ## What Economic Theories Are Used to Describe the Yield Curve? Two economic theories have been used to explain the shape of the yield curve; the pure expectations theory and the [liquidity preference theory](https://www.investopedia.com/terms/l/liquiditypreference.asp). Pure expectations theory posits that long-term rates are simply an aggregated average of expected short-term rates over time. Liquidity preference theory instead suggests that longer-term bonds tie up money for a greater period and investors must be compensated for this lack of liquidity with higher yields. ## When Was the Last time the Yield Curve Was Inverted? The yield curve inverted for the first time since 2019 on March 31, 2022, when the 2-year yield rose above the 10-year yield. The inversion followed shortly after the Federal Open Markets Committee began raising the target federal funds rate to control inflation. The curve has remained inverted through much of 2022. ## How Well Do Inverted Yield Curves Predict Recessions? An inverted yield curve in U.S. Treasuries has predicted every recession since 1955, with only one false signal during that time. It even "predicted" the economic downturn that followed the COVID-19 pandemic (although most economists attribute this to luck, and not the fact that it can predict natural disasters). ## The Bottom Line While experts question whether or not an inverted yield curve remains a strong indicator of pending economic recession, keep in mind that history is littered with portfolios that were devastated when investors followed predictions about how "it's different this time" without question. Most recently, shortsighted equity investors spouting this motto participated in the "tech wreck," snapping up shares in tech companies at inflated prices even though these firms had no hope of ever making a profit. If you want to be a smart investor, ignore the [noise](https://www.investopedia.com/terms/n/noise.asp). Instead of spending time and effort trying to figure out what the future will bring, construct your portfolio based on long-term thinking and long-term convictions—not short-term market movements. For your short-term income needs, do the obvious: choose the investment with the highest yield, but keep in mind that inversions are an anomaly and they don't last forever. When the inversion ends, adjust your portfolio accordingly.
The term yield curve refers to the relationship between the short- and long-term interest rates of fixed-income securities issued by the U.S. Treasury. An inverted yield curve occurs when short-term interest rates exceed long-term rates. Under normal circumstances, the yield curve is not inverted since debt with longer maturities typically carry higher interest rates than nearer-term ones. From an economic perspective, an inverted yield curve is a noteworthy and uncommon event because it suggests that the near-term is riskier than the long term. Below, we explain this rare phenomenon, discuss its impact on consumers and investors, and tell you how to adjust your portfolio to account for it. Key Takeaways A yield curve illustrates the interest rates on bonds of increasing maturities.An inverted yield curve occurs when short-term debt instruments carry higher yields than long-term instruments of the same credit risk profile.Inverted yield curves are unusual since longer-term debt should carry greater risk and higher interest rates, so when they occur there are implications for consumers and investors alike.An inverted Treasury yield curve is one of the most reliable leading indicators of an impending recession. Interest Rates and Yield Curves Typically, short-term interest rates are lower than long-term rates, so the yield curve slopes upwards, reflecting higher yields for longer-term investments. This is referred to as a normal yield curve. When the spread between short-term and long-term interest rates narrows, the yield curve begins to flatten. A flat yield curve is often seen during the transition from a normal yield curve to an inverted one. A normal yield curve. Image by Julie Bang © Investopedia 2019 What Does an Inverted Yield Curve Suggest? Historically, an inverted yield curve has been viewed as an indicator of a pending economic recession. When short-term interest rates exceed long-term rates, market sentiment suggests that the long-term outlook is poor and that the yields offered by long-term fixed income will continue to fall. More recently, this viewpoint has been called into question, as foreign purchases of securities issued by the U.S. Treasury have created a high and sustained level of demand for products backed by U.S. government debt. When investors are aggressively seeking debt instruments, the debtor can offer lower interest rates. When this occurs, many argue that it is the laws of supply and demand, rather than impending economic doom and gloom, that enable lenders to attract buyers without having to pay higher interest rates. An inverted yield curve: note the inverse relationship between yield and maturity. Image by Julie Bang © Investopedia 2019 Inverted yield curves have been relatively rare, due in large part to longer-than-average periods between recessions since the early 1990s. For example, the economic expansions that began in March 1991, November 2001, and June 2009 were three of the four longest economic expansions since World War II. During these long periods, the question often arises as to whether an inverted yield curve can happen again. Economic cycles, regardless of their length, have historically transitioned from growth to recession and back again. Inverted yield curves are an essential element of these cycles, preceding every recession since 1956. Considering the consistency of this pattern, an inverted yield will likely form again if the current expansion fades to recession. Upward sloping yield curves are a natural extension of the higher risks associated with long maturities. In a growing economy, investors also demand higher yields at the long end of the curve to compensate for the opportunity cost of investing in bonds versus other asset classes, and to maintain an acceptable spread over inflation rates. As the economic cycle begins to slow, perhaps due to interest rate hikes by the Federal Reserve, the upward slope of the yield curve tends to flatten as short-term rates increase and longer yields stay stable or decline slightly. In this environment, investors see long-term yields as an acceptable substitute for the potential of lower returns in equities and other asset classes, which tend to increase bond prices and reduce yields. The Formation of an Inverted Yield Curve As concerns of an impending recession increase, investors tend to buy long Treasury bonds based on the premise that they offer a safe harbor from falling equities markets, provide preservation of capital, and have the potential for appreciation in value as interest rates decline. As a result of the rotation to long maturities, yields can fall below short-term rates, forming an inverted yield curve. Since 1955, equities have peaked six times after the start of an inversion, and the economy has fallen into recession within six to 24 months. An inverted yield curve appeared in August 2006, as the Fed raised short-term interest rates in response to overheating equity, real estate, and mortgage markets. The inversion of the yield curve preceded the peak of the Standard & Poor’s 500 in October 2007 by 14 months and the official start of the recession in December 2007 by 16 months. In 2019, the yield curve again inverted, worrying economists about another downturn. In early 2020, the COVID-19 pandemic did, in fact, trigger a global recession; however, no economists think that the yield curve was able to predict the pandemic. The COVID-19 downturn did quickly rebound to new record highs into 2022. During that period, the yield curve's shape has remained volatile, with some predicting the curve to invert again in 2022. If history is any precedent, the current business cycle will progress, and slowing in the economy may eventually become evident. If concerns of the next recession rise to the point where investors see the purchase of long-dated Treasuries as the best option for their portfolios, there is a high likelihood that the next inverted yield curve will take shape. Inverted Yield Curve Impact on Consumers In addition to its impact on investors, an inverted yield curve also has an impact on consumers. For example, homebuyers financing their properties with adjustable-rate mortgages (ARMs) have interest-rate schedules that are periodically updated based on short-term interest rates. When short-term rates are higher than long-term rates, payments on ARMs tend to rise. When this occurs, fixed-rate loans may be more attractive than adjustable-rate loans. Lines of credit are affected in a similar manner. In both cases, consumers must dedicate a larger portion of their incomes toward servicing existing debt. This reduces expendable income and has a negative effect on the economy as a whole. Inverted Yield Curve Impact on Fixed-Income Investors A yield curve inversion has the greatest impact on fixed-income investors. In normal circumstances, long-term investments have higher yields; because investors are risking their money for longer periods of time, they are rewarded with higher payouts. An inverted curve eliminates the risk premium for long-term investments, allowing investors to get better returns with short-term investments. When the spread between U.S. Treasuries (a risk-free investment) and higher-risk corporate alternatives is at historical lows, it is often an easy decision to invest in lower-risk vehicles. In such cases, purchasing a Treasury-backed security provides a yield similar to the yield on junk bonds, corporate bonds, real estate investment trusts (REITs), and other debt instruments, but without the risk inherent in these vehicles. Money market funds and certificates of deposit (CDs) may also be attractive – particularly when a one-year CD is paying yields comparable to those on a 10-year Treasury bond. Inverted Yield Curve Impact on Equity Investors When the yield curve becomes inverted, profit margins fall for companies that borrow cash at short-term rates and lend at long-term rates, such as community banks. Likewise, hedge funds are often forced to take on increased risk in order to achieve their desired level of returns. In fact, a bad bet on Russian interest rates is largely credited for the demise of Long-Term Capital Management, a well-known hedge fund run by bond trader John Meriwether. Despite their consequences for some parties, yield-curve inversions tend to have less impact on consumer staples and healthcare companies, which are not interest-rate dependent. This relationship becomes clear when an inverted yield curve precedes a recession. When this occurs, investors tend to turn to defensive stocks, such as those in the food, oil, and tobacco industries, which are often less affected by downturns in the economy. In 2019, the yield curve briefly inverted. Signals of inflationary pressure from a tight labor market and a series of interest rate hikes by the Federal Reserve from 2017 to 2019 raised expectations of a recession. Those expectations eventually led the Fed to walk back the interest rate increases. The COVID-19 pandemic, however, in the Spring of 2020, did lead to a brief recession. In 2006, the yield curve was inverted during much of the year. Long-term Treasury bonds went on to outperform stocks during 2007. In 2008, long-term Treasuries soared as the stock market crashed. In this case, the Great Recession arrived and turned out to be worse than expected. In 1998, the yield curve briefly inverted. For a few weeks, Treasury bond prices surged after the Russian debt default. Quick interest rate cuts by the Federal Reserve helped to prevent a recession in the United States. However, the Fed's actions may have contributed to the subsequent dotcom bubble. What Economic Theories Are Used to Describe the Yield Curve? Two economic theories have been used to explain the shape of the yield curve; the pure expectations theory and the liquidity preference theory. Pure expectations theory posits that long-term rates are simply an aggregated average of expected short-term rates over time. Liquidity preference theory instead suggests that longer-term bonds tie up money for a greater period and investors must be compensated for this lack of liquidity with higher yields. When Was the Last time the Yield Curve Was Inverted? The yield curve inverted for the first time since 2019 on March 31, 2022, when the 2-year yield rose above the 10-year yield. The inversion followed shortly after the Federal Open Markets Committee began raising the target federal funds rate to control inflation. The curve has remained inverted through much of 2022. How Well Do Inverted Yield Curves Predict Recessions? An inverted yield curve in U.S. Treasuries has predicted every recession since 1955, with only one false signal during that time. It even "predicted" the economic downturn that followed the COVID-19 pandemic (although most economists attribute this to luck, and not the fact that it can predict natural disasters). The Bottom Line While experts question whether or not an inverted yield curve remains a strong indicator of pending economic recession, keep in mind that history is littered with portfolios that were devastated when investors followed predictions about how "it's different this time" without question. Most recently, shortsighted equity investors spouting this motto participated in the "tech wreck," snapping up shares in tech companies at inflated prices even though these firms had no hope of ever making a profit. If you want to be a smart investor, ignore the noise. Instead of spending time and effort trying to figure out what the future will bring, construct your portfolio based on long-term thinking and long-term convictions—not short-term market movements. For your short-term income needs, do the obvious: choose the investment with the highest yield, but keep in mind that inversions are an anomaly and they don't last forever. When the inversion ends, adjust your portfolio accordingly.
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https://www.investopedia.com/articles/personal-finance/092515/i-just-inherited-money-now-what.asp
What to Do With a Large Inheritance
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 large inheritance can be both a boon and a burden—a boon because the money could come in handy someday and a burden because it imposes a certain responsibility on the recipient to use it wisely and not simply squander it. Here's a step-by-step guide for anyone who has received or is anticipating receiving a large inheritance. </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>If you inherit a large amount of money, take your time in deciding what to do with it.</li><li>A federally insured bank or credit union account can be a good, safe place to park the money while you make your decisions.</li><li>Paying off high-interest debts such as credit card debt is one good use for an inheritance.</li><li>You generally won't owe tax on money you inherit, but other inherited assets—such as securities, retirement accounts, or real estate—can have tax implications.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-1-dont-assume-youll-get-it"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> 1. Don't Assume You'll Get It </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> First of all, if you're expecting a large inheritance one day but have yet to receive the money, don't count on it. Things can change. Your relative or other benefactor might incur large medical or nursing home bills at the end of their life. They may decide to leave it all to charity. They may be swindled by a con artist. </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 average inheritance today is about $46,200, according to the Federal Reserve—an amount that many families might find useful but not life-changing.<span class="ql-inline-citation" data-cite="2"></span> Another study from the Penn Wharton Budget Model puts the average inheritance across all ages and income levels at $12,353, with inheritance size strongly correlated with income. In other words, if you come from a family that doesn't make much, you're not likely to receive much—if any. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> A study published by the Bureau of Labor Statistics in 2011 found that a long-predicted inheritance boom as the World War II-era generation passed their wealth on to their baby boomer offspring never materialized. Between 1989 and 2007, only about 21% of households reported receiving an inheritance or gift of assets.<span class="ql-inline-citation" data-cite="1"></span> The heirs to the baby boomers' accumulated wealth may be likewise disappointed when their day comes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> This is a good reason for the members of younger generations to get on with their own financial lives, invest what they can for the future, try to avoid too much debt, and not rely on a windfall that may never arrive. </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-2-take-it-slowly"></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"> 2. Take It Slowly </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> If you do receive a substantial inheritance, don't feel that you have to rush into any decisions. Coping with grief isn't easy and adding money to the mix can only complicate matters. </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"> What you should do first will depend on what form (or forms) your inheritance takes. For example, if you inherit cash, you might want to park it someplace safe for a while. A federally insured bank or credit union account would be a good choice. Such accounts are insured for up to $250,000 per depositor, per financial institution. You can arrange for more coverage by setting up several different types of accounts. For example, if you open both a single account and a joint account, you’ll be covered for a total of $750,000.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="4"></span> If you inherit more money than one financial institution can insure, you can spread it among several. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> If you receive other kinds of assets, such as securities, retirement accounts, real estate, or an interest in a business, you'll need to work with the <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/executor.asp">executor</a> of the estate to get everything properly transferred into your name. </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"> Note, too, that even if you’re in a hurry, getting what's due you can take time. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/probate.asp">Probate</a>—the legal process through which an estate's assets are distributed under the guidance of a court—can take anywhere from weeks to years, depending on the complexity of the estate and whether anyone challenges the will. On average, it <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/probate-court.asp">takes about nine months</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-3-seek-advice-if-you-need-it"></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. Seek Advice If You Need It </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Depending on the amount of money involved and your own comfort level in making financial decisions, you might want to pay for some professional guidance. A financial planner can help you decide how best to handle the money in the short term as well as devise a long-term financial plan that takes all of your assets and obligations into consideration. </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 good choice here would be a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/102014/feeonly-financial-advisers-what-you-need-know.asp">fee-only financial planner</a>, the kind who receives no commissions for steering you toward particular investments but charges you for their services. That arrangement is intended to eliminate any conflicts of interest on the planner's part. </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 planner can also help you figure out how to deal with any non-cash assets you've inherited. If you inherited securities, for example, you'll need to decide whether they're a good fit for your portfolio or whether you should sell them and buy something else. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-4-pay-off-debts"></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. Pay Off Debts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> One worthy use for inherited money is paying down your debts, particularly high-interest debt such as credit cards or student loans. Lower-interest debt, such as a home mortgage if you have one, is more of a judgment call. If you would feel more secure with a paid-off mortgage, by all means, use the inheritance for that purpose. If you'd rather invest the money for a higher return than your mortgage is costing you, that's also a reasonable—if riskier—course. </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-5-invest-the-rest"></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"> 5. Invest the Rest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> When you've paid off debts, you can decide what to do with the money that's still sitting safely in your bank or credit union accounts. Again, don’t rush it. </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"> With the help of a financial planner, or on your own if you'd rather, you will probably want to begin to invest the money. Inherited money is no different from money you've earned for yourself in terms of investing principles. Unless you want to keep the inheritance separate for sentimental or other reasons, consider it in the context of your entire portfolio. Aim to be properly diversified among a variety of investments with different levels of risk. And rather than invest it all at once (and risk buying when prices are unrealistically high), consider doing it over a period of time, using a strategy like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/07/dcavsva.asp">dollar-cost averaging or value averaging</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Your inheritance can also provide an opportunity to boost your contributions to your retirement or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/529plan.asp">529 college saving plan accounts</a>. Strictly speaking, because inherited money isn't earned income or other taxable compensation, you can't put it in a retirement account; however, you can use it to free up some of your earned income for that purpose.<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_39-0"></div> <span class="heading-toc" id="toc-6-understand-the-tax-implications"></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"> 6. Understand the Tax Implications </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Unless you inherit a great deal of money, you probably won't have to worry about federal estate taxes. In 2024, for example, those kick in only on estates worth $13.61 million or more.<span class="ql-inline-citation" data-cite="7"></span> Some states also have inheritance taxes, but you don't really have to worry about those either because the estate has to pay them, not you.<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_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> However, certain types of assets do have tax implications. For example, if you inherit securities, make a note of what the securities were worth on the day that the person you inherited them from died. That's because you’ll need to know your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/costbasis.asp">cost basis</a> if you ever decide to sell them.<span class="ql-inline-citation" data-cite="9"></span><br/> </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 data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inherited_ira.asp">Inherited IRAs</a> are also more complicated. The tax rules vary depending on whether the decedent was your spouse or someone else and also on the type of IRA: traditional or Roth. You won't owe tax on the amount you inherit, but you will be taxed when you take distributions from a traditional IRA just as the original owner would have been. In the case of Roth IRAs, your withdrawals are typically tax-free, but you're generally required to deplete the account within five years.<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_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> The IRS explains these rules in detail in Publication 590-B, Distributions From Individual Retirement Arrangements (IRAs).<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <span class="heading-toc" id="toc-7-splurge-if-you-must-but-dont-go-crazy"></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"> 7. Splurge If You Must, but Don’t Go Crazy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Finally, we’ll skip the finger-wagging if you want to spend some of your inheritance on yourself or your loved ones. It's your money now. But it's worth remembering that when it's gone, it's gone, whereas if you invest sensibly, you'll have it for years to come. You might even be able to pass it down to your own heirs someday. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-what-is-considered-a-large-inheritance"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Considered a Large Inheritance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Whether an inheritance is large, small, or somewhere in between is a subjective matter that depends on the person who receives it. As you might expect, wealthy families tend to pass on greater wealth. In 2019, for example, the wealthiest families reported average inheritances of $719,000, while the poorest families (those who received any inheritance at all) reported an average inheritance of $9,700.<span class="ql-inline-citation" data-cite="2"></span> Another way of looking at it is impact. A $9,700 inheritance could be a godsend to someone with few other assets, while $719,000 bestowed on an already-rich individual might mean little.</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-where-should-i-deposit-a-large-cash-inheritance"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Should I Deposit a Large Cash Inheritance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A good place to deposit a large cash inheritance, at least for the short term, would be a federally insured bank or credit union. Your money won't earn much in the way of interest, but as long as you stay under the legal limits, it will be safe until you decide what to do with it.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_56-0"><span class="heading-toc" id="toc-what-happens-if-i-inherit-a-house"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Happens If I Inherit a House?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you inherit a house, you have basically three options: keep it and live in it (either full- or part-time), keep it and rent it out, or sell it. Note that if you sell the home, you could owe capital gains tax on the difference between what it was worth when the person died (your cost basis) and what it's worth when it sells.<span class="ql-inline-citation" data-cite="9"></span> Another consideration is whether the home is fully paid off; <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inheriting-mortgaged-house-5225123">if it still has a mortgage</a>, you will now be responsible for making those payments. Of course, that's also true for local property taxes, insurance, and so forth.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_58-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> If you receive a large inheritance and use it wisely, it can make a positive difference in your life. But don't feel rushed into making any decisions and seek professional advice if you need it. </p></div>
A large inheritance can be both a boon and a burden—a boon because the money could come in handy someday and a burden because it imposes a certain responsibility on the recipient to use it wisely and not simply squander it. Here's a step-by-step guide for anyone who has received or is anticipating receiving a large inheritance. ### Key Takeaways * If you inherit a large amount of money, take your time in deciding what to do with it. * A federally insured bank or credit union account can be a good, safe place to park the money while you make your decisions. * Paying off high-interest debts such as credit card debt is one good use for an inheritance. * You generally won't owe tax on money you inherit, but other inherited assets—such as securities, retirement accounts, or real estate—can have tax implications. ## 1. Don't Assume You'll Get It First of all, if you're expecting a large inheritance one day but have yet to receive the money, don't count on it. Things can change. Your relative or other benefactor might incur large medical or nursing home bills at the end of their life. They may decide to leave it all to charity. They may be swindled by a con artist. The average inheritance today is about $46,200, according to the Federal Reserve—an amount that many families might find useful but not life-changing. Another study from the Penn Wharton Budget Model puts the average inheritance across all ages and income levels at $12,353, with inheritance size strongly correlated with income. In other words, if you come from a family that doesn't make much, you're not likely to receive much—if any. A study published by the Bureau of Labor Statistics in 2011 found that a long-predicted inheritance boom as the World War II-era generation passed their wealth on to their baby boomer offspring never materialized. Between 1989 and 2007, only about 21% of households reported receiving an inheritance or gift of assets. The heirs to the baby boomers' accumulated wealth may be likewise disappointed when their day comes. This is a good reason for the members of younger generations to get on with their own financial lives, invest what they can for the future, try to avoid too much debt, and not rely on a windfall that may never arrive. ## 2. Take It Slowly If you do receive a substantial inheritance, don't feel that you have to rush into any decisions. Coping with grief isn't easy and adding money to the mix can only complicate matters. What you should do first will depend on what form (or forms) your inheritance takes. For example, if you inherit cash, you might want to park it someplace safe for a while. A federally insured bank or credit union account would be a good choice. Such accounts are insured for up to $250,000 per depositor, per financial institution. You can arrange for more coverage by setting up several different types of accounts. For example, if you open both a single account and a joint account, you’ll be covered for a total of $750,000. If you inherit more money than one financial institution can insure, you can spread it among several. If you receive other kinds of assets, such as securities, retirement accounts, real estate, or an interest in a business, you'll need to work with the [executor](https://www.investopedia.com/terms/e/executor.asp) of the estate to get everything properly transferred into your name. Note, too, that even if you’re in a hurry, getting what's due you can take time. [Probate](https://www.investopedia.com/terms/p/probate.asp)—the legal process through which an estate's assets are distributed under the guidance of a court—can take anywhere from weeks to years, depending on the complexity of the estate and whether anyone challenges the will. On average, it [takes about nine months](https://www.investopedia.com/terms/p/probate-court.asp). ## 3. Seek Advice If You Need It Depending on the amount of money involved and your own comfort level in making financial decisions, you might want to pay for some professional guidance. A financial planner can help you decide how best to handle the money in the short term as well as devise a long-term financial plan that takes all of your assets and obligations into consideration. A good choice here would be a [fee-only financial planner](https://www.investopedia.com/articles/investing/102014/feeonly-financial-advisers-what-you-need-know.asp), the kind who receives no commissions for steering you toward particular investments but charges you for their services. That arrangement is intended to eliminate any conflicts of interest on the planner's part. A planner can also help you figure out how to deal with any non-cash assets you've inherited. If you inherited securities, for example, you'll need to decide whether they're a good fit for your portfolio or whether you should sell them and buy something else. ## 4. Pay Off Debts One worthy use for inherited money is paying down your debts, particularly high-interest debt such as credit cards or student loans. Lower-interest debt, such as a home mortgage if you have one, is more of a judgment call. If you would feel more secure with a paid-off mortgage, by all means, use the inheritance for that purpose. If you'd rather invest the money for a higher return than your mortgage is costing you, that's also a reasonable—if riskier—course. ## 5. Invest the Rest When you've paid off debts, you can decide what to do with the money that's still sitting safely in your bank or credit union accounts. Again, don’t rush it. With the help of a financial planner, or on your own if you'd rather, you will probably want to begin to invest the money. Inherited money is no different from money you've earned for yourself in terms of investing principles. Unless you want to keep the inheritance separate for sentimental or other reasons, consider it in the context of your entire portfolio. Aim to be properly diversified among a variety of investments with different levels of risk. And rather than invest it all at once (and risk buying when prices are unrealistically high), consider doing it over a period of time, using a strategy like [dollar-cost averaging or value averaging](https://www.investopedia.com/articles/stocks/07/dcavsva.asp). Your inheritance can also provide an opportunity to boost your contributions to your retirement or [529 college saving plan accounts](https://www.investopedia.com/terms/1/529plan.asp). Strictly speaking, because inherited money isn't earned income or other taxable compensation, you can't put it in a retirement account; however, you can use it to free up some of your earned income for that purpose.     ## 6. Understand the Tax Implications Unless you inherit a great deal of money, you probably won't have to worry about federal estate taxes. In 2024, for example, those kick in only on estates worth $13.61 million or more. Some states also have inheritance taxes, but you don't really have to worry about those either because the estate has to pay them, not you. However, certain types of assets do have tax implications. For example, if you inherit securities, make a note of what the securities were worth on the day that the person you inherited them from died. That's because you’ll need to know your [cost basis](https://www.investopedia.com/terms/c/costbasis.asp) if you ever decide to sell them. [Inherited IRAs](https://www.investopedia.com/terms/i/inherited_ira.asp) are also more complicated. The tax rules vary depending on whether the decedent was your spouse or someone else and also on the type of IRA: traditional or Roth. You won't owe tax on the amount you inherit, but you will be taxed when you take distributions from a traditional IRA just as the original owner would have been. In the case of Roth IRAs, your withdrawals are typically tax-free, but you're generally required to deplete the account within five years. The IRS explains these rules in detail in Publication 590-B, Distributions From Individual Retirement Arrangements (IRAs). ## 7. Splurge If You Must, but Don’t Go Crazy Finally, we’ll skip the finger-wagging if you want to spend some of your inheritance on yourself or your loved ones. It's your money now. But it's worth remembering that when it's gone, it's gone, whereas if you invest sensibly, you'll have it for years to come. You might even be able to pass it down to your own heirs someday. ## What Is Considered a Large Inheritance? Whether an inheritance is large, small, or somewhere in between is a subjective matter that depends on the person who receives it. As you might expect, wealthy families tend to pass on greater wealth. In 2019, for example, the wealthiest families reported average inheritances of $719,000, while the poorest families (those who received any inheritance at all) reported an average inheritance of $9,700. Another way of looking at it is impact. A $9,700 inheritance could be a godsend to someone with few other assets, while $719,000 bestowed on an already-rich individual might mean little. ## Where Should I Deposit a Large Cash Inheritance? A good place to deposit a large cash inheritance, at least for the short term, would be a federally insured bank or credit union. Your money won't earn much in the way of interest, but as long as you stay under the legal limits, it will be safe until you decide what to do with it. ## What Happens If I Inherit a House? If you inherit a house, you have basically three options: keep it and live in it (either full- or part-time), keep it and rent it out, or sell it. Note that if you sell the home, you could owe capital gains tax on the difference between what it was worth when the person died (your cost basis) and what it's worth when it sells. Another consideration is whether the home is fully paid off; [if it still has a mortgage](https://www.investopedia.com/inheriting-mortgaged-house-5225123), you will now be responsible for making those payments. Of course, that's also true for local property taxes, insurance, and so forth. ## The Bottom Line If you receive a large inheritance and use it wisely, it can make a positive difference in your life. But don't feel rushed into making any decisions and seek professional advice if you need it.
A large inheritance can be both a boon and a burden—a boon because the money could come in handy someday and a burden because it imposes a certain responsibility on the recipient to use it wisely and not simply squander it. Here's a step-by-step guide for anyone who has received or is anticipating receiving a large inheritance. Key Takeaways If you inherit a large amount of money, take your time in deciding what to do with it.A federally insured bank or credit union account can be a good, safe place to park the money while you make your decisions.Paying off high-interest debts such as credit card debt is one good use for an inheritance.You generally won't owe tax on money you inherit, but other inherited assets—such as securities, retirement accounts, or real estate—can have tax implications. 1. Don't Assume You'll Get It First of all, if you're expecting a large inheritance one day but have yet to receive the money, don't count on it. Things can change. Your relative or other benefactor might incur large medical or nursing home bills at the end of their life. They may decide to leave it all to charity. They may be swindled by a con artist. The average inheritance today is about $46,200, according to the Federal Reserve—an amount that many families might find useful but not life-changing. Another study from the Penn Wharton Budget Model puts the average inheritance across all ages and income levels at $12,353, with inheritance size strongly correlated with income. In other words, if you come from a family that doesn't make much, you're not likely to receive much—if any. A study published by the Bureau of Labor Statistics in 2011 found that a long-predicted inheritance boom as the World War II-era generation passed their wealth on to their baby boomer offspring never materialized. Between 1989 and 2007, only about 21% of households reported receiving an inheritance or gift of assets. The heirs to the baby boomers' accumulated wealth may be likewise disappointed when their day comes. This is a good reason for the members of younger generations to get on with their own financial lives, invest what they can for the future, try to avoid too much debt, and not rely on a windfall that may never arrive. 2. Take It Slowly If you do receive a substantial inheritance, don't feel that you have to rush into any decisions. Coping with grief isn't easy and adding money to the mix can only complicate matters. What you should do first will depend on what form (or forms) your inheritance takes. For example, if you inherit cash, you might want to park it someplace safe for a while. A federally insured bank or credit union account would be a good choice. Such accounts are insured for up to $250,000 per depositor, per financial institution. You can arrange for more coverage by setting up several different types of accounts. For example, if you open both a single account and a joint account, you’ll be covered for a total of $750,000. If you inherit more money than one financial institution can insure, you can spread it among several. If you receive other kinds of assets, such as securities, retirement accounts, real estate, or an interest in a business, you'll need to work with the executor of the estate to get everything properly transferred into your name. Note, too, that even if you’re in a hurry, getting what's due you can take time. Probate—the legal process through which an estate's assets are distributed under the guidance of a court—can take anywhere from weeks to years, depending on the complexity of the estate and whether anyone challenges the will. On average, it takes about nine months. 3. Seek Advice If You Need It Depending on the amount of money involved and your own comfort level in making financial decisions, you might want to pay for some professional guidance. A financial planner can help you decide how best to handle the money in the short term as well as devise a long-term financial plan that takes all of your assets and obligations into consideration. A good choice here would be a fee-only financial planner, the kind who receives no commissions for steering you toward particular investments but charges you for their services. That arrangement is intended to eliminate any conflicts of interest on the planner's part. A planner can also help you figure out how to deal with any non-cash assets you've inherited. If you inherited securities, for example, you'll need to decide whether they're a good fit for your portfolio or whether you should sell them and buy something else. 4. Pay Off Debts One worthy use for inherited money is paying down your debts, particularly high-interest debt such as credit cards or student loans. Lower-interest debt, such as a home mortgage if you have one, is more of a judgment call. If you would feel more secure with a paid-off mortgage, by all means, use the inheritance for that purpose. If you'd rather invest the money for a higher return than your mortgage is costing you, that's also a reasonable—if riskier—course. 5. Invest the Rest When you've paid off debts, you can decide what to do with the money that's still sitting safely in your bank or credit union accounts. Again, don’t rush it. With the help of a financial planner, or on your own if you'd rather, you will probably want to begin to invest the money. Inherited money is no different from money you've earned for yourself in terms of investing principles. Unless you want to keep the inheritance separate for sentimental or other reasons, consider it in the context of your entire portfolio. Aim to be properly diversified among a variety of investments with different levels of risk. And rather than invest it all at once (and risk buying when prices are unrealistically high), consider doing it over a period of time, using a strategy like dollar-cost averaging or value averaging. Your inheritance can also provide an opportunity to boost your contributions to your retirement or 529 college saving plan accounts. Strictly speaking, because inherited money isn't earned income or other taxable compensation, you can't put it in a retirement account; however, you can use it to free up some of your earned income for that purpose.     6. Understand the Tax Implications Unless you inherit a great deal of money, you probably won't have to worry about federal estate taxes. In 2024, for example, those kick in only on estates worth $13.61 million or more. Some states also have inheritance taxes, but you don't really have to worry about those either because the estate has to pay them, not you. However, certain types of assets do have tax implications. For example, if you inherit securities, make a note of what the securities were worth on the day that the person you inherited them from died. That's because you’ll need to know your cost basis if you ever decide to sell them. Inherited IRAs are also more complicated. The tax rules vary depending on whether the decedent was your spouse or someone else and also on the type of IRA: traditional or Roth. You won't owe tax on the amount you inherit, but you will be taxed when you take distributions from a traditional IRA just as the original owner would have been. In the case of Roth IRAs, your withdrawals are typically tax-free, but you're generally required to deplete the account within five years. The IRS explains these rules in detail in Publication 590-B, Distributions From Individual Retirement Arrangements (IRAs). 7. Splurge If You Must, but Don’t Go Crazy Finally, we’ll skip the finger-wagging if you want to spend some of your inheritance on yourself or your loved ones. It's your money now. But it's worth remembering that when it's gone, it's gone, whereas if you invest sensibly, you'll have it for years to come. You might even be able to pass it down to your own heirs someday. What Is Considered a Large Inheritance? Whether an inheritance is large, small, or somewhere in between is a subjective matter that depends on the person who receives it. As you might expect, wealthy families tend to pass on greater wealth. In 2019, for example, the wealthiest families reported average inheritances of $719,000, while the poorest families (those who received any inheritance at all) reported an average inheritance of $9,700. Another way of looking at it is impact. A $9,700 inheritance could be a godsend to someone with few other assets, while $719,000 bestowed on an already-rich individual might mean little. Where Should I Deposit a Large Cash Inheritance? A good place to deposit a large cash inheritance, at least for the short term, would be a federally insured bank or credit union. Your money won't earn much in the way of interest, but as long as you stay under the legal limits, it will be safe until you decide what to do with it. What Happens If I Inherit a House? If you inherit a house, you have basically three options: keep it and live in it (either full- or part-time), keep it and rent it out, or sell it. Note that if you sell the home, you could owe capital gains tax on the difference between what it was worth when the person died (your cost basis) and what it's worth when it sells. Another consideration is whether the home is fully paid off; if it still has a mortgage, you will now be responsible for making those payments. Of course, that's also true for local property taxes, insurance, and so forth. The Bottom Line If you receive a large inheritance and use it wisely, it can make a positive difference in your life. But don't feel rushed into making any decisions and seek professional advice if you need it.
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https://www.investopedia.com/ask/answers/08/trading-frequency-commissions.asp
How Do I Keep Commissions and Fees From Eating Trading Profits?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> You work hard for your money. And you should be able to keep as much of it in your pocket as possible. But if you're thinking of investing your hard-earned cash to increase your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/networth.asp">net worth</a>, there are some things you should keep in mind. Investing comes at a cost. </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"> There's certainly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk.asp">risk</a> involved which can eat away at your profits. But something else that can chip away at your bottom line is the cost—from fees to commissions. And it can all add up. So can you actually put your money away and keep your expenses low? The short answer is yes. Read on to find out more about how to keep these costs from depleting your profits. </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>Investment expenses include brokerage fees, commissions, and management and advisory fees.</li> <li>Commissions and fees aren't universal—they vary from firm to firm.</li> <li>Most brokerages no longer charge for trading stocks, ETFs, or mutual funds.</li> <li>Keep your expenses down by investing with a no-fee brokerage firm or trading house.</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-robo-advisors-4693125">Robo-advisors</a> use algorithms to manage portfolios, so they may come with low or no fees.</li> </ul></div></div></div> <span class="heading-toc" id="toc-types-of-investment-fees"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Types of Investment Fees </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Most investments come with some type of fee. It's one of the only ways banks and other firms can make money. By charging you a fee, these institutions can keep running and offering you their services. </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"> Even the simplest investment vehicle can come with some form of service charge. Some savings accounts, for instance, charge a fee if you don't keep a minimum balance and you will incur a service charge if you make more than one withdrawal a month. It's your money, so why do you get hit with a fee? The account is, after all, meant for you to save your money. </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 principle—of charging a fee—is pretty consistent across the board. Businesses charge you money in order to keep and handle your accounts. But they also do the same when you want to move your money around. </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"> At times, you may feel like you're paying more than you're investing. Surely, there must be a way to keep that to a minimum, right? Of course there is. But before we outline how you can keep your money in your account by not paying outrageous fees, here's a quick look at some of the most common expenses that come with investing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-subheading__text"> Brokerage Fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerage-fee.asp">brokerage fee</a> is charged by many different financial services companies including brokerage firms, real estate houses, and financial institutions. This fee is normally charged annually to maintain client accounts, pay for any research and/or subscriptions, or to access any investment platforms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> These fees may also cover instances if and when an account goes dormant. Brokerage fees may be a certain percentage of the balance held in a client's account or a flat fee. </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"> Commissions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Brokers and investment advisors often charge clients <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commission.asp">commissions</a> for using their services. These are also called trading fees. </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"> They basically pay for any investment advice or to execute orders on the sale or purchase of securities including commodities, options, and bonds. Commission charges vary from firm to firm, so it's important to verify a brokerage's fee schedule before you decide to use their services. </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"> Management or Advisory Fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Management or advisory fees are charged by companies that run investment funds. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundmanager.asp">Fund managers</a> are compensated with these fees for their expertise. Although they can vary between funds, most of these fees are based on a percentage of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aum.asp">assets under management</a> (AUM) in each fund. </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-the-basics-of-trading-expenses"></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"> The Basics of Trading Expenses </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> There is no universal system regarding <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/04/022704.asp">trading commissions or other fees</a> charged by brokerage firms and other investment houses. Some charge rather steep fees for each trade, while others charge very little, depending on the level of service they provide. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountbroker.asp">Discount brokerages</a> no longer charge for trading stocks, ETFs, and mutual funds. This change has become a huge saver for investors. If you plan on trading other securities, such as futures, options, and bonds, you will be charged and the amount varies by broker. The cost is usually per contract or per bond, for example.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_34-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_35-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>ETFs come with expense ratios; the fee that is charged for administering the fund. You'll want to choose ETFs with low expense ratios if you want to keep costs down.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> So, if your broker charges $1.50 per futures contract, the more futures contracts you trade, the more you'll be charged. You'll want to ensure that the returns you're getting at least outweigh your costs. </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 example, if you trade 10 futures contracts, you'll be charged $15. If you earned $5 on your investment, you actually have a loss of $10 ($15-$5). You'll need to earn at least $15 on your trade to break even. </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"> Some brokerage firms may give commission discounts to investors who make many trades. For example, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker.asp">brokerage firm</a> may charge $10 per trade for its regular customers, but may only charge $5 per trade for customers who make 50 trades or more per month. </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"> In other cases, investors and brokers may agree to a fixed annual percentage fee. Because you pay the same annual percentage fee, it doesn't really matter how often you trade. </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-keep-your-expenses-down"></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"> Keep Your Expenses Down </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Even though fees are an integral part of the financial system, you don't have to be beholden to them. There is a way that you can keep your expenses down and continue investing. </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"> Consider investing your money with a firm that charges no commissions or fees for stock and ETF trades. Some of these firms also waive the minimum deposit requirement, so you can start with a low balance at no additional cost. </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"> You will, however, want to check on their fee structure for other investment vehicles along with any other fees they may charge to see if it balances out. </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"> Automated investment platforms may also help cut down on your expenses. <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp">Robo-advisors</a> are a relatively new trend in the financial industry and can be great for small investors because they have low fees. </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"> This means more money in your pocket. They can afford to do this because they're automated, so they don't have anyone physically managing client accounts. Instead, robo-advisors use <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/algorithm.asp">algorithms</a> to maintain and reallocate your holdings according to your risk tolerance and investment goals. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_55-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-advisorinsight" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_56-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0">Advisor Insight</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dave-rowan-4692545">Dave Rowan, CFP®</a><br/>Rowan Financial LLC, Bethlehem, PA</p> <p>Minimizing commissions and fees can have a huge impact on your investing career. Here are three ways to do so:</p> <ol> <li>Invest in exchange-traded funds (ETFs) rather than mutual funds. The expense ratios are almost always lower for an ETF versus a comparable mutual fund. It is now very easy to build a low-cost, well-diversified portfolio using ETFs with an expense ratio of 0.25% or less per year.</li> <li>Avoid products with front-end loads, back-end loads, or 12b-1 fees. These are typically found within mutual funds, but not ETFs.</li> <li>Seek out ETFs with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/no-fee-etf.asp">no trading fees</a>. A growing number of fund families are waiving trading fees on their ETFs.</li> </ol> <p>If you do decide to invest in a fund with a trading fee, try to invest more than $1,000 per fund.</p></div></div></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-can-i-invest-without-paying-fees"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Invest Without Paying Fees?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Today, there are many options to invest without paying fees. Many brokerage firms, such as E*Trade and Charles Schwab, don't charge investors for trading stocks, ETFs, and mutual funds. You can simply create an account with these brokerages, deposit money, and start trading these securities without incurring fees. Note that they do charge fees for other securities, such as futures, options, and bonds.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-do-investors-pay-no-taxes"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Investors Pay No Taxes?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are some legal methods to avoid having to pay taxes on investments. For example, Roth IRAs are funded with after-tax money and when you are legally allowed to withdraw, you will not pay taxes on the contributions or the earnings. You can also use capital losses to offset ordinary income to reduce your taxes.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_61-0"><span class="heading-toc" id="toc-what-are-commissions-in-investing"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Commissions in Investing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Commissions are charges made by an investment professional for buying or selling securities for you. They are to compensate the professional for their work. Commissions are usually a set percentage of the value of the investments traded.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> Trading commissions and fees eat into your investment returns; as such, you want to keep them as low as possible. If you'll primarily be buying and selling stocks, ETFs, and mutual funds, you're in the clear, as most brokerages now don't charge for this type of trading activity. </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"> If you plan on trading securities that have fees, such as futures and bonds, then you'll want to strategize on how best to keep these costs as low as possible. </p></div>
You work hard for your money. And you should be able to keep as much of it in your pocket as possible. But if you're thinking of investing your hard-earned cash to increase your [net worth](https://www.investopedia.com/terms/n/networth.asp), there are some things you should keep in mind. Investing comes at a cost. There's certainly [risk](https://www.investopedia.com/terms/r/risk.asp) involved which can eat away at your profits. But something else that can chip away at your bottom line is the cost—from fees to commissions. And it can all add up. So can you actually put your money away and keep your expenses low? The short answer is yes. Read on to find out more about how to keep these costs from depleting your profits. ### Key Takeaways * Investment expenses include brokerage fees, commissions, and management and advisory fees. * Commissions and fees aren't universal—they vary from firm to firm. * Most brokerages no longer charge for trading stocks, ETFs, or mutual funds. * Keep your expenses down by investing with a no-fee brokerage firm or trading house. * [Robo-advisors](https://www.investopedia.com/best-robo-advisors-4693125) use algorithms to manage portfolios, so they may come with low or no fees. ## Types of Investment Fees Most investments come with some type of fee. It's one of the only ways banks and other firms can make money. By charging you a fee, these institutions can keep running and offering you their services. Even the simplest investment vehicle can come with some form of service charge. Some savings accounts, for instance, charge a fee if you don't keep a minimum balance and you will incur a service charge if you make more than one withdrawal a month. It's your money, so why do you get hit with a fee? The account is, after all, meant for you to save your money. This principle—of charging a fee—is pretty consistent across the board. Businesses charge you money in order to keep and handle your accounts. But they also do the same when you want to move your money around. At times, you may feel like you're paying more than you're investing. Surely, there must be a way to keep that to a minimum, right? Of course there is. But before we outline how you can keep your money in your account by not paying outrageous fees, here's a quick look at some of the most common expenses that come with investing. ### Brokerage Fees A [brokerage fee](https://www.investopedia.com/terms/b/brokerage-fee.asp) is charged by many different financial services companies including brokerage firms, real estate houses, and financial institutions. This fee is normally charged annually to maintain client accounts, pay for any research and/or subscriptions, or to access any investment platforms. These fees may also cover instances if and when an account goes dormant. Brokerage fees may be a certain percentage of the balance held in a client's account or a flat fee. ### Commissions Brokers and investment advisors often charge clients [commissions](https://www.investopedia.com/terms/c/commission.asp) for using their services. These are also called trading fees. They basically pay for any investment advice or to execute orders on the sale or purchase of securities including commodities, options, and bonds. Commission charges vary from firm to firm, so it's important to verify a brokerage's fee schedule before you decide to use their services. ### Management or Advisory Fees Management or advisory fees are charged by companies that run investment funds. [Fund managers](https://www.investopedia.com/terms/f/fundmanager.asp) are compensated with these fees for their expertise. Although they can vary between funds, most of these fees are based on a percentage of the [assets under management](https://www.investopedia.com/terms/a/aum.asp) (AUM) in each fund. ## The Basics of Trading Expenses There is no universal system regarding [trading commissions or other fees](https://www.investopedia.com/articles/basics/04/022704.asp) charged by brokerage firms and other investment houses. Some charge rather steep fees for each trade, while others charge very little, depending on the level of service they provide. [Discount brokerages](https://www.investopedia.com/terms/d/discountbroker.asp) no longer charge for trading stocks, ETFs, and mutual funds. This change has become a huge saver for investors. If you plan on trading other securities, such as futures, options, and bonds, you will be charged and the amount varies by broker. The cost is usually per contract or per bond, for example. ### ETFs come with expense ratios; the fee that is charged for administering the fund. You'll want to choose ETFs with low expense ratios if you want to keep costs down. So, if your broker charges $1.50 per futures contract, the more futures contracts you trade, the more you'll be charged. You'll want to ensure that the returns you're getting at least outweigh your costs. For example, if you trade 10 futures contracts, you'll be charged $15. If you earned $5 on your investment, you actually have a loss of $10 ($15-$5). You'll need to earn at least $15 on your trade to break even. Some brokerage firms may give commission discounts to investors who make many trades. For example, a [brokerage firm](https://www.investopedia.com/terms/b/broker.asp) may charge $10 per trade for its regular customers, but may only charge $5 per trade for customers who make 50 trades or more per month. In other cases, investors and brokers may agree to a fixed annual percentage fee. Because you pay the same annual percentage fee, it doesn't really matter how often you trade. ## Keep Your Expenses Down Even though fees are an integral part of the financial system, you don't have to be beholden to them. There is a way that you can keep your expenses down and continue investing. Consider investing your money with a firm that charges no commissions or fees for stock and ETF trades. Some of these firms also waive the minimum deposit requirement, so you can start with a low balance at no additional cost. You will, however, want to check on their fee structure for other investment vehicles along with any other fees they may charge to see if it balances out. Automated investment platforms may also help cut down on your expenses. [Robo-advisors](https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp) are a relatively new trend in the financial industry and can be great for small investors because they have low fees. This means more money in your pocket. They can afford to do this because they're automated, so they don't have anyone physically managing client accounts. Instead, robo-advisors use [algorithms](https://www.investopedia.com/terms/a/algorithm.asp) to maintain and reallocate your holdings according to your risk tolerance and investment goals. ### Advisor Insight [Dave Rowan, CFP®](https://www.investopedia.com/dave-rowan-4692545) Rowan Financial LLC, Bethlehem, PA Minimizing commissions and fees can have a huge impact on your investing career. Here are three ways to do so: 1. Invest in exchange-traded funds (ETFs) rather than mutual funds. The expense ratios are almost always lower for an ETF versus a comparable mutual fund. It is now very easy to build a low-cost, well-diversified portfolio using ETFs with an expense ratio of 0.25% or less per year. 2. Avoid products with front-end loads, back-end loads, or 12b-1 fees. These are typically found within mutual funds, but not ETFs. 3. Seek out ETFs with [no trading fees](https://www.investopedia.com/terms/n/no-fee-etf.asp). A growing number of fund families are waiving trading fees on their ETFs. If you do decide to invest in a fund with a trading fee, try to invest more than $1,000 per fund. ## How Can I Invest Without Paying Fees? Today, there are many options to invest without paying fees. Many brokerage firms, such as E\*Trade and Charles Schwab, don't charge investors for trading stocks, ETFs, and mutual funds. You can simply create an account with these brokerages, deposit money, and start trading these securities without incurring fees. Note that they do charge fees for other securities, such as futures, options, and bonds. ## How Do Investors Pay No Taxes? There are some legal methods to avoid having to pay taxes on investments. For example, Roth IRAs are funded with after-tax money and when you are legally allowed to withdraw, you will not pay taxes on the contributions or the earnings. You can also use capital losses to offset ordinary income to reduce your taxes. ## What Are Commissions in Investing? Commissions are charges made by an investment professional for buying or selling securities for you. They are to compensate the professional for their work. Commissions are usually a set percentage of the value of the investments traded. ## The Bottom Line Trading commissions and fees eat into your investment returns; as such, you want to keep them as low as possible. If you'll primarily be buying and selling stocks, ETFs, and mutual funds, you're in the clear, as most brokerages now don't charge for this type of trading activity. If you plan on trading securities that have fees, such as futures and bonds, then you'll want to strategize on how best to keep these costs as low as possible.
You work hard for your money. And you should be able to keep as much of it in your pocket as possible. But if you're thinking of investing your hard-earned cash to increase your net worth, there are some things you should keep in mind. Investing comes at a cost. There's certainly risk involved which can eat away at your profits. But something else that can chip away at your bottom line is the cost—from fees to commissions. And it can all add up. So can you actually put your money away and keep your expenses low? The short answer is yes. Read on to find out more about how to keep these costs from depleting your profits. Key Takeaways Investment expenses include brokerage fees, commissions, and management and advisory fees. Commissions and fees aren't universal—they vary from firm to firm. Most brokerages no longer charge for trading stocks, ETFs, or mutual funds. Keep your expenses down by investing with a no-fee brokerage firm or trading house. Robo-advisors use algorithms to manage portfolios, so they may come with low or no fees. Types of Investment Fees Most investments come with some type of fee. It's one of the only ways banks and other firms can make money. By charging you a fee, these institutions can keep running and offering you their services. Even the simplest investment vehicle can come with some form of service charge. Some savings accounts, for instance, charge a fee if you don't keep a minimum balance and you will incur a service charge if you make more than one withdrawal a month. It's your money, so why do you get hit with a fee? The account is, after all, meant for you to save your money. This principle—of charging a fee—is pretty consistent across the board. Businesses charge you money in order to keep and handle your accounts. But they also do the same when you want to move your money around. At times, you may feel like you're paying more than you're investing. Surely, there must be a way to keep that to a minimum, right? Of course there is. But before we outline how you can keep your money in your account by not paying outrageous fees, here's a quick look at some of the most common expenses that come with investing. Brokerage Fees A brokerage fee is charged by many different financial services companies including brokerage firms, real estate houses, and financial institutions. This fee is normally charged annually to maintain client accounts, pay for any research and/or subscriptions, or to access any investment platforms. These fees may also cover instances if and when an account goes dormant. Brokerage fees may be a certain percentage of the balance held in a client's account or a flat fee. Commissions Brokers and investment advisors often charge clients commissions for using their services. These are also called trading fees. They basically pay for any investment advice or to execute orders on the sale or purchase of securities including commodities, options, and bonds. Commission charges vary from firm to firm, so it's important to verify a brokerage's fee schedule before you decide to use their services. Management or Advisory Fees Management or advisory fees are charged by companies that run investment funds. Fund managers are compensated with these fees for their expertise. Although they can vary between funds, most of these fees are based on a percentage of the assets under management (AUM) in each fund. The Basics of Trading Expenses There is no universal system regarding trading commissions or other fees charged by brokerage firms and other investment houses. Some charge rather steep fees for each trade, while others charge very little, depending on the level of service they provide. Discount brokerages no longer charge for trading stocks, ETFs, and mutual funds. This change has become a huge saver for investors. If you plan on trading other securities, such as futures, options, and bonds, you will be charged and the amount varies by broker. The cost is usually per contract or per bond, for example. ETFs come with expense ratios; the fee that is charged for administering the fund. You'll want to choose ETFs with low expense ratios if you want to keep costs down. So, if your broker charges $1.50 per futures contract, the more futures contracts you trade, the more you'll be charged. You'll want to ensure that the returns you're getting at least outweigh your costs. For example, if you trade 10 futures contracts, you'll be charged $15. If you earned $5 on your investment, you actually have a loss of $10 ($15-$5). You'll need to earn at least $15 on your trade to break even. Some brokerage firms may give commission discounts to investors who make many trades. For example, a brokerage firm may charge $10 per trade for its regular customers, but may only charge $5 per trade for customers who make 50 trades or more per month. In other cases, investors and brokers may agree to a fixed annual percentage fee. Because you pay the same annual percentage fee, it doesn't really matter how often you trade. Keep Your Expenses Down Even though fees are an integral part of the financial system, you don't have to be beholden to them. There is a way that you can keep your expenses down and continue investing. Consider investing your money with a firm that charges no commissions or fees for stock and ETF trades. Some of these firms also waive the minimum deposit requirement, so you can start with a low balance at no additional cost. You will, however, want to check on their fee structure for other investment vehicles along with any other fees they may charge to see if it balances out. Automated investment platforms may also help cut down on your expenses. Robo-advisors are a relatively new trend in the financial industry and can be great for small investors because they have low fees. This means more money in your pocket. They can afford to do this because they're automated, so they don't have anyone physically managing client accounts. Instead, robo-advisors use algorithms to maintain and reallocate your holdings according to your risk tolerance and investment goals. Advisor Insight Dave Rowan, CFP®Rowan Financial LLC, Bethlehem, PA Minimizing commissions and fees can have a huge impact on your investing career. Here are three ways to do so: Invest in exchange-traded funds (ETFs) rather than mutual funds. The expense ratios are almost always lower for an ETF versus a comparable mutual fund. It is now very easy to build a low-cost, well-diversified portfolio using ETFs with an expense ratio of 0.25% or less per year. Avoid products with front-end loads, back-end loads, or 12b-1 fees. These are typically found within mutual funds, but not ETFs. Seek out ETFs with no trading fees. A growing number of fund families are waiving trading fees on their ETFs. If you do decide to invest in a fund with a trading fee, try to invest more than $1,000 per fund. How Can I Invest Without Paying Fees? Today, there are many options to invest without paying fees. Many brokerage firms, such as E*Trade and Charles Schwab, don't charge investors for trading stocks, ETFs, and mutual funds. You can simply create an account with these brokerages, deposit money, and start trading these securities without incurring fees. Note that they do charge fees for other securities, such as futures, options, and bonds. How Do Investors Pay No Taxes? There are some legal methods to avoid having to pay taxes on investments. For example, Roth IRAs are funded with after-tax money and when you are legally allowed to withdraw, you will not pay taxes on the contributions or the earnings. You can also use capital losses to offset ordinary income to reduce your taxes. What Are Commissions in Investing? Commissions are charges made by an investment professional for buying or selling securities for you. They are to compensate the professional for their work. Commissions are usually a set percentage of the value of the investments traded. The Bottom Line Trading commissions and fees eat into your investment returns; as such, you want to keep them as low as possible. If you'll primarily be buying and selling stocks, ETFs, and mutual funds, you're in the clear, as most brokerages now don't charge for this type of trading activity. If you plan on trading securities that have fees, such as futures and bonds, then you'll want to strategize on how best to keep these costs as low as possible.
[ [ "net worth", "https://www.investopedia.com/terms/n/networth.asp" ], [ "risk", "https://www.investopedia.com/terms/r/risk.asp" ], [ "Robo-advisors", "https://www.investopedia.com/best-robo-advisors-4693125" ], [ "brokerage fee", "https://www.investopedia.com/terms/b/brokerage-fee.asp" ], [ "commissions", "https://www.investopedia.com/terms/c/commission.asp" ], [ "Fund managers", "https://www.investopedia.com/terms/f/fundmanager.asp" ], [ "assets under management", "https://www.investopedia.com/terms/a/aum.asp" ], [ "trading commissions or other fees", "https://www.investopedia.com/articles/basics/04/022704.asp" ], [ "Discount brokerages", "https://www.investopedia.com/terms/d/discountbroker.asp" ], [ "brokerage firm", "https://www.investopedia.com/terms/b/broker.asp" ], [ "Robo-advisors", "https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp" ], [ "algorithms", "https://www.investopedia.com/terms/a/algorithm.asp" ], [ "Dave Rowan, CFP®", "https://www.investopedia.com/dave-rowan-4692545" ], [ "no trading fees", "https://www.investopedia.com/terms/n/no-fee-etf.asp" ] ]
https://www.investopedia.com/which-big-banks-pay-the-most-on-savings-and-cds-8624003
Which Big Banks Pay the Most on Savings & CDs?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 best savings account and CD rates are typically offered by smaller and medium-sized banks and credit unions.</li> <li>If you feel more comfortable sticking to a big-name bank, you can still earn a respectable APY from some of the large institutions.</li> <li>But be sure to shop around, as some of the biggest U.S. banks pay close to nothing.</li> <li>If you're open to smaller institutions, our daily rankings of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings accounts</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> provide dozens of options paying up to 5.55% APY.</li> <li>Federal FDIC and NCUA insurance provide identical protection for your bank or credit union deposits, no matter the institution's size.</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 full article follows below this list of offers from our partners. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_5-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <span class="heading-toc" id="toc-big-vs-small-bank-vs-credit-union--the-key-is-shopping-around"></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"> Big vs. Small, Bank vs. Credit Union — The Key Is Shopping Around </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The best rates you can earn on nationwide savings accounts and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificates of deposit (CDs)</a> are typically available from small to medium-sized banks and credit unions. Because these institutions have names you may not recognize, they have to work harder to attract customer deposits. One way they do this is by offering more competitive interest rates. </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 very biggest U.S. banks, on the other hand—like Chase, Bank of America, and Wells Fargo—aren't hungry for deposits in the same way smaller institutions are. That's why some of them have savings account rates that are very close to zero—and most of their CDs also pay a pittance. So you could be making a big financial mistake if you move money to a savings account or CD at one of these banking giants without doing your homework. </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 good news is that we make it extremely easy to do your research. Every business day, we publish 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">top nationwide rates on high-yield savings accounts</a> and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best nationally available CD rates</a> in every major term. Each list provides at least 15 top-paying options that anyone in the country can open. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> If you find you'd still rather deposit your savings with a brand-name bank that feels more familiar, it's not impossible to earn a respectable rate. You just have to choose carefully. While you won't earn the highest rate in the country, you can still earn many times the national average if you take a little time to shop around. </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 mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_17-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Best High-Yield Savings Accounts for May 2024—Up to 5.55%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_19-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-cd-rates-4770214" id="mntl-sc-block-featuredlink__link_2-0" rel="nocaes"><span class="link__wrapper">Best CD Rates for May 2024: Up to 5.51%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_21-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-money-market-accounts-5096917" id="mntl-sc-block-featuredlink__link_3-0" rel="nocaes"><span class="link__wrapper">Best Money Market Account Rates for May 2024—Up to 5.35%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <span class="heading-toc" id="toc-earn-at-least-4-from-these-big-us-banks"></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"> Earn at Least 4% From These Big U.S. Banks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Of the 30 largest U.S. banks (ranked by total domestic deposits), a baker's dozen currently offer at least one savings or CD rate of 4.00% APY or higher.<span class="ql-inline-citation" data-cite="1"></span> A few even pay 5% or more for select products. You can see what each bank currently offers below. </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"> Just beware that rates can go up or down on any given day, so what you see here may or may not still be available when you're shopping around. Also note that some of these banks offer different rates in different ZIP codes, so your mileage may vary depending on where you live. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_28-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="10">Best Rates at Big Banks</th> </tr> <tr> <th>Size Rank</th> <th>Bank</th> <th>Savings Account</th> <th>6M CD</th> <th>1Y CD</th> <th>18M CD</th> <th>2Y CD</th> <th>3Y CD</th> <th>4Y CD</th> <th>5Y CD</th> </tr> </thead> <tbody data-check="0"> <tr> <td>2</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.bankofamerica.com/deposits/bank-cds/featured-cd/&amp;lender=Bank%20of%20America&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Bank of America</a></td> <td></td> <td>4.75%</td> <td>4.30%</td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td>3</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.wellsfargo.com/savings-cds/rates/&amp;lender=Wells%20Fargo&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Wells Fargo</a></td> <td></td> <td>4.75%</td> <td>4.25%</td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td>4</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.citi.com/banking/cd-account&amp;lender=Citi&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Citi</a></td> <td>4.45%</td> <td>4.75%</td> <td></td> <td>4.00%</td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td>5</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.usbank.com/bank-accounts/savings-accounts/certificate-of-deposit.html?productCode=CDA&amp;lender=U.S.%20Banktype=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">U.S. Bank</a></td> <td></td> <td>4.65%</td> <td>4.00%</td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td>8</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.capitalone.com/bank/cds/online-cds/&amp;lender=Capital%20One&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Capital One</a></td> <td>4.35%</td> <td>4.35%</td> <td>5.10%</td> <td>4.50%</td> <td>4.20%</td> <td>4.10%</td> <td>4.05%</td> <td>4.00%</td> </tr> <tr> <td>9</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.marcus.com/us/en/savings/high-yield-cds&amp;lender=Marcus%20by%20Goldman%20Sachs&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Marcus by Goldman Sachs</a></td> <td>4.40%</td> <td>4.90%</td> <td>5.00%</td> <td>4.60%</td> <td>4.20%</td> <td>4.15%</td> <td>4.05%</td> <td>4.00%</td> </tr> <tr> <td>12</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://alto.bmo.com/en-us/high-yield-cd/&amp;lender=BMO%20Alto&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">BMO Alto</a></td> <td>5.10%</td> <td>5.15%</td> <td>5.05%</td> <td></td> <td>4.65%</td> <td>4.50%</td> <td>4.50%</td> <td>4.50%</td> </tr> <tr> <td>15</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.secure.citizensaccess.com/Citizens/certificate-of-deposit.page?&amp;lender=Citizens&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Citizens</a></td> <td>4.50%</td> <td></td> <td>5.00%</td> <td></td> <td>4.00%</td> <td></td> <td></td> <td></td> </tr> <tr> <td>19</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.ally.com/bank/cd-rates/&amp;lender=Ally%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Ally</a></td> <td>4.25%</td> <td>4.45%</td> <td>4.50%</td> <td>4.45%</td> <td></td> <td>4.00%</td> <td></td> <td></td> </tr> <tr> <td>24</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.americanexpress.com/en-us/banking/online-savings/cd/&amp;lender=American%20Express&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">American Express</a></td> <td>4.35%</td> <td></td> <td>4.75%</td> <td></td> <td>4.00%</td> <td></td> <td></td> <td></td> </tr> <tr> <td>25</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.us.hsbc.com/savings-accounts/products/certificate-of-deposit/&amp;lender=HSBC%20Direct&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">HSBC</a></td> <td></td> <td>4.00%</td> <td>4.70%</td> <td></td> <td>4.00%</td> <td></td> <td></td> <td></td> </tr> <tr> <td>27</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.discover.com/online-banking/cd/&amp;lender=Discover%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Discover</a></td> <td>4.25%</td> <td>4.25%</td> <td>4.70%</td> <td>4.40%</td> <td>4.00%</td> <td></td> <td></td> <td></td> </tr> <tr> <td>30</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.synchronybank.com/banking/cd/?UISCode=0000000&amp;lender=Synchrony%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Synchrony</a></td> <td>4.75%</td> <td>5.15%</td> <td>4.80%</td> <td>4.50%</td> <td>4.20%</td> <td>4.15%</td> <td>4.00%</td> <td>4.00%</td> </tr> <tr> <td></td> <td><b>Top nationwide rate from smaller institutions</b></td> <td><b>5.50%</b></td> <td><b>5.55%</b></td> <td><b>5.40%</b></td> <td><b>5.35%</b></td> <td><b>5.20%</b></td> <td><b>5.00%</b></td> <td><b>4.80%</b></td> <td><b>4.70%</b></td> </tr> </tbody> </table> <figcaption>Bank size rank is based on the FDIC's Dec. 31, 2023, report on Total Domestic Deposits. CD terms listed above include a range, such as 5–9 months in the 6-month term, 10–14 months in the 1-year term, etc. Listed rates are APYs current as of April 3, 2024. Note that some rates listed above may not be available to all U.S. residents.</figcaption> </div></figure> <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-to-earn-a-tip-top-rate-consider-a-smaller-institution"></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"> To Earn a Tip-Top Rate, Consider a Smaller Institution </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Want to earn more than a 4% rate and score one of the highest rates in the nation? Simply loosen your criteria on how big or recognizable the bank needs to be. More than 100 banks and credit unions offer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp">high-yield savings accounts</a> to customers nationwide, and over 200 offer nationally available CDs. By being willing to bank at a medium-sized or even small institution—after ensuring it is federally insured—you can earn the highest rates available. </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"> Our daily ranking of 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> currently includes 18 options that pay 5.15% APY or better, including the nation-leading rate of 5.50% APY.<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"> Our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">daily ranking of the best CD rates</a>, meanwhile, includes five leading CDs that pay between 5.50% and 5.65%, with terms ranging from 3 to 7 months. For terms of 1 to 2 years, the top nationwide rates range from 5.20% to 5.40% APY, while you can earn from the upper 4% range to 5.00% APY in terms of 3–5 years. </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-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_37-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/MkyxB/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Ranges of best SA and CD rates by term"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> If it feels less safe to deposit your money in one of these smaller institutions, let us assure you that the size of these institutions doesn't pose any risk. That's because <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">FDIC insurance</a> applies <em>equally</em> to all member banks, regardless of size. So if the smaller bank you're considering is an FDIC member, your deposits are just as safe at that bank as at an exceptionally large one. </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"> The same holds true for credit unions—if they're a member of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua-insured-institution.asp">National Credit Union Administration (NCUA)</a>, they too offer the same federal insurance protection on your deposits that FDIC coverage provides, and the credit union's size has no bearing on your coverage. </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-why-cds-are-so-easy-to-hold-at-another-bank"></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"> Why CDs Are So Easy to Hold at Another Bank </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> You may already have a long history with your primary banking institution, and making a change in where you hold your checking account could involve a significant disruption to your daily financial life. That's why it's nice to stick with one primary bank or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditunion.asp">credit union</a> for most of your banking business. </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"> But putting money in a CD isn't "everyday banking." By definition, CDs are a place to stash your money and not touch it for months or years. While it's true there will be monthly statements and interest payments, these are not transactions that require your attention or action. If you're like most CD buyers, you'll interact with your CD account twice in its lifetime: once when you open it, and a second and final time when you cash out and close it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> That makes CDs very easy to hold at institutions other than your primary bank. So if you decide to shop around in hopes of scoring a higher rate, know that a CD's "park it and forget it" nature will make things very simple for you.<br> </br></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 mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_51-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-1-year-cd-rates-4796650" id="mntl-sc-block-featuredlink__link_4-0" rel="nocaes"><span class="link__wrapper">Best 1-Year CD Rates for May 2024: Up to 5.40%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_53-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766" id="mntl-sc-block-featuredlink__link_5-0" rel="nocaes"><span class="link__wrapper">Best Jumbo CD Rates for May 2024</span></a></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-how-we-find-the-best-savings-and-cd-rates"></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 We Find the Best Savings and CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">FDIC</a> for banks, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua-insured-institution.asp">NCUA</a> for credit unions), and the account's minimum initial deposit must not exceed $25,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816">read our full methodology</a>. </p></div>
### Key Takeaways * The best savings account and CD rates are typically offered by smaller and medium-sized banks and credit unions. * If you feel more comfortable sticking to a big-name bank, you can still earn a respectable APY from some of the large institutions. * But be sure to shop around, as some of the biggest U.S. banks pay close to nothing. * If you're open to smaller institutions, our daily rankings of the [best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) and [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) provide dozens of options paying up to 5.55% APY. * Federal FDIC and NCUA insurance provide identical protection for your bank or credit union deposits, no matter the institution's size. The full article follows below this list of offers from our partners. ## Big vs. Small, Bank vs. Credit Union — The Key Is Shopping Around The best rates you can earn on nationwide savings accounts and [certificates of deposit (CDs)](https://www.investopedia.com/terms/c/certificateofdeposit.asp) are typically available from small to medium-sized banks and credit unions. Because these institutions have names you may not recognize, they have to work harder to attract customer deposits. One way they do this is by offering more competitive interest rates. Some of the very biggest U.S. banks, on the other hand—like Chase, Bank of America, and Wells Fargo—aren't hungry for deposits in the same way smaller institutions are. That's why some of them have savings account rates that are very close to zero—and most of their CDs also pay a pittance. So you could be making a big financial mistake if you move money to a savings account or CD at one of these banking giants without doing your homework. The good news is that we make it extremely easy to do your research. Every business day, we publish the [top nationwide rates on high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) and the [best nationally available CD rates](https://www.investopedia.com/best-cd-rates-4770214) in every major term. Each list provides at least 15 top-paying options that anyone in the country can open. If you find you'd still rather deposit your savings with a brand-name bank that feels more familiar, it's not impossible to earn a respectable rate. You just have to choose carefully. While you won't earn the highest rate in the country, you can still earn many times the national average if you take a little time to shop around. [Best High-Yield Savings Accounts for May 2024—Up to 5.55%](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) [Best CD Rates for May 2024: Up to 5.51%](https://www.investopedia.com/best-cd-rates-4770214) [Best Money Market Account Rates for May 2024—Up to 5.35%](https://www.investopedia.com/best-money-market-accounts-5096917) ## Earn at Least 4% From These Big U.S. Banks Of the 30 largest U.S. banks (ranked by total domestic deposits), a baker's dozen currently offer at least one savings or CD rate of 4.00% APY or higher. A few even pay 5% or more for select products. You can see what each bank currently offers below. Just beware that rates can go up or down on any given day, so what you see here may or may not still be available when you're shopping around. Also note that some of these banks offer different rates in different ZIP codes, so your mileage may vary depending on where you live. | Best Rates at Big Banks | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Size Rank | Bank | Savings Account | 6M CD | 1Y CD | 18M CD | 2Y CD | 3Y CD | 4Y CD | 5Y CD | | 2 | [Bank of America](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.bankofamerica.com/deposits/bank-cds/featured-cd/&lender=Bank%20of%20America&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | 4.75% | 4.30% | | | | | | | 3 | [Wells Fargo](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.wellsfargo.com/savings-cds/rates/&lender=Wells%20Fargo&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | 4.75% | 4.25% | | | | | | | 4 | [Citi](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.citi.com/banking/cd-account&lender=Citi&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.45% | 4.75% | | 4.00% | | | | | | 5 | [U.S. Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.usbank.com/bank-accounts/savings-accounts/certificate-of-deposit.html?productCode=CDA&lender=U.S.%20Banktype=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | 4.65% | 4.00% | | | | | | | 8 | [Capital One](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.capitalone.com/bank/cds/online-cds/&lender=Capital%20One&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.35% | 4.35% | 5.10% | 4.50% | 4.20% | 4.10% | 4.05% | 4.00% | | 9 | [Marcus by Goldman Sachs](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.marcus.com/us/en/savings/high-yield-cds&lender=Marcus%20by%20Goldman%20Sachs&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.40% | 4.90% | 5.00% | 4.60% | 4.20% | 4.15% | 4.05% | 4.00% | | 12 | [BMO Alto](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://alto.bmo.com/en-us/high-yield-cd/&lender=BMO%20Alto&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 5.10% | 5.15% | 5.05% | | 4.65% | 4.50% | 4.50% | 4.50% | | 15 | [Citizens](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.secure.citizensaccess.com/Citizens/certificate-of-deposit.page?&lender=Citizens&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.50% | | 5.00% | | 4.00% | | | | | 19 | [Ally](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.ally.com/bank/cd-rates/&lender=Ally%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.25% | 4.45% | 4.50% | 4.45% | | 4.00% | | | | 24 | [American Express](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.americanexpress.com/en-us/banking/online-savings/cd/&lender=American%20Express&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.35% | | 4.75% | | 4.00% | | | | | 25 | [HSBC](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.us.hsbc.com/savings-accounts/products/certificate-of-deposit/&lender=HSBC%20Direct&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | 4.00% | 4.70% | | 4.00% | | | | | 27 | [Discover](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.discover.com/online-banking/cd/&lender=Discover%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.25% | 4.25% | 4.70% | 4.40% | 4.00% | | | | | 30 | [Synchrony](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.synchronybank.com/banking/cd/?UISCode=0000000&lender=Synchrony%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.75% | 5.15% | 4.80% | 4.50% | 4.20% | 4.15% | 4.00% | 4.00% | | | **Top nationwide rate from smaller institutions** | **5.50%** | **5.55%** | **5.40%** | **5.35%** | **5.20%** | **5.00%** | **4.80%** | **4.70%** | Bank size rank is based on the FDIC's Dec. 31, 2023, report on Total Domestic Deposits. CD terms listed above include a range, such as 5–9 months in the 6-month term, 10–14 months in the 1-year term, etc. Listed rates are APYs current as of April 3, 2024. Note that some rates listed above may not be available to all U.S. residents. ## To Earn a Tip-Top Rate, Consider a Smaller Institution Want to earn more than a 4% rate and score one of the highest rates in the nation? Simply loosen your criteria on how big or recognizable the bank needs to be. More than 100 banks and credit unions offer [high-yield savings accounts](https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp) to customers nationwide, and over 200 offer nationally available CDs. By being willing to bank at a medium-sized or even small institution—after ensuring it is federally insured—you can earn the highest rates available. Our daily ranking of the [best high-yield savings account rates](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) currently includes 18 options that pay 5.15% APY or better, including the nation-leading rate of 5.50% APY. Our [daily ranking of the best CD rates](https://www.investopedia.com/best-cd-rates-4770214), meanwhile, includes five leading CDs that pay between 5.50% and 5.65%, with terms ranging from 3 to 7 months. For terms of 1 to 2 years, the top nationwide rates range from 5.20% to 5.40% APY, while you can earn from the upper 4% range to 5.00% APY in terms of 3–5 years. If it feels less safe to deposit your money in one of these smaller institutions, let us assure you that the size of these institutions doesn't pose any risk. That's because [FDIC insurance](https://www.investopedia.com/terms/f/fdic-insured-account.asp) applies *equally* to all member banks, regardless of size. So if the smaller bank you're considering is an FDIC member, your deposits are just as safe at that bank as at an exceptionally large one. The same holds true for credit unions—if they're a member of the [National Credit Union Administration (NCUA)](https://www.investopedia.com/terms/n/ncua-insured-institution.asp), they too offer the same federal insurance protection on your deposits that FDIC coverage provides, and the credit union's size has no bearing on your coverage. ## Why CDs Are So Easy to Hold at Another Bank You may already have a long history with your primary banking institution, and making a change in where you hold your checking account could involve a significant disruption to your daily financial life. That's why it's nice to stick with one primary bank or [credit union](https://www.investopedia.com/terms/c/creditunion.asp) for most of your banking business. But putting money in a CD isn't "everyday banking." By definition, CDs are a place to stash your money and not touch it for months or years. While it's true there will be monthly statements and interest payments, these are not transactions that require your attention or action. If you're like most CD buyers, you'll interact with your CD account twice in its lifetime: once when you open it, and a second and final time when you cash out and close it. That makes CDs very easy to hold at institutions other than your primary bank. So if you decide to shop around in hopes of scoring a higher rate, know that a CD's "park it and forget it" nature will make things very simple for you. [Best 1-Year CD Rates for May 2024: Up to 5.40%](https://www.investopedia.com/best-1-year-cd-rates-4796650) [Best Jumbo CD Rates for May 2024](https://www.investopedia.com/best-jumbo-cd-rates-4797766) ## How We Find the Best Savings and CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured ([FDIC](https://www.investopedia.com/terms/f/fdic-insured-account.asp) for banks, [NCUA](https://www.investopedia.com/terms/n/ncua-insured-institution.asp) for credit unions), and the account's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, [read our full methodology](https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816).
Key Takeaways The best savings account and CD rates are typically offered by smaller and medium-sized banks and credit unions. If you feel more comfortable sticking to a big-name bank, you can still earn a respectable APY from some of the large institutions. But be sure to shop around, as some of the biggest U.S. banks pay close to nothing. If you're open to smaller institutions, our daily rankings of the best high-yield savings accounts and best CD rates provide dozens of options paying up to 5.55% APY. Federal FDIC and NCUA insurance provide identical protection for your bank or credit union deposits, no matter the institution's size. The full article follows below this list of offers from our partners. Big vs. Small, Bank vs. Credit Union — The Key Is Shopping Around The best rates you can earn on nationwide savings accounts and certificates of deposit (CDs) are typically available from small to medium-sized banks and credit unions. Because these institutions have names you may not recognize, they have to work harder to attract customer deposits. One way they do this is by offering more competitive interest rates. Some of the very biggest U.S. banks, on the other hand—like Chase, Bank of America, and Wells Fargo—aren't hungry for deposits in the same way smaller institutions are. That's why some of them have savings account rates that are very close to zero—and most of their CDs also pay a pittance. So you could be making a big financial mistake if you move money to a savings account or CD at one of these banking giants without doing your homework. The good news is that we make it extremely easy to do your research. Every business day, we publish the top nationwide rates on high-yield savings accounts and the best nationally available CD rates in every major term. Each list provides at least 15 top-paying options that anyone in the country can open. If you find you'd still rather deposit your savings with a brand-name bank that feels more familiar, it's not impossible to earn a respectable rate. You just have to choose carefully. While you won't earn the highest rate in the country, you can still earn many times the national average if you take a little time to shop around. Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best CD Rates for May 2024: Up to 5.51% Best Money Market Account Rates for May 2024—Up to 5.35% Earn at Least 4% From These Big U.S. Banks Of the 30 largest U.S. banks (ranked by total domestic deposits), a baker's dozen currently offer at least one savings or CD rate of 4.00% APY or higher. A few even pay 5% or more for select products. You can see what each bank currently offers below. Just beware that rates can go up or down on any given day, so what you see here may or may not still be available when you're shopping around. Also note that some of these banks offer different rates in different ZIP codes, so your mileage may vary depending on where you live. Best Rates at Big Banks Size Rank Bank Savings Account 6M CD 1Y CD 18M CD 2Y CD 3Y CD 4Y CD 5Y CD 2 Bank of America 4.75% 4.30% 3 Wells Fargo 4.75% 4.25% 4 Citi 4.45% 4.75% 4.00% 5 U.S. Bank 4.65% 4.00% 8 Capital One 4.35% 4.35% 5.10% 4.50% 4.20% 4.10% 4.05% 4.00% 9 Marcus by Goldman Sachs 4.40% 4.90% 5.00% 4.60% 4.20% 4.15% 4.05% 4.00% 12 BMO Alto 5.10% 5.15% 5.05% 4.65% 4.50% 4.50% 4.50% 15 Citizens 4.50% 5.00% 4.00% 19 Ally 4.25% 4.45% 4.50% 4.45% 4.00% 24 American Express 4.35% 4.75% 4.00% 25 HSBC 4.00% 4.70% 4.00% 27 Discover 4.25% 4.25% 4.70% 4.40% 4.00% 30 Synchrony 4.75% 5.15% 4.80% 4.50% 4.20% 4.15% 4.00% 4.00% Top nationwide rate from smaller institutions 5.50% 5.55% 5.40% 5.35% 5.20% 5.00% 4.80% 4.70% Bank size rank is based on the FDIC's Dec. 31, 2023, report on Total Domestic Deposits. CD terms listed above include a range, such as 5–9 months in the 6-month term, 10–14 months in the 1-year term, etc. Listed rates are APYs current as of April 3, 2024. Note that some rates listed above may not be available to all U.S. residents. To Earn a Tip-Top Rate, Consider a Smaller Institution Want to earn more than a 4% rate and score one of the highest rates in the nation? Simply loosen your criteria on how big or recognizable the bank needs to be. More than 100 banks and credit unions offer high-yield savings accounts to customers nationwide, and over 200 offer nationally available CDs. By being willing to bank at a medium-sized or even small institution—after ensuring it is federally insured—you can earn the highest rates available. Our daily ranking of the best high-yield savings account rates currently includes 18 options that pay 5.15% APY or better, including the nation-leading rate of 5.50% APY. Our daily ranking of the best CD rates, meanwhile, includes five leading CDs that pay between 5.50% and 5.65%, with terms ranging from 3 to 7 months. For terms of 1 to 2 years, the top nationwide rates range from 5.20% to 5.40% APY, while you can earn from the upper 4% range to 5.00% APY in terms of 3–5 years. If it feels less safe to deposit your money in one of these smaller institutions, let us assure you that the size of these institutions doesn't pose any risk. That's because FDIC insurance applies equally to all member banks, regardless of size. So if the smaller bank you're considering is an FDIC member, your deposits are just as safe at that bank as at an exceptionally large one. The same holds true for credit unions—if they're a member of the National Credit Union Administration (NCUA), they too offer the same federal insurance protection on your deposits that FDIC coverage provides, and the credit union's size has no bearing on your coverage. Why CDs Are So Easy to Hold at Another Bank You may already have a long history with your primary banking institution, and making a change in where you hold your checking account could involve a significant disruption to your daily financial life. That's why it's nice to stick with one primary bank or credit union for most of your banking business. But putting money in a CD isn't "everyday banking." By definition, CDs are a place to stash your money and not touch it for months or years. While it's true there will be monthly statements and interest payments, these are not transactions that require your attention or action. If you're like most CD buyers, you'll interact with your CD account twice in its lifetime: once when you open it, and a second and final time when you cash out and close it. That makes CDs very easy to hold at institutions other than your primary bank. So if you decide to shop around in hopes of scoring a higher rate, know that a CD's "park it and forget it" nature will make things very simple for you. Best 1-Year CD Rates for May 2024: Up to 5.40% Best Jumbo CD Rates for May 2024 How We Find the Best Savings and CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.
[ [ "best high-yield savings accounts", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "best CD rates", "https://www.investopedia.com/best-cd-rates-4770214" ], [ "certificates of deposit (CDs)", "https://www.investopedia.com/terms/c/certificateofdeposit.asp" ], [ "top nationwide rates on high-yield savings accounts", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "best nationally available CD rates", "https://www.investopedia.com/best-cd-rates-4770214" ], [ "Best High-Yield Savings Accounts for May 2024—Up to 5.55%", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "Best CD Rates for May 2024: Up to 5.51%", "https://www.investopedia.com/best-cd-rates-4770214" ], [ "Best Money Market Account Rates for May 2024—Up to 5.35%", "https://www.investopedia.com/best-money-market-accounts-5096917" ], [ "Bank of America", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.bankofamerica.com/deposits/bank-cds/featured-cd/&lender=Bank%20of%20America&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "Wells Fargo", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.wellsfargo.com/savings-cds/rates/&lender=Wells%20Fargo&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "Citi", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.citi.com/banking/cd-account&lender=Citi&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "U.S. Bank", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.usbank.com/bank-accounts/savings-accounts/certificate-of-deposit.html?productCode=CDA&lender=U.S.%20Banktype=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "Capital One", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.capitalone.com/bank/cds/online-cds/&lender=Capital%20One&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "Marcus by Goldman Sachs", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.marcus.com/us/en/savings/high-yield-cds&lender=Marcus%20by%20Goldman%20Sachs&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "BMO Alto", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://alto.bmo.com/en-us/high-yield-cd/&lender=BMO%20Alto&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "Citizens", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.secure.citizensaccess.com/Citizens/certificate-of-deposit.page?&lender=Citizens&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "Ally", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.ally.com/bank/cd-rates/&lender=Ally%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "American Express", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.americanexpress.com/en-us/banking/online-savings/cd/&lender=American%20Express&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "HSBC", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.us.hsbc.com/savings-accounts/products/certificate-of-deposit/&lender=HSBC%20Direct&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "Discover", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.discover.com/online-banking/cd/&lender=Discover%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "Synchrony", "https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.synchronybank.com/banking/cd/?UISCode=0000000&lender=Synchrony%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" ], [ "high-yield savings accounts", "https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp" ], [ "best high-yield savings account rates", "https://www.investopedia.com/best-high-yield-savings-accounts-4770633" ], [ "daily ranking of the best CD rates", "https://www.investopedia.com/best-cd-rates-4770214" ], [ "FDIC insurance", "https://www.investopedia.com/terms/f/fdic-insured-account.asp" ], [ "National Credit Union Administration (NCUA)", "https://www.investopedia.com/terms/n/ncua-insured-institution.asp" ], [ "credit union", "https://www.investopedia.com/terms/c/creditunion.asp" ], [ "Best 1-Year CD Rates for May 2024: Up to 5.40%", "https://www.investopedia.com/best-1-year-cd-rates-4796650" ], [ "Best Jumbo CD Rates for May 2024", "https://www.investopedia.com/best-jumbo-cd-rates-4797766" ], [ "FDIC", "https://www.investopedia.com/terms/f/fdic-insured-account.asp" ], [ "NCUA", "https://www.investopedia.com/terms/n/ncua-insured-institution.asp" ], [ "read our full methodology", "https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816" ] ]
https://www.investopedia.com/managing-wealth/basic-investment-objectives/
Defining Your Basic Investing Objectives: What to Factor in
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-basic-investment-objectives-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"> Basic Investment Objectives: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The options for investing your savings are always increasing but they can all still be categorized according to three fundamental characteristics: safety, income, and growth. The first task of any successful individual investor is to find the correct balance among these three worthy goals. The success of one can come at the expense of the others. </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 investment can be characterized by three factors: safety, income, and capital growth.</li><li>Every investor has to select an appropriate mix of these three factors. One will be preeminent.</li><li>The appropriate mix for you will change over time as your life circumstances and needs change.</li><li>The best choice is often a mix of all three that meets your needs.</li></ul></div></div></div> <span class="heading-toc" id="toc-safety"></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"> Safety </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> It's said that there's no such thing as an absolutely safe and secure investment but you can get pretty close. Investing in government-issued securities in stable economic systems is one. U.S.-issued bonds remain the gold standard. You have to envision the collapse of the U.S. government to worry about losing your investment in them. </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"> AAA-rated corporate bonds are also considered safe. They're issued by large, stable companies. These securities are arguably the best means of preserving your principal while receiving a pre-set rate of interest.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The risks are similar to those of government bonds. IBM or Costco would have to go bankrupt to warrant worrying about losing money investing in their bonds.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Extremely safe investments are also found in the money market. Because of increasing risk, these securities include Treasury bills (T-bills), certificates of deposit (CDs), commercial paper, or bankers' acceptance slips. </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"> But safety comes at a price. The returns are very modest compared to the potential returns of riskier investments. This is referred to as "opportunity risk." Those who choose the safest investments may be giving up big gains. </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's also interest rate risk to some extent. You could tie your money up in a bond that pays a 1% return then watch as inflation rises to 2%. You've just lost money in terms of real spending power. The very safest investments are short-term instruments, such as three-month and six-month CDs, for this reason. The safest investments pay the least of all in interest.<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-income"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Income </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Investors who focus on income may buy some of the same fixed-income assets that are described above but their priorities shift toward income. They're looking for assets that guarantee a steady income supplement and they may accept a bit more risk to get there. Income is often the priority of retirees who want to generate a stable source of monthly income while keeping up with inflation. </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"> Government and corporate bonds may be in the mix, and an income investor may go beyond the safest AAA-rated choices and go longer than short-term CDs. The ratings are assigned by a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentgrade.asp">rating agency</a> that evaluates the financial stability of the company or government issuing the bond. Bonds that are rated at A or AA are only slightly riskier than <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aaa.asp">AAA bonds</a> but they offer a higher rate of return. BBB-rated bonds carry a medium risk but more income.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>You're in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/junkbond.asp">junk bond</a> territory beyond these ratings and the word "safety" doesn't apply.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Income investors may also buy preferred stock shares or common stocks that historically pay good dividends. </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-capital-growth"></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"> Capital Growth </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> By definition, capital growth is achieved only by selling an asset. Stocks are capital assets. Barring dividend payments, their owners have to cash them in to realize gains. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> There are many other types of capital growth assets as well, from diamonds to real estate. They all share some degree of risk to the investor. Selling at less than the price you paid is referred to as a <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>. </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 stock markets offer some of the most speculative investments available because their returns are unpredictable. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bluechipstock.asp">Blue chip stocks</a> are generally considered to be the best of the bunch because many of them are reasonably safe. They offer modest income from dividends and the potential for capital growth over the long term. </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"> <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> are for those who can tolerate some ups and downs. These are the fast-growing young companies that may grow up to be Amazons, or they might crash spectacularly. </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 dividend stars are established companies that may not grow in leaps and bounds but pay steady dividends year after year. </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_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Profits on stocks offer the advantage of a lower tax rate if they're held for a year or more.<span class="ql-inline-citation" data-cite="13"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Many individual investors avoid stock-picking and go with one or more <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> or mutual funds that can give them stakes in a broad selection of stocks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> One built-in bonus of stocks is a favorable tax rate. Profits from stock sales are taxed at the capital gains rate if the stocks are owned for at least a year and this is less than the income tax rates paid by most investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_45-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_46-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><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-secondary-objectives"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> Secondary Objectives </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Safety, income, and capital gains are the big three objectives of investing but there are others that should be kept in mind as well. </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"> Tax Minimization </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Some investors pursue tax minimization as a factor in their choices. A highly-paid executive may seek investments with favorable tax treatment to lessen the overall income tax burden. Contributing to an individual retirement account or any other tax-advantaged retirement plan is a highly effective tax minimization strategy. </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"> Liquidity </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Investments such as bonds or bond funds are relatively liquid. They can be converted into cash quickly in many cases and with little risk of loss. Stocks are less liquid because they can be sold easily but selling them at the wrong time can cause a serious loss. </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"> Many other investments are illiquid. Real estate or art can be excellent investments unless you're forced to sell them at the wrong time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_58-0"><span class="heading-toc" id="toc-when-do-treasury-bills-mature"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Do Treasury Bills Mature?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The maturity terms of Treasury bills (T-bills) range from four weeks to a maximum of one year. This makes them essentially short-term investments if your goal is to make some money by a time on the near horizon.<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_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_60-0"><span class="heading-toc" id="toc-what-is-a-junk-bond"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Junk Bond?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Junk bonds come with low scores from the primary raters: S&amp;P, Moody's, and Fitch. These scores are typically less than BBB. Junk bonds are inherently risky for investors. They can be tempting because they often pay high interest but they run the risk of default so you could end up losing money despite the interest rate.<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_61-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_62-0"><span class="heading-toc" id="toc-what-are-the-capital-gains-tax-rates"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Capital Gains Tax Rates?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Capital gains tax rates are favorable if you hold an asset for at least one day more than a year. These are classified as long-term gains and most are taxed at rates of 0%, 15%, or 20%. These rates can be significantly less than your income tax bracket for the year but qualifying for each rate depends on your overall taxable income. Nonetheless, the IRS indicates that most taxpayers fall into the 15% category.<span class="ql-inline-citation" data-cite="13"></span></p><p>You can be liable for a capital gains tax when you sell an asset for more than you invested in it. You'll want to hold onto a profitable asset for at least one year and one day for more favorable long-term tax treatment. Otherwise, capital gains are taxed along with your other income according to your marginal tax bracket.</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"> The answer doesn't lie in a single choice among safety, growth, or capital gains for most investors. The best choice is a mix of all three that meets your needs. And it will most likely change over time. Your appetite for capital gains may be highest when you're at the start of your career, and you can withstand a lot of risks, but you might prioritize holding onto that nest egg and dialing down the risk as you approach retirement. </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"> Your portfolio will probably <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/goalbased-investing.asp">reflect one pre-eminent objective</a> at any stage in life, with all other potential objectives carrying less weight in the overall scheme. </p></div>
## Basic Investment Objectives: An Overview The options for investing your savings are always increasing but they can all still be categorized according to three fundamental characteristics: safety, income, and growth. The first task of any successful individual investor is to find the correct balance among these three worthy goals. The success of one can come at the expense of the others. ### Key Takeaways * An investment can be characterized by three factors: safety, income, and capital growth. * Every investor has to select an appropriate mix of these three factors. One will be preeminent. * The appropriate mix for you will change over time as your life circumstances and needs change. * The best choice is often a mix of all three that meets your needs. ## Safety It's said that there's no such thing as an absolutely safe and secure investment but you can get pretty close. Investing in government-issued securities in stable economic systems is one. U.S.-issued bonds remain the gold standard. You have to envision the collapse of the U.S. government to worry about losing your investment in them. AAA-rated corporate bonds are also considered safe. They're issued by large, stable companies. These securities are arguably the best means of preserving your principal while receiving a pre-set rate of interest. ### The risks are similar to those of government bonds. IBM or Costco would have to go bankrupt to warrant worrying about losing money investing in their bonds. Extremely safe investments are also found in the money market. Because of increasing risk, these securities include Treasury bills (T-bills), certificates of deposit (CDs), commercial paper, or bankers' acceptance slips. But safety comes at a price. The returns are very modest compared to the potential returns of riskier investments. This is referred to as "opportunity risk." Those who choose the safest investments may be giving up big gains. There's also interest rate risk to some extent. You could tie your money up in a bond that pays a 1% return then watch as inflation rises to 2%. You've just lost money in terms of real spending power. The very safest investments are short-term instruments, such as three-month and six-month CDs, for this reason. The safest investments pay the least of all in interest. ## Income Investors who focus on income may buy some of the same fixed-income assets that are described above but their priorities shift toward income. They're looking for assets that guarantee a steady income supplement and they may accept a bit more risk to get there. Income is often the priority of retirees who want to generate a stable source of monthly income while keeping up with inflation. Government and corporate bonds may be in the mix, and an income investor may go beyond the safest AAA-rated choices and go longer than short-term CDs. The ratings are assigned by a [rating agency](https://www.investopedia.com/terms/i/investmentgrade.asp) that evaluates the financial stability of the company or government issuing the bond. Bonds that are rated at A or AA are only slightly riskier than [AAA bonds](https://www.investopedia.com/terms/a/aaa.asp) but they offer a higher rate of return. BBB-rated bonds carry a medium risk but more income. ### You're in [junk bond](https://www.investopedia.com/terms/j/junkbond.asp) territory beyond these ratings and the word "safety" doesn't apply. Income investors may also buy preferred stock shares or common stocks that historically pay good dividends. ## Capital Growth By definition, capital growth is achieved only by selling an asset. Stocks are capital assets. Barring dividend payments, their owners have to cash them in to realize gains. There are many other types of capital growth assets as well, from diamonds to real estate. They all share some degree of risk to the investor. Selling at less than the price you paid is referred to as a [capital loss](https://www.investopedia.com/terms/c/capitalloss.asp). The stock markets offer some of the most speculative investments available because their returns are unpredictable. [Blue chip stocks](https://www.investopedia.com/terms/b/bluechipstock.asp) are generally considered to be the best of the bunch because many of them are reasonably safe. They offer modest income from dividends and the potential for capital growth over the long term. [Growth stocks](https://www.investopedia.com/terms/g/growthstock.asp) are for those who can tolerate some ups and downs. These are the fast-growing young companies that may grow up to be Amazons, or they might crash spectacularly. The dividend stars are established companies that may not grow in leaps and bounds but pay steady dividends year after year. ### Profits on stocks offer the advantage of a lower tax rate if they're held for a year or more. Many individual investors avoid stock-picking and go with one or more [exchange-traded funds](https://www.investopedia.com/terms/e/etf.asp) or mutual funds that can give them stakes in a broad selection of stocks. One built-in bonus of stocks is a favorable tax rate. Profits from stock sales are taxed at the capital gains rate if the stocks are owned for at least a year and this is less than the income tax rates paid by most investors. ### 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. ## Secondary Objectives Safety, income, and capital gains are the big three objectives of investing but there are others that should be kept in mind as well. ### Tax Minimization Some investors pursue tax minimization as a factor in their choices. A highly-paid executive may seek investments with favorable tax treatment to lessen the overall income tax burden. Contributing to an individual retirement account or any other tax-advantaged retirement plan is a highly effective tax minimization strategy. ### Liquidity Investments such as bonds or bond funds are relatively liquid. They can be converted into cash quickly in many cases and with little risk of loss. Stocks are less liquid because they can be sold easily but selling them at the wrong time can cause a serious loss. Many other investments are illiquid. Real estate or art can be excellent investments unless you're forced to sell them at the wrong time. ## When Do Treasury Bills Mature? The maturity terms of Treasury bills (T-bills) range from four weeks to a maximum of one year. This makes them essentially short-term investments if your goal is to make some money by a time on the near horizon. ## What Is a Junk Bond? Junk bonds come with low scores from the primary raters: S&P, Moody's, and Fitch. These scores are typically less than BBB. Junk bonds are inherently risky for investors. They can be tempting because they often pay high interest but they run the risk of default so you could end up losing money despite the interest rate. ## What Are the Capital Gains Tax Rates? Capital gains tax rates are favorable if you hold an asset for at least one day more than a year. These are classified as long-term gains and most are taxed at rates of 0%, 15%, or 20%. These rates can be significantly less than your income tax bracket for the year but qualifying for each rate depends on your overall taxable income. Nonetheless, the IRS indicates that most taxpayers fall into the 15% category. You can be liable for a capital gains tax when you sell an asset for more than you invested in it. You'll want to hold onto a profitable asset for at least one year and one day for more favorable long-term tax treatment. Otherwise, capital gains are taxed along with your other income according to your marginal tax bracket. ## The Bottom Line The answer doesn't lie in a single choice among safety, growth, or capital gains for most investors. The best choice is a mix of all three that meets your needs. And it will most likely change over time. Your appetite for capital gains may be highest when you're at the start of your career, and you can withstand a lot of risks, but you might prioritize holding onto that nest egg and dialing down the risk as you approach retirement. Your portfolio will probably [reflect one pre-eminent objective](https://www.investopedia.com/terms/g/goalbased-investing.asp) at any stage in life, with all other potential objectives carrying less weight in the overall scheme.
Basic Investment Objectives: An Overview The options for investing your savings are always increasing but they can all still be categorized according to three fundamental characteristics: safety, income, and growth. The first task of any successful individual investor is to find the correct balance among these three worthy goals. The success of one can come at the expense of the others. Key Takeaways An investment can be characterized by three factors: safety, income, and capital growth.Every investor has to select an appropriate mix of these three factors. One will be preeminent.The appropriate mix for you will change over time as your life circumstances and needs change.The best choice is often a mix of all three that meets your needs. Safety It's said that there's no such thing as an absolutely safe and secure investment but you can get pretty close. Investing in government-issued securities in stable economic systems is one. U.S.-issued bonds remain the gold standard. You have to envision the collapse of the U.S. government to worry about losing your investment in them. AAA-rated corporate bonds are also considered safe. They're issued by large, stable companies. These securities are arguably the best means of preserving your principal while receiving a pre-set rate of interest. The risks are similar to those of government bonds. IBM or Costco would have to go bankrupt to warrant worrying about losing money investing in their bonds. Extremely safe investments are also found in the money market. Because of increasing risk, these securities include Treasury bills (T-bills), certificates of deposit (CDs), commercial paper, or bankers' acceptance slips. But safety comes at a price. The returns are very modest compared to the potential returns of riskier investments. This is referred to as "opportunity risk." Those who choose the safest investments may be giving up big gains. There's also interest rate risk to some extent. You could tie your money up in a bond that pays a 1% return then watch as inflation rises to 2%. You've just lost money in terms of real spending power. The very safest investments are short-term instruments, such as three-month and six-month CDs, for this reason. The safest investments pay the least of all in interest. Income Investors who focus on income may buy some of the same fixed-income assets that are described above but their priorities shift toward income. They're looking for assets that guarantee a steady income supplement and they may accept a bit more risk to get there. Income is often the priority of retirees who want to generate a stable source of monthly income while keeping up with inflation. Government and corporate bonds may be in the mix, and an income investor may go beyond the safest AAA-rated choices and go longer than short-term CDs. The ratings are assigned by a rating agency that evaluates the financial stability of the company or government issuing the bond. Bonds that are rated at A or AA are only slightly riskier than AAA bonds but they offer a higher rate of return. BBB-rated bonds carry a medium risk but more income. You're in junk bond territory beyond these ratings and the word "safety" doesn't apply. Income investors may also buy preferred stock shares or common stocks that historically pay good dividends. Capital Growth By definition, capital growth is achieved only by selling an asset. Stocks are capital assets. Barring dividend payments, their owners have to cash them in to realize gains. There are many other types of capital growth assets as well, from diamonds to real estate. They all share some degree of risk to the investor. Selling at less than the price you paid is referred to as a capital loss. The stock markets offer some of the most speculative investments available because their returns are unpredictable. Blue chip stocks are generally considered to be the best of the bunch because many of them are reasonably safe. They offer modest income from dividends and the potential for capital growth over the long term. Growth stocks are for those who can tolerate some ups and downs. These are the fast-growing young companies that may grow up to be Amazons, or they might crash spectacularly. The dividend stars are established companies that may not grow in leaps and bounds but pay steady dividends year after year. Profits on stocks offer the advantage of a lower tax rate if they're held for a year or more. Many individual investors avoid stock-picking and go with one or more exchange-traded funds or mutual funds that can give them stakes in a broad selection of stocks. One built-in bonus of stocks is a favorable tax rate. Profits from stock sales are taxed at the capital gains rate if the stocks are owned for at least a year and this is less than the income tax rates paid by most investors. Read about Investopedia's 10 Rules of Investing by picking up a copy of our special issue print edition. Secondary Objectives Safety, income, and capital gains are the big three objectives of investing but there are others that should be kept in mind as well. Tax Minimization Some investors pursue tax minimization as a factor in their choices. A highly-paid executive may seek investments with favorable tax treatment to lessen the overall income tax burden. Contributing to an individual retirement account or any other tax-advantaged retirement plan is a highly effective tax minimization strategy. Liquidity Investments such as bonds or bond funds are relatively liquid. They can be converted into cash quickly in many cases and with little risk of loss. Stocks are less liquid because they can be sold easily but selling them at the wrong time can cause a serious loss. Many other investments are illiquid. Real estate or art can be excellent investments unless you're forced to sell them at the wrong time. When Do Treasury Bills Mature? The maturity terms of Treasury bills (T-bills) range from four weeks to a maximum of one year. This makes them essentially short-term investments if your goal is to make some money by a time on the near horizon. What Is a Junk Bond? Junk bonds come with low scores from the primary raters: S&P, Moody's, and Fitch. These scores are typically less than BBB. Junk bonds are inherently risky for investors. They can be tempting because they often pay high interest but they run the risk of default so you could end up losing money despite the interest rate. What Are the Capital Gains Tax Rates? Capital gains tax rates are favorable if you hold an asset for at least one day more than a year. These are classified as long-term gains and most are taxed at rates of 0%, 15%, or 20%. These rates can be significantly less than your income tax bracket for the year but qualifying for each rate depends on your overall taxable income. Nonetheless, the IRS indicates that most taxpayers fall into the 15% category.You can be liable for a capital gains tax when you sell an asset for more than you invested in it. You'll want to hold onto a profitable asset for at least one year and one day for more favorable long-term tax treatment. Otherwise, capital gains are taxed along with your other income according to your marginal tax bracket. The Bottom Line The answer doesn't lie in a single choice among safety, growth, or capital gains for most investors. The best choice is a mix of all three that meets your needs. And it will most likely change over time. Your appetite for capital gains may be highest when you're at the start of your career, and you can withstand a lot of risks, but you might prioritize holding onto that nest egg and dialing down the risk as you approach retirement. Your portfolio will probably reflect one pre-eminent objective at any stage in life, with all other potential objectives carrying less weight in the overall scheme.
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https://www.investopedia.com/qualified-disability-trust-5217846
Qualified Disability Trust: Meaning and Tax Requirements
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 qualified disability trust (QDisT) is a type of trust that qualifies for tax exemptions and applies to most trusts set up for someone with special needs. Normally, you must pay <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incometax.asp">income tax</a> on the income you receive from trusts, and that requirement formerly included special needs trusts. However, in 2003, Congress added a section to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/internal-revenue-code.asp">Internal Revenue Code</a> that allowed some disability trusts to reduce this tax liability.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Trusts need to meet a number of criteria to be considered qualified disability trusts for tax purposes. If your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/special-needs-trust.asp">special needs trust</a> meets these criteria, however, this could save you a significant amount of money. </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"> Find out more about what qualified disability trusts are, and which trusts are eligible for this <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tax-deduction.asp">tax deduction</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>A qualified disability trust (QDisT) is a special needs trust that qualifies for a federal tax exemption.</li> <li>Most special needs trusts meet the requirements to be treated as qualified disability trusts, and can be reported as such at tax time.</li> <li>For the 2022 tax year, the tax exemption for a QDisT is $4,400. For 2023, the amount will increase to $4,700.<span class="ql-inline-citation" data-cite="13"></span><span class="ql-inline-citation" data-cite="14"></span> </li> <li>Income from a QDisT is reported on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tax-form-1041-estates-and-trusts-5211109">Internal Revenue Service (IRS) Form 1041</a>, with a unique <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/employer-identification-number.asp">Employer Identification Number (EIN)</a>, while distributions to the beneficiary will be taxed on their own Form 1040 tax return.</li> </ul></div></div></div> <span class="heading-toc" id="toc-what-is-a-qualified-disability-trust"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> What Is a Qualified Disability Trust? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The best way to understand a qualified disability trust is to review an example. </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"> Let’s say that a child is diagnosed with a disability, and that shortly afterward, their grandparents contribute $500,000 to an irrevocable special needs trust that the child’s parents have established for the benefit of the child. Let’s say that this trust generates $25,000 in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/annualized-income.asp">annual income</a>, and that $10,000 of it is used yearly for expenses that arise from the child’s care and other needs. </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 question then becomes: Who pays the income tax bill on the trust’s gains? </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"> There are several options: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <li>The parents could include the income from the trust as part of their taxes. Because the trust income would then be “on top” of their earned income, they will pay their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marginaltaxrate.asp">marginal tax rate</a> on the $25,000 generated from the trust in our example. This could mean that they pay $8,000 or more in tax.</li> <li>Alternatively, trust income that is spent for the child’s benefit can be taxed to the child—in this case, that would mean $10,000, as listed above. This would leave $15,000, but that must be taxed to the trust. Trust income tax brackets are high and increase steeply.<span class="ql-inline-citation" data-cite="8"></span> This means that paying taxes this way can sometimes result in even higher taxes than the option above.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The concept of qualified disability trusts was designed to get around this problem. The legal authority to create a QDisT falls under §642(b)(2)(C) of the Internal Revenue Code.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Qualified disability trusts are entitled to the same exemption allowed to all individual taxpayers when filing a tax return. In 2012, for instance, the personal tax exemption was $3,800, so the first $3,800 of income from QDisTs wasn’t taxed.<span class="ql-inline-citation" data-cite="1"></span> However, the deduction for personal exemptions is suspended (cut to $0) for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxyear.asp">tax years</a> 2018 through 2025 by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/taxes/how-gop-tax-bill-affects-you/">Tax Cuts and Jobs Act</a>. </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-qualified-disability-trusts-and-the-tax-cuts-and-jobs-act"></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"> ​Qualified Disability Trusts and the Tax Cuts and Jobs Act </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> But in 2018, this situation was made a little more complicated. In that year, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/taxes/trumps-tax-reform-plan-explained/">Tax Cuts and Jobs Act (TCJA)</a> was passed, eliminating personal exemptions until 2025.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> This would have also eliminated the tax benefits of QDisTs. However, the same law established that in any year when there isn’t a personal exemption, there will be the exemption allowed for a QDisT.<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_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> For the 2022 tax year, $4,400 is the indexed tax exemption amount for these trusts, including most special needs trusts. For 2023, the amount will increase to $4,700.<span class="ql-inline-citation" data-cite="13"></span><span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> The $4,400 exemption will have a much bigger impact on reducing eligible families’ tax bills than the usual $100 exemption (or $300 exemption if a trust is required to distribute all of its income each year) allowed for other trusts.<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_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_33-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_34-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Income from a QDisT is reported on IRS Form 1041, with a unique Employer Identification Number (EIN), while distributions to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beneficiary.asp">beneficiary</a> will be taxed on their own <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/1040.asp">Form 1040</a> tax return.<span class="ql-inline-citation" data-cite="18"></span></p></div></div></div> <span class="heading-toc" id="toc-requirements-for-qualified-disability-trusts"></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"> Requirements for Qualified Disability Trusts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> To be reported as a qualified disability trust, a trust must meet certain requirements. The most basic, as outlined by the Special Needs Alliance, a national organization of attorneys practicing disability and public benefits law, are that:<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <li>The trust must be irrevocable.</li><li>The trust must be established for the sole benefit of the disabled beneficiary.</li><li>The disabled beneficiary must be under age 65 when the trust is established.</li><li>The beneficiary must have a disability that is included in the definition of disabled pursuant to the Social Security Act.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> The trust must be a third-party trust, meaning that “all of its funding must come from someone other than the disabled beneficiary, typically a parent or grandparent, other relative, or friend,” according to the Special Needs Alliance. If the person funding the trust during their lifetime is also serving as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trustee.asp">trustee</a>, then the qualified disability trust status may not be possible.<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_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Most special needs trusts are funded by parents and are set up as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irrevocabletrust.asp">irrevocable trusts</a> for the benefit of their children. So, in most cases, they can be treated as qualified disability trusts. </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-is-a-qualified-disability-trust-a-special-needs-trust"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a qualified disability trust a special needs trust?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In most cases, yes. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service (IRS)</a> generally classifies some special needs trusts as qualified disability trusts (QDisTs), and these trusts have certain tax benefits. QDisTs may claim a personal exemption on the federal income tax returns filed for the trust.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-what-kind-of-trust-is-a-qualified-disability-trust"></span> <h2 class="mntl-sc-block-questionandanswer__question">What kind of trust is a qualified disability trust?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A trust that doesn’t require distribution of all of its income by the terms of the trust agreement is called a complex trust, and it is allowed an exemption of $100.<span class="ql-inline-citation" data-cite="10"></span> A qualified disability trust is allowed the same exemption as an individual under IRS Code §642(b)(2)(C).<span class="ql-inline-citation" data-cite="5"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-what-happens-to-a-qualified-disability-trust-upon-the-beneficiarys-death"></span> <h2 class="mntl-sc-block-questionandanswer__question">What happens to a qualified disability trust upon the beneficiary’s death?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>QDisTs must be for the sole benefit of the disabled beneficiary, so no other person or entity can benefit from the trust during the lifetime of the disabled beneficiary. However, after the death of the disabled beneficiary, the trust assets can pass to other designated beneficiaries who need not be disabled, according to the Special Needs Alliance.<span class="ql-inline-citation" data-cite="1"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <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"> Qualified disability trusts (QDisTs) are a type of trust that provides tax benefits. Most special needs trusts are considered qualified disability trusts, making them especially valuable for families caring for someone diagnosed with a disability. </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 Tax Cuts and Jobs Act (TCJA), which eliminated personal tax exemptions from 2018 until 2025, didn’t erase or change the tax benefits of QDisTs because the law also established an indexed exemption ($4,400 for 2022 and $4,700 for 2023 tax filings) to be taken by these types of trusts during the TCJA’s effective period.<span class="ql-inline-citation" data-cite="13"></span><span class="ql-inline-citation" data-cite="14"></span> </p></div>
A qualified disability trust (QDisT) is a type of trust that qualifies for tax exemptions and applies to most trusts set up for someone with special needs. Normally, you must pay [income tax](https://www.investopedia.com/terms/i/incometax.asp) on the income you receive from trusts, and that requirement formerly included special needs trusts. However, in 2003, Congress added a section to the [Internal Revenue Code](https://www.investopedia.com/terms/i/internal-revenue-code.asp) that allowed some disability trusts to reduce this tax liability. Trusts need to meet a number of criteria to be considered qualified disability trusts for tax purposes. If your [special needs trust](https://www.investopedia.com/terms/s/special-needs-trust.asp) meets these criteria, however, this could save you a significant amount of money. Find out more about what qualified disability trusts are, and which trusts are eligible for this [tax deduction](https://www.investopedia.com/terms/t/tax-deduction.asp). ### Key Takeaways * A qualified disability trust (QDisT) is a special needs trust that qualifies for a federal tax exemption. * Most special needs trusts meet the requirements to be treated as qualified disability trusts, and can be reported as such at tax time. * For the 2022 tax year, the tax exemption for a QDisT is $4,400. For 2023, the amount will increase to $4,700. * Income from a QDisT is reported on [Internal Revenue Service (IRS) Form 1041](https://www.investopedia.com/tax-form-1041-estates-and-trusts-5211109), with a unique [Employer Identification Number (EIN)](https://www.investopedia.com/terms/e/employer-identification-number.asp), while distributions to the beneficiary will be taxed on their own Form 1040 tax return. ## What Is a Qualified Disability Trust? The best way to understand a qualified disability trust is to review an example. Let’s say that a child is diagnosed with a disability, and that shortly afterward, their grandparents contribute $500,000 to an irrevocable special needs trust that the child’s parents have established for the benefit of the child. Let’s say that this trust generates $25,000 in [annual income](https://www.investopedia.com/terms/a/annualized-income.asp), and that $10,000 of it is used yearly for expenses that arise from the child’s care and other needs. The question then becomes: Who pays the income tax bill on the trust’s gains? There are several options: * The parents could include the income from the trust as part of their taxes. Because the trust income would then be “on top” of their earned income, they will pay their [marginal tax rate](https://www.investopedia.com/terms/m/marginaltaxrate.asp) on the $25,000 generated from the trust in our example. This could mean that they pay $8,000 or more in tax. * Alternatively, trust income that is spent for the child’s benefit can be taxed to the child—in this case, that would mean $10,000, as listed above. This would leave $15,000, but that must be taxed to the trust. Trust income tax brackets are high and increase steeply. This means that paying taxes this way can sometimes result in even higher taxes than the option above. The concept of qualified disability trusts was designed to get around this problem. The legal authority to create a QDisT falls under §642(b)(2)(C) of the Internal Revenue Code. Qualified disability trusts are entitled to the same exemption allowed to all individual taxpayers when filing a tax return. In 2012, for instance, the personal tax exemption was $3,800, so the first $3,800 of income from QDisTs wasn’t taxed. However, the deduction for personal exemptions is suspended (cut to $0) for [tax years](https://www.investopedia.com/terms/t/taxyear.asp) 2018 through 2025 by the [Tax Cuts and Jobs Act](https://www.investopedia.com/taxes/how-gop-tax-bill-affects-you/). ## ​Qualified Disability Trusts and the Tax Cuts and Jobs Act But in 2018, this situation was made a little more complicated. In that year, the [Tax Cuts and Jobs Act (TCJA)](https://www.investopedia.com/taxes/trumps-tax-reform-plan-explained/) was passed, eliminating personal exemptions until 2025. This would have also eliminated the tax benefits of QDisTs. However, the same law established that in any year when there isn’t a personal exemption, there will be the exemption allowed for a QDisT. For the 2022 tax year, $4,400 is the indexed tax exemption amount for these trusts, including most special needs trusts. For 2023, the amount will increase to $4,700. The $4,400 exemption will have a much bigger impact on reducing eligible families’ tax bills than the usual $100 exemption (or $300 exemption if a trust is required to distribute all of its income each year) allowed for other trusts. ### Income from a QDisT is reported on IRS Form 1041, with a unique Employer Identification Number (EIN), while distributions to the [beneficiary](https://www.investopedia.com/terms/b/beneficiary.asp) will be taxed on their own [Form 1040](https://www.investopedia.com/terms/1/1040.asp) tax return. ## Requirements for Qualified Disability Trusts To be reported as a qualified disability trust, a trust must meet certain requirements. The most basic, as outlined by the Special Needs Alliance, a national organization of attorneys practicing disability and public benefits law, are that: * The trust must be irrevocable. * The trust must be established for the sole benefit of the disabled beneficiary. * The disabled beneficiary must be under age 65 when the trust is established. * The beneficiary must have a disability that is included in the definition of disabled pursuant to the Social Security Act. The trust must be a third-party trust, meaning that “all of its funding must come from someone other than the disabled beneficiary, typically a parent or grandparent, other relative, or friend,” according to the Special Needs Alliance. If the person funding the trust during their lifetime is also serving as the [trustee](https://www.investopedia.com/terms/t/trustee.asp), then the qualified disability trust status may not be possible. Most special needs trusts are funded by parents and are set up as [irrevocable trusts](https://www.investopedia.com/terms/i/irrevocabletrust.asp) for the benefit of their children. So, in most cases, they can be treated as qualified disability trusts. ## Is a qualified disability trust a special needs trust? In most cases, yes. The [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) generally classifies some special needs trusts as qualified disability trusts (QDisTs), and these trusts have certain tax benefits. QDisTs may claim a personal exemption on the federal income tax returns filed for the trust. ## What kind of trust is a qualified disability trust? A trust that doesn’t require distribution of all of its income by the terms of the trust agreement is called a complex trust, and it is allowed an exemption of $100. A qualified disability trust is allowed the same exemption as an individual under IRS Code §642(b)(2)(C). ## What happens to a qualified disability trust upon the beneficiary’s death? QDisTs must be for the sole benefit of the disabled beneficiary, so no other person or entity can benefit from the trust during the lifetime of the disabled beneficiary. However, after the death of the disabled beneficiary, the trust assets can pass to other designated beneficiaries who need not be disabled, according to the Special Needs Alliance. ## The Bottom Line Qualified disability trusts (QDisTs) are a type of trust that provides tax benefits. Most special needs trusts are considered qualified disability trusts, making them especially valuable for families caring for someone diagnosed with a disability. The Tax Cuts and Jobs Act (TCJA), which eliminated personal tax exemptions from 2018 until 2025, didn’t erase or change the tax benefits of QDisTs because the law also established an indexed exemption ($4,400 for 2022 and $4,700 for 2023 tax filings) to be taken by these types of trusts during the TCJA’s effective period.
A qualified disability trust (QDisT) is a type of trust that qualifies for tax exemptions and applies to most trusts set up for someone with special needs. Normally, you must pay income tax on the income you receive from trusts, and that requirement formerly included special needs trusts. However, in 2003, Congress added a section to the Internal Revenue Code that allowed some disability trusts to reduce this tax liability. Trusts need to meet a number of criteria to be considered qualified disability trusts for tax purposes. If your special needs trust meets these criteria, however, this could save you a significant amount of money. Find out more about what qualified disability trusts are, and which trusts are eligible for this tax deduction. Key Takeaways A qualified disability trust (QDisT) is a special needs trust that qualifies for a federal tax exemption. Most special needs trusts meet the requirements to be treated as qualified disability trusts, and can be reported as such at tax time. For the 2022 tax year, the tax exemption for a QDisT is $4,400. For 2023, the amount will increase to $4,700. Income from a QDisT is reported on Internal Revenue Service (IRS) Form 1041, with a unique Employer Identification Number (EIN), while distributions to the beneficiary will be taxed on their own Form 1040 tax return. What Is a Qualified Disability Trust? The best way to understand a qualified disability trust is to review an example. Let’s say that a child is diagnosed with a disability, and that shortly afterward, their grandparents contribute $500,000 to an irrevocable special needs trust that the child’s parents have established for the benefit of the child. Let’s say that this trust generates $25,000 in annual income, and that $10,000 of it is used yearly for expenses that arise from the child’s care and other needs. The question then becomes: Who pays the income tax bill on the trust’s gains? There are several options: The parents could include the income from the trust as part of their taxes. Because the trust income would then be “on top” of their earned income, they will pay their marginal tax rate on the $25,000 generated from the trust in our example. This could mean that they pay $8,000 or more in tax. Alternatively, trust income that is spent for the child’s benefit can be taxed to the child—in this case, that would mean $10,000, as listed above. This would leave $15,000, but that must be taxed to the trust. Trust income tax brackets are high and increase steeply. This means that paying taxes this way can sometimes result in even higher taxes than the option above. The concept of qualified disability trusts was designed to get around this problem. The legal authority to create a QDisT falls under §642(b)(2)(C) of the Internal Revenue Code. Qualified disability trusts are entitled to the same exemption allowed to all individual taxpayers when filing a tax return. In 2012, for instance, the personal tax exemption was $3,800, so the first $3,800 of income from QDisTs wasn’t taxed. However, the deduction for personal exemptions is suspended (cut to $0) for tax years 2018 through 2025 by the Tax Cuts and Jobs Act. ​Qualified Disability Trusts and the Tax Cuts and Jobs Act But in 2018, this situation was made a little more complicated. In that year, the Tax Cuts and Jobs Act (TCJA) was passed, eliminating personal exemptions until 2025. This would have also eliminated the tax benefits of QDisTs. However, the same law established that in any year when there isn’t a personal exemption, there will be the exemption allowed for a QDisT. For the 2022 tax year, $4,400 is the indexed tax exemption amount for these trusts, including most special needs trusts. For 2023, the amount will increase to $4,700. The $4,400 exemption will have a much bigger impact on reducing eligible families’ tax bills than the usual $100 exemption (or $300 exemption if a trust is required to distribute all of its income each year) allowed for other trusts. Income from a QDisT is reported on IRS Form 1041, with a unique Employer Identification Number (EIN), while distributions to the beneficiary will be taxed on their own Form 1040 tax return. Requirements for Qualified Disability Trusts To be reported as a qualified disability trust, a trust must meet certain requirements. The most basic, as outlined by the Special Needs Alliance, a national organization of attorneys practicing disability and public benefits law, are that: The trust must be irrevocable.The trust must be established for the sole benefit of the disabled beneficiary.The disabled beneficiary must be under age 65 when the trust is established.The beneficiary must have a disability that is included in the definition of disabled pursuant to the Social Security Act. The trust must be a third-party trust, meaning that “all of its funding must come from someone other than the disabled beneficiary, typically a parent or grandparent, other relative, or friend,” according to the Special Needs Alliance. If the person funding the trust during their lifetime is also serving as the trustee, then the qualified disability trust status may not be possible. Most special needs trusts are funded by parents and are set up as irrevocable trusts for the benefit of their children. So, in most cases, they can be treated as qualified disability trusts. Is a qualified disability trust a special needs trust? In most cases, yes. The Internal Revenue Service (IRS) generally classifies some special needs trusts as qualified disability trusts (QDisTs), and these trusts have certain tax benefits. QDisTs may claim a personal exemption on the federal income tax returns filed for the trust. What kind of trust is a qualified disability trust? A trust that doesn’t require distribution of all of its income by the terms of the trust agreement is called a complex trust, and it is allowed an exemption of $100. A qualified disability trust is allowed the same exemption as an individual under IRS Code §642(b)(2)(C). What happens to a qualified disability trust upon the beneficiary’s death? QDisTs must be for the sole benefit of the disabled beneficiary, so no other person or entity can benefit from the trust during the lifetime of the disabled beneficiary. However, after the death of the disabled beneficiary, the trust assets can pass to other designated beneficiaries who need not be disabled, according to the Special Needs Alliance. The Bottom Line Qualified disability trusts (QDisTs) are a type of trust that provides tax benefits. Most special needs trusts are considered qualified disability trusts, making them especially valuable for families caring for someone diagnosed with a disability. The Tax Cuts and Jobs Act (TCJA), which eliminated personal tax exemptions from 2018 until 2025, didn’t erase or change the tax benefits of QDisTs because the law also established an indexed exemption ($4,400 for 2022 and $4,700 for 2023 tax filings) to be taken by these types of trusts during the TCJA’s effective period.
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https://www.investopedia.com/articles/personal-finance/012516/how-hire-retirement-advisor.asp
How to Hire a Retirement Advisor
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Possibly the most ignored part of everyday money life is retirement. For some, retirement is decades away, so why think about it now? Others may feel that they’re so far behind in saving that the situation is hopeless. Neither is true. It’s almost never too late to start saving. Equally true: It’s never too early. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Either way, a professional retirement advisor can often help you set the right course and identify unexpected areas for improvement. </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>Saving for retirement is easier the sooner you get started, and a professional advisor can help you formulate a plan.</li> <li>Even if you’re close to—or already in—retirement, an advisor may be able to suggest ways to better manage your income and investments as well as avoid unnecessary taxes.</li> <li>Some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/hiring-a-financial-counselor-5213566">financial advisors</a> charge fees, others earn commissions from the products they recommend, and some do both. Free help may also be available through your employer’s retirement plan. </li> </ul></div></div></div> <span class="heading-toc" id="toc-what-kind-of-advisor-should-you-hire"></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 Kind of Advisor Should You Hire? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> There are all kinds of advisors—and people purporting to be advisors—out there. If you’re looking for help building a retirement nest egg, you most likely want 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) with expertise in retirement planning. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Other financial advisors who may specialize in retirement planning can be identified by various credentials following their names. Those designations include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chartered-retirement-plans-specialist.asp">Chartered Retirement Plans Specialist</a> (CRPS),<span class="ql-inline-citation" data-cite="3"></span> <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retirement-income-certified-professional-ricp.asp">Retirement Income Certified Professional</a> (RICP),<span class="ql-inline-citation" data-cite="4"></span> or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crpc.asp">Chartered Retirement Planning Counselor</a> (CRPC),<span class="ql-inline-citation" data-cite="5"></span> to name a few. </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"> To <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/updates/find-financial-advisor-planner/">find a financial advisor</a>, get recommendations from people you trust, ask for references, and interview possible candidates. You may prefer to hire a fee-based advisor, such as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/102014/feeonly-financial-advisers-what-you-need-know.asp">fee-only financial planner</a>, instead of one who receives commissions in return for selling or recommending certain financial products. </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>Managing your retirement money when you actually retire can be a complicated task, as it involves many aspects, such as Social Security distributions and retirement account distributions, all of which impact income and your tax bracket.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> If you have a big (and we mean big) bank account balance, you could go the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/privatebanking.asp">private banking</a> route. If you’re more of a middle-class family and would rather stay with a big establishment, you could talk to your bank. Beware, though: Bank advisors may only recommend their banks’ <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> and other products, and the fees could be high. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> There are also advisors affiliated with major investment firms, such as Fidelity and Vanguard. If the human touch isn’t important to you, another option could be a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp">robo-advisor</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"> Finally, don’t forget to take advantage of any free advising services that comes with an employer-sponsored retirement plan, 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>, if you participate in one. The plan may not offer full financial planning, but it should at least explain your fund choices and the potential risks involved, as well as help you figure out the fees that you’ll have to pay. </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-tip" 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>Order your copy of the print edition of <a data-component="amazon" data-ordinal="1" data-source="affiliate" data-type="externalLink" href="https://www.amazon.com/Investopedia-Retirement-Guide/dp/1547861975/ref=sr_1_1?crid=MGINV1AZRN70&amp;keywords=9781547861972&amp;qid=1665522668&amp;qu=eyJxc2" rel="sponsored nofollow">Investopedia's Retirement Guide</a> for more assistance in building the best plan for your retirement.</p></div></div></div> <span class="heading-toc" id="toc-what-do-retirement-advisors-charge"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> What Do Retirement Advisors Charge? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The biggest headwind that can reduce your retirement savings, aside from not saving enough in the first place, are investment fees. When you interview potential retirement advisors, ask them how they are paid. </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 they’re paid by fees from you, ask them how much their fees are and whether the investment products in which they may put you will have fees. Fee-only advisors will likely charge you an hourly rate, a flat annual fee, or a fee based on how much of your money they are managing, often somewhere around 1% per year. </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"> Note, too, that some advisors have account minimums. If you’re just getting started, you may not have a high enough balance to qualify for ongoing advising. On the other hand, many commission-based advisors will take on clients with low balances—just be sure they don’t try to put you into inappropriate or unduly expensive funds. To learn more about comparing fund fees, it’s worth taking some time to read up on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/032715/when-expense-ratio-considered-high-and-when-it-considered-low.asp">expense ratios</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"> Bear in mind that even seemingly small differences in the fees that funds charge can have a large impact over time. For example, suppose you invest $100,000 in a fund that returns an average of 4% a year. By the end of 20 years, you would have about $208,000 if your fund charged you 0.25% in annual fees, but just $198,000 if it charged 0.5%—a $10,000 difference.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <span class="heading-toc" id="toc-what-to-expect-from-a-retirement-advisor"></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"> What to Expect From a Retirement Advisor </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> The first thing you should expect when you sit down with a retirement advisor is a detailed look at your complete financial picture, based on the information you provide. What are your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a>? Do you have investments, real estate, pending inheritances, or other resources of value? What are your debts? Do you have a mortgage, car payments, credit cards, student loans, small business liabilities, or other loans? How do you balance servicing your debt while still saving for retirement? </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"> Speaking of retirement, what are your plans for it? Do you expect to work until you can’t anymore, or do you want to retire sooner? Do you plan to travel or indulge in some expensive hobbies? How much will you collect from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/when-take-social-security-complete-guide/">Social Security</a> each month, and when is the best time to start collecting benefits? How about insurance? Are you adequately covered? </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>Most companies that offer a 401(k) match an employee's contributions up to a certain percentage, which is a great way to boost your savings.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Once a retirement advisor has all of your information, they will usually draft a report, providing you with a detailed financial plan for your retirement. The report will likely indicate how much money you’ll be able to withdraw from your accounts each month during retirement, based on various scenarios, and how much you will need to save on a monthly basis from now until then to reach your goals. </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"> Your retirement advisor should also take you through the various tax considerations. For example, if you have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/traditionalira.asp">traditional IRA</a>, should you consider <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/040815/converting-traditional-ira-savings-roth-ira.asp">converting it to a Roth</a>? How can you minimize the taxes you will pay on your other income and assets? How about your estate? If you end up with many assets, how will you minimize your <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/estatetax.asp">estate taxes</a>? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> If the advisor is also a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfoliomanager.asp">portfolio manager</a>, they may set up a portfolio that fits your goals. If your advisor isn’t able to do that, they may recommend someone who can. Consider the recommendations, but be sure to interview anyone who may join your retirement planning team. Don’t hesitate to ask your advisor if they are getting a referral fee. </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-much-do-retirement-advisors-charge"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Do Retirement Advisors Charge?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Financial planners and other types of advisors are paid in a variety of ways. Some charge their clients fees, others receive commissions when they recommend or sell investments, and some do both. Planners who are paid through fees may charge by the hour, by the year, or based on a percentage of your financial assets. Also, some financial planners charge a flat fee each year, regardless of the investments or asset allocation. Fees can vary according to the advisor’s expertise and the part of the country where you live.</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-how-can-i-find-a-retirement-advisor"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Find a Retirement Advisor?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One good way to find a reputable retirement advisor is to ask friends and neighbors you trust, as well as other professionals you may know, such as a lawyer or accountant. Ideally, you should get more than one name and interview any potential candidates before you make a choice.</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-do-i-know-if-im-getting-good-advice-from-my-retirement-advisor"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Know If I’m Getting Good Advice From My Retirement Advisor?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While you may want to rely on a financial advisor’s expertise in some areas, it’s worth investing some time in educating yourself. That way, you’ll know the right questions to ask and be able to make informed decisions. For example, it’s helpful to understand at least the basics of how the <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/08/best-plan.asp">different types of retirement plans</a> work, how to <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/when-take-social-security-complete-guide/">maximize your Social Security benefits</a>, and how to <a class="pseudoStyle" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/tax-strategies-your-retirement-income/">minimize your taxes in retirement</a>.</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"> Ideally, your retirement shouldn’t be a do-it-yourself endeavor unless you are an expert in retirement planning. Even the most skilled advisors sometimes consult somebody else because staying objective with your own money is difficult. </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"> You may find it helpful to get some professional advice as early as possible to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/090914/smart-ways-manage-your-401k.asp">put your retirement planning on the right track</a>. If you can’t afford to hire a paid advisor at this point, you may be eligible for some free guidance through a 401(k) or similar retirement plan if you participate in one at work. </p></div>
Possibly the most ignored part of everyday money life is retirement. For some, retirement is decades away, so why think about it now? Others may feel that they’re so far behind in saving that the situation is hopeless. Neither is true. It’s almost never too late to start saving. Equally true: It’s never too early. Either way, a professional retirement advisor can often help you set the right course and identify unexpected areas for improvement. ### Key Takeaways * Saving for retirement is easier the sooner you get started, and a professional advisor can help you formulate a plan. * Even if you’re close to—or already in—retirement, an advisor may be able to suggest ways to better manage your income and investments as well as avoid unnecessary taxes. * Some [financial advisors](https://www.investopedia.com/hiring-a-financial-counselor-5213566) charge fees, others earn commissions from the products they recommend, and some do both. Free help may also be available through your employer’s retirement plan. ## What Kind of Advisor Should You Hire? There are all kinds of advisors—and people purporting to be advisors—out there. If you’re looking for help building a retirement nest egg, you most likely want a [certified financial planner](https://www.investopedia.com/terms/c/cfp.asp) (CFP) with expertise in retirement planning. Other financial advisors who may specialize in retirement planning can be identified by various credentials following their names. Those designations include [Chartered Retirement Plans Specialist](https://www.investopedia.com/terms/c/chartered-retirement-plans-specialist.asp) (CRPS), [Retirement Income Certified Professional](https://www.investopedia.com/terms/r/retirement-income-certified-professional-ricp.asp) (RICP), or [Chartered Retirement Planning Counselor](https://www.investopedia.com/terms/c/crpc.asp) (CRPC), to name a few. To [find a financial advisor](https://www.investopedia.com/updates/find-financial-advisor-planner/), get recommendations from people you trust, ask for references, and interview possible candidates. You may prefer to hire a fee-based advisor, such as a [fee-only financial planner](https://www.investopedia.com/articles/investing/102014/feeonly-financial-advisers-what-you-need-know.asp), instead of one who receives commissions in return for selling or recommending certain financial products. ### Managing your retirement money when you actually retire can be a complicated task, as it involves many aspects, such as Social Security distributions and retirement account distributions, all of which impact income and your tax bracket. If you have a big (and we mean big) bank account balance, you could go the [private banking](https://www.investopedia.com/terms/p/privatebanking.asp) route. If you’re more of a middle-class family and would rather stay with a big establishment, you could talk to your bank. Beware, though: Bank advisors may only recommend their banks’ [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) and other products, and the fees could be high. There are also advisors affiliated with major investment firms, such as Fidelity and Vanguard. If the human touch isn’t important to you, another option could be a [robo-advisor](https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp). Finally, don’t forget to take advantage of any free advising services that comes with an employer-sponsored retirement plan, such as a [401(k)](https://www.investopedia.com/terms/1/401kplan.asp), if you participate in one. The plan may not offer full financial planning, but it should at least explain your fund choices and the potential risks involved, as well as help you figure out the fees that you’ll have to pay. ### Order your copy of the print edition of [Investopedia's Retirement Guide](https://www.amazon.com/Investopedia-Retirement-Guide/dp/1547861975/ref=sr_1_1?crid=MGINV1AZRN70&keywords=9781547861972&qid=1665522668&qu=eyJxc2) for more assistance in building the best plan for your retirement. ## What Do Retirement Advisors Charge? The biggest headwind that can reduce your retirement savings, aside from not saving enough in the first place, are investment fees. When you interview potential retirement advisors, ask them how they are paid. If they’re paid by fees from you, ask them how much their fees are and whether the investment products in which they may put you will have fees. Fee-only advisors will likely charge you an hourly rate, a flat annual fee, or a fee based on how much of your money they are managing, often somewhere around 1% per year. Note, too, that some advisors have account minimums. If you’re just getting started, you may not have a high enough balance to qualify for ongoing advising. On the other hand, many commission-based advisors will take on clients with low balances—just be sure they don’t try to put you into inappropriate or unduly expensive funds. To learn more about comparing fund fees, it’s worth taking some time to read up on [expense ratios](https://www.investopedia.com/ask/answers/032715/when-expense-ratio-considered-high-and-when-it-considered-low.asp). Bear in mind that even seemingly small differences in the fees that funds charge can have a large impact over time. For example, suppose you invest $100,000 in a fund that returns an average of 4% a year. By the end of 20 years, you would have about $208,000 if your fund charged you 0.25% in annual fees, but just $198,000 if it charged 0.5%—a $10,000 difference. ## What to Expect From a Retirement Advisor The first thing you should expect when you sit down with a retirement advisor is a detailed look at your complete financial picture, based on the information you provide. What are your [assets](https://www.investopedia.com/terms/a/asset.asp)? Do you have investments, real estate, pending inheritances, or other resources of value? What are your debts? Do you have a mortgage, car payments, credit cards, student loans, small business liabilities, or other loans? How do you balance servicing your debt while still saving for retirement? Speaking of retirement, what are your plans for it? Do you expect to work until you can’t anymore, or do you want to retire sooner? Do you plan to travel or indulge in some expensive hobbies? How much will you collect from [Social Security](https://www.investopedia.com/retirement/when-take-social-security-complete-guide/) each month, and when is the best time to start collecting benefits? How about insurance? Are you adequately covered? ### Most companies that offer a 401(k) match an employee's contributions up to a certain percentage, which is a great way to boost your savings. Once a retirement advisor has all of your information, they will usually draft a report, providing you with a detailed financial plan for your retirement. The report will likely indicate how much money you’ll be able to withdraw from your accounts each month during retirement, based on various scenarios, and how much you will need to save on a monthly basis from now until then to reach your goals. Your retirement advisor should also take you through the various tax considerations. For example, if you have a [traditional IRA](https://www.investopedia.com/terms/t/traditionalira.asp), should you consider [converting it to a Roth](https://www.investopedia.com/articles/personal-finance/040815/converting-traditional-ira-savings-roth-ira.asp)? How can you minimize the taxes you will pay on your other income and assets? How about your estate? If you end up with many assets, how will you minimize your [estate taxes](https://www.investopedia.com/terms/e/estatetax.asp)? If the advisor is also a [portfolio manager](https://www.investopedia.com/terms/p/portfoliomanager.asp), they may set up a portfolio that fits your goals. If your advisor isn’t able to do that, they may recommend someone who can. Consider the recommendations, but be sure to interview anyone who may join your retirement planning team. Don’t hesitate to ask your advisor if they are getting a referral fee. ## How Much Do Retirement Advisors Charge? Financial planners and other types of advisors are paid in a variety of ways. Some charge their clients fees, others receive commissions when they recommend or sell investments, and some do both. Planners who are paid through fees may charge by the hour, by the year, or based on a percentage of your financial assets. Also, some financial planners charge a flat fee each year, regardless of the investments or asset allocation. Fees can vary according to the advisor’s expertise and the part of the country where you live. ## How Can I Find a Retirement Advisor? One good way to find a reputable retirement advisor is to ask friends and neighbors you trust, as well as other professionals you may know, such as a lawyer or accountant. Ideally, you should get more than one name and interview any potential candidates before you make a choice. ## How Do I Know If I’m Getting Good Advice From My Retirement Advisor? While you may want to rely on a financial advisor’s expertise in some areas, it’s worth investing some time in educating yourself. That way, you’ll know the right questions to ask and be able to make informed decisions. For example, it’s helpful to understand at least the basics of how the [different types of retirement plans](https://www.investopedia.com/articles/retirement/08/best-plan.asp) work, how to [maximize your Social Security benefits](https://www.investopedia.com/retirement/when-take-social-security-complete-guide/), and how to [minimize your taxes in retirement](https://www.investopedia.com/retirement/tax-strategies-your-retirement-income/). ## The Bottom Line Ideally, your retirement shouldn’t be a do-it-yourself endeavor unless you are an expert in retirement planning. Even the most skilled advisors sometimes consult somebody else because staying objective with your own money is difficult. You may find it helpful to get some professional advice as early as possible to [put your retirement planning on the right track](https://www.investopedia.com/articles/personal-finance/090914/smart-ways-manage-your-401k.asp). If you can’t afford to hire a paid advisor at this point, you may be eligible for some free guidance through a 401(k) or similar retirement plan if you participate in one at work.
Possibly the most ignored part of everyday money life is retirement. For some, retirement is decades away, so why think about it now? Others may feel that they’re so far behind in saving that the situation is hopeless. Neither is true. It’s almost never too late to start saving. Equally true: It’s never too early. Either way, a professional retirement advisor can often help you set the right course and identify unexpected areas for improvement. Key Takeaways Saving for retirement is easier the sooner you get started, and a professional advisor can help you formulate a plan. Even if you’re close to—or already in—retirement, an advisor may be able to suggest ways to better manage your income and investments as well as avoid unnecessary taxes. Some financial advisors charge fees, others earn commissions from the products they recommend, and some do both. Free help may also be available through your employer’s retirement plan. What Kind of Advisor Should You Hire? There are all kinds of advisors—and people purporting to be advisors—out there. If you’re looking for help building a retirement nest egg, you most likely want a certified financial planner (CFP) with expertise in retirement planning. Other financial advisors who may specialize in retirement planning can be identified by various credentials following their names. Those designations include Chartered Retirement Plans Specialist (CRPS), Retirement Income Certified Professional (RICP), or Chartered Retirement Planning Counselor (CRPC), to name a few. To find a financial advisor, get recommendations from people you trust, ask for references, and interview possible candidates. You may prefer to hire a fee-based advisor, such as a fee-only financial planner, instead of one who receives commissions in return for selling or recommending certain financial products. Managing your retirement money when you actually retire can be a complicated task, as it involves many aspects, such as Social Security distributions and retirement account distributions, all of which impact income and your tax bracket. If you have a big (and we mean big) bank account balance, you could go the private banking route. If you’re more of a middle-class family and would rather stay with a big establishment, you could talk to your bank. Beware, though: Bank advisors may only recommend their banks’ mutual funds and other products, and the fees could be high. There are also advisors affiliated with major investment firms, such as Fidelity and Vanguard. If the human touch isn’t important to you, another option could be a robo-advisor. Finally, don’t forget to take advantage of any free advising services that comes with an employer-sponsored retirement plan, such as a 401(k), if you participate in one. The plan may not offer full financial planning, but it should at least explain your fund choices and the potential risks involved, as well as help you figure out the fees that you’ll have to pay. Order your copy of the print edition of Investopedia's Retirement Guide for more assistance in building the best plan for your retirement. What Do Retirement Advisors Charge? The biggest headwind that can reduce your retirement savings, aside from not saving enough in the first place, are investment fees. When you interview potential retirement advisors, ask them how they are paid. If they’re paid by fees from you, ask them how much their fees are and whether the investment products in which they may put you will have fees. Fee-only advisors will likely charge you an hourly rate, a flat annual fee, or a fee based on how much of your money they are managing, often somewhere around 1% per year. Note, too, that some advisors have account minimums. If you’re just getting started, you may not have a high enough balance to qualify for ongoing advising. On the other hand, many commission-based advisors will take on clients with low balances—just be sure they don’t try to put you into inappropriate or unduly expensive funds. To learn more about comparing fund fees, it’s worth taking some time to read up on expense ratios. Bear in mind that even seemingly small differences in the fees that funds charge can have a large impact over time. For example, suppose you invest $100,000 in a fund that returns an average of 4% a year. By the end of 20 years, you would have about $208,000 if your fund charged you 0.25% in annual fees, but just $198,000 if it charged 0.5%—a $10,000 difference. What to Expect From a Retirement Advisor The first thing you should expect when you sit down with a retirement advisor is a detailed look at your complete financial picture, based on the information you provide. What are your assets? Do you have investments, real estate, pending inheritances, or other resources of value? What are your debts? Do you have a mortgage, car payments, credit cards, student loans, small business liabilities, or other loans? How do you balance servicing your debt while still saving for retirement? Speaking of retirement, what are your plans for it? Do you expect to work until you can’t anymore, or do you want to retire sooner? Do you plan to travel or indulge in some expensive hobbies? How much will you collect from Social Security each month, and when is the best time to start collecting benefits? How about insurance? Are you adequately covered? Most companies that offer a 401(k) match an employee's contributions up to a certain percentage, which is a great way to boost your savings. Once a retirement advisor has all of your information, they will usually draft a report, providing you with a detailed financial plan for your retirement. The report will likely indicate how much money you’ll be able to withdraw from your accounts each month during retirement, based on various scenarios, and how much you will need to save on a monthly basis from now until then to reach your goals. Your retirement advisor should also take you through the various tax considerations. For example, if you have a traditional IRA, should you consider converting it to a Roth? How can you minimize the taxes you will pay on your other income and assets? How about your estate? If you end up with many assets, how will you minimize your estate taxes? If the advisor is also a portfolio manager, they may set up a portfolio that fits your goals. If your advisor isn’t able to do that, they may recommend someone who can. Consider the recommendations, but be sure to interview anyone who may join your retirement planning team. Don’t hesitate to ask your advisor if they are getting a referral fee. How Much Do Retirement Advisors Charge? Financial planners and other types of advisors are paid in a variety of ways. Some charge their clients fees, others receive commissions when they recommend or sell investments, and some do both. Planners who are paid through fees may charge by the hour, by the year, or based on a percentage of your financial assets. Also, some financial planners charge a flat fee each year, regardless of the investments or asset allocation. Fees can vary according to the advisor’s expertise and the part of the country where you live. How Can I Find a Retirement Advisor? One good way to find a reputable retirement advisor is to ask friends and neighbors you trust, as well as other professionals you may know, such as a lawyer or accountant. Ideally, you should get more than one name and interview any potential candidates before you make a choice. How Do I Know If I’m Getting Good Advice From My Retirement Advisor? While you may want to rely on a financial advisor’s expertise in some areas, it’s worth investing some time in educating yourself. That way, you’ll know the right questions to ask and be able to make informed decisions. For example, it’s helpful to understand at least the basics of how the different types of retirement plans work, how to maximize your Social Security benefits, and how to minimize your taxes in retirement. The Bottom Line Ideally, your retirement shouldn’t be a do-it-yourself endeavor unless you are an expert in retirement planning. Even the most skilled advisors sometimes consult somebody else because staying objective with your own money is difficult. You may find it helpful to get some professional advice as early as possible to put your retirement planning on the right track. If you can’t afford to hire a paid advisor at this point, you may be eligible for some free guidance through a 401(k) or similar retirement plan if you participate in one at work.
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https://www.investopedia.com/terms/c/cloning.asp
Credit Card Cloning: Definition and Ways To Protect Yourself
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-credit-card-cloning"></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 Credit Card Cloning? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Credit card cloning refers to making an unauthorized copy of a credit card. This practice is also sometimes called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/skimming.asp">skimming</a>. Thieves copy information at a credit card terminal using an electronic device and transfer the data from the stolen card to a new card or rewrite an existing card with the information. </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"> Unfortunately, cloning and related forms of theft have become increasingly widespread in recent decades. Thankfully, security improvements—such as the use of <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 numbers</a> (PINs) and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chip-card.asp">chip cards</a>—have helped to protect against these types of attacks. </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>Cloning is a type of credit card theft in which the thief makes a digital copy of the credit card information using a concealed or disguised electronic scanner.</li><li>Security improvements—such as the use of chip cards—have helped disrupt this type of theft.</li><li>Successful thieves can sell the cloned information on the underground market, or download it onto other credit cards in order to make unauthorized purchases.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-credit-card-cloning-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 Credit Card Cloning Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> From the perspective of the thieves, cloning can be a very effective way to obtain credit card information, because it does not require the physical credit card to be stolen. Instead, they simply use an electronic device to covertly scan the card's information and copy it into the device’s memory. The thieves can then access that information digitally, or else download the information onto a separate credit card that is already in their possession.<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"> Once the information is recorded it can be transferred onto the magnetic strip of a new card or can be used to overwrite data on an already stolen credit card. For cards that use a personal identification number (PIN) number in addition to a magnetic strip, such as debit cards, the PIN would need to be observed and recorded. This is sometimes difficult to accomplish, adding additional protection against having your card compromised.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Of course, modern security enhancements have made it more difficult for would-be thieves to carry out cloning. Modern chip cards—which have embedded microchips that contain their sensitive information—are much harder to compromise because the data they contain is encrypted within the chip itself. This means that even if the thieves successfully access the chip card, they would not be able to use the information they stole. But even this type of technology isn't foolproof.<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"> Still, older models of credit cards that only have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/magnetic-stripe-card.asp">magnetic stripes</a> make for much easier targets. </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>In recent years thieves have figured out how to target chip cards through a practice called shimming. Fraudsters insert a paper-thin device, known as a shim, into a card reader slot that copies the information on a chip card.<span class="ql-inline-citation" data-cite="1"></span></p></div></div></div> <span class="heading-toc" id="toc-example-of-cloning"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Example of Cloning </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> A popular method that thieves use is installing hidden scanners onto legitimate card-reading devices such as gas station pumps, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/avoid-atm-scams-atm-fraud.asp">automated teller machines (ATMs)</a>, or the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/point-of-sale.asp">point-of-sale (POS)</a> machines common in most retail stores.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> What makes these attacks particularly insidious is that they do not require the cooperation of the personnel working at those stores. Instead, those orchestrating the attack can simply collect data on an ongoing basis from the hidden scanners, without the customers, employees, or business owners being aware of the source of the breach. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-how-to-protect-yourself-against-credit-card-cloning"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> How to Protect Yourself Against Credit Card Cloning </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> You can defend against credit card cloning by taking the following precautions: </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"> Inspect any card reader you use </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Take a moment to inspect the card reader. If something looks suspicious, don’t use it. For example, some skimming devices can be bulky.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <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"> Monitor your credit card account </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Monitor your accounts for fraud. Check your balance and recent transactions online often, even daily. </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"> Sign up for alerts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Sign up for alerts with your bank or card issuer. Your bank will then contact you by email or text message when certain activity occurs on your accounts, such as a withdrawal or charge exceeding an amount you specify. </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"> Stick to bank ATMs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Only use ATMs that are associated with a bank. Avoid potential “skimming” locations such as gas stations and deli kiosks. </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"> Use a chip reader </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Always use a chip reader rather than swiping your card. While cloning is still possible with a chip card, it is less likely to occur. </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"> Opt for contactless payment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> If your credit or debit cards have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/contactless-payment.asp">contactless payment</a> feature, use it instead of inserting your card into a terminal. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_45-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_46-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block 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>Chip cards are also known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emv.asp">EMV</a> cards—short for Europay, MasterCard, and Visa. These three companies collaborated to produce a global protocol for credit card security that is widely used today.</p></div></div></div> <span class="heading-toc" id="toc-what-to-do-when-your-credit-card-is-cloned"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> What to Do When Your Credit Card Is Cloned </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> If you believe your card has been cloned, your credit card company or bank should be the first call you make. The more quickly you cancel the card, the less time thieves have to rack up charges. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> The good news is that consumers are not typically responsible for the amounts lost in cases of credit card fraud. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fair-credit-billing-act-fcba.asp">Fair Credit Billing Act</a> limits the liability to $50 <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/09/stolen-credit-card.asp">if the theft is reported</a>. </p></div>
## What Is Credit Card Cloning? Credit card cloning refers to making an unauthorized copy of a credit card. This practice is also sometimes called [skimming](https://www.investopedia.com/terms/s/skimming.asp). Thieves copy information at a credit card terminal using an electronic device and transfer the data from the stolen card to a new card or rewrite an existing card with the information. Unfortunately, cloning and related forms of theft have become increasingly widespread in recent decades. Thankfully, security improvements—such as the use of [personal identification numbers](https://www.investopedia.com/terms/p/personal-identification-number.asp) (PINs) and [chip cards](https://www.investopedia.com/terms/c/chip-card.asp)—have helped to protect against these types of attacks. ### Key Takeaways * Cloning is a type of credit card theft in which the thief makes a digital copy of the credit card information using a concealed or disguised electronic scanner. * Security improvements—such as the use of chip cards—have helped disrupt this type of theft. * Successful thieves can sell the cloned information on the underground market, or download it onto other credit cards in order to make unauthorized purchases. ## How Credit Card Cloning Works From the perspective of the thieves, cloning can be a very effective way to obtain credit card information, because it does not require the physical credit card to be stolen. Instead, they simply use an electronic device to covertly scan the card's information and copy it into the device’s memory. The thieves can then access that information digitally, or else download the information onto a separate credit card that is already in their possession. Once the information is recorded it can be transferred onto the magnetic strip of a new card or can be used to overwrite data on an already stolen credit card. For cards that use a personal identification number (PIN) number in addition to a magnetic strip, such as debit cards, the PIN would need to be observed and recorded. This is sometimes difficult to accomplish, adding additional protection against having your card compromised. Of course, modern security enhancements have made it more difficult for would-be thieves to carry out cloning. Modern chip cards—which have embedded microchips that contain their sensitive information—are much harder to compromise because the data they contain is encrypted within the chip itself. This means that even if the thieves successfully access the chip card, they would not be able to use the information they stole. But even this type of technology isn't foolproof. Still, older models of credit cards that only have [magnetic stripes](https://www.investopedia.com/terms/m/magnetic-stripe-card.asp) make for much easier targets. ### In recent years thieves have figured out how to target chip cards through a practice called shimming. Fraudsters insert a paper-thin device, known as a shim, into a card reader slot that copies the information on a chip card. ## Example of Cloning A popular method that thieves use is installing hidden scanners onto legitimate card-reading devices such as gas station pumps, [automated teller machines (ATMs)](https://www.investopedia.com/articles/pf/08/avoid-atm-scams-atm-fraud.asp), or the [point-of-sale (POS)](https://www.investopedia.com/terms/p/point-of-sale.asp) machines common in most retail stores. What makes these attacks particularly insidious is that they do not require the cooperation of the personnel working at those stores. Instead, those orchestrating the attack can simply collect data on an ongoing basis from the hidden scanners, without the customers, employees, or business owners being aware of the source of the breach. ## How to Protect Yourself Against Credit Card Cloning You can defend against credit card cloning by taking the following precautions: ### Inspect any card reader you use Take a moment to inspect the card reader. If something looks suspicious, don’t use it. For example, some skimming devices can be bulky. ### Monitor your credit card account Monitor your accounts for fraud. Check your balance and recent transactions online often, even daily. ### Sign up for alerts Sign up for alerts with your bank or card issuer. Your bank will then contact you by email or text message when certain activity occurs on your accounts, such as a withdrawal or charge exceeding an amount you specify. ### Stick to bank ATMs Only use ATMs that are associated with a bank. Avoid potential “skimming” locations such as gas stations and deli kiosks. ### Use a chip reader Always use a chip reader rather than swiping your card. While cloning is still possible with a chip card, it is less likely to occur. ### Opt for contactless payment If your credit or debit cards have a [contactless payment](https://www.investopedia.com/terms/c/contactless-payment.asp) feature, use it instead of inserting your card into a terminal. ### Chip cards are also known as [EMV](https://www.investopedia.com/terms/e/emv.asp) cards—short for Europay, MasterCard, and Visa. These three companies collaborated to produce a global protocol for credit card security that is widely used today. ## What to Do When Your Credit Card Is Cloned If you believe your card has been cloned, your credit card company or bank should be the first call you make. The more quickly you cancel the card, the less time thieves have to rack up charges. The good news is that consumers are not typically responsible for the amounts lost in cases of credit card fraud. The [Fair Credit Billing Act](https://www.investopedia.com/terms/f/fair-credit-billing-act-fcba.asp) limits the liability to $50 [if the theft is reported](https://www.investopedia.com/ask/answers/09/stolen-credit-card.asp).
What Is Credit Card Cloning? Credit card cloning refers to making an unauthorized copy of a credit card. This practice is also sometimes called skimming. Thieves copy information at a credit card terminal using an electronic device and transfer the data from the stolen card to a new card or rewrite an existing card with the information. Unfortunately, cloning and related forms of theft have become increasingly widespread in recent decades. Thankfully, security improvements—such as the use of personal identification numbers (PINs) and chip cards—have helped to protect against these types of attacks. Key Takeaways Cloning is a type of credit card theft in which the thief makes a digital copy of the credit card information using a concealed or disguised electronic scanner.Security improvements—such as the use of chip cards—have helped disrupt this type of theft.Successful thieves can sell the cloned information on the underground market, or download it onto other credit cards in order to make unauthorized purchases. How Credit Card Cloning Works From the perspective of the thieves, cloning can be a very effective way to obtain credit card information, because it does not require the physical credit card to be stolen. Instead, they simply use an electronic device to covertly scan the card's information and copy it into the device’s memory. The thieves can then access that information digitally, or else download the information onto a separate credit card that is already in their possession. Once the information is recorded it can be transferred onto the magnetic strip of a new card or can be used to overwrite data on an already stolen credit card. For cards that use a personal identification number (PIN) number in addition to a magnetic strip, such as debit cards, the PIN would need to be observed and recorded. This is sometimes difficult to accomplish, adding additional protection against having your card compromised. Of course, modern security enhancements have made it more difficult for would-be thieves to carry out cloning. Modern chip cards—which have embedded microchips that contain their sensitive information—are much harder to compromise because the data they contain is encrypted within the chip itself. This means that even if the thieves successfully access the chip card, they would not be able to use the information they stole. But even this type of technology isn't foolproof. Still, older models of credit cards that only have magnetic stripes make for much easier targets. In recent years thieves have figured out how to target chip cards through a practice called shimming. Fraudsters insert a paper-thin device, known as a shim, into a card reader slot that copies the information on a chip card. Example of Cloning A popular method that thieves use is installing hidden scanners onto legitimate card-reading devices such as gas station pumps, automated teller machines (ATMs), or the point-of-sale (POS) machines common in most retail stores. What makes these attacks particularly insidious is that they do not require the cooperation of the personnel working at those stores. Instead, those orchestrating the attack can simply collect data on an ongoing basis from the hidden scanners, without the customers, employees, or business owners being aware of the source of the breach. How to Protect Yourself Against Credit Card Cloning You can defend against credit card cloning by taking the following precautions: Inspect any card reader you use Take a moment to inspect the card reader. If something looks suspicious, don’t use it. For example, some skimming devices can be bulky. Monitor your credit card account Monitor your accounts for fraud. Check your balance and recent transactions online often, even daily. Sign up for alerts Sign up for alerts with your bank or card issuer. Your bank will then contact you by email or text message when certain activity occurs on your accounts, such as a withdrawal or charge exceeding an amount you specify. Stick to bank ATMs Only use ATMs that are associated with a bank. Avoid potential “skimming” locations such as gas stations and deli kiosks. Use a chip reader Always use a chip reader rather than swiping your card. While cloning is still possible with a chip card, it is less likely to occur. Opt for contactless payment If your credit or debit cards have a contactless payment feature, use it instead of inserting your card into a terminal. Chip cards are also known as EMV cards—short for Europay, MasterCard, and Visa. These three companies collaborated to produce a global protocol for credit card security that is widely used today. What to Do When Your Credit Card Is Cloned If you believe your card has been cloned, your credit card company or bank should be the first call you make. The more quickly you cancel the card, the less time thieves have to rack up charges. The good news is that consumers are not typically responsible for the amounts lost in cases of credit card fraud. The Fair Credit Billing Act limits the liability to $50 if the theft is reported.
[ [ "skimming", "https://www.investopedia.com/terms/s/skimming.asp" ], [ "personal identification numbers", "https://www.investopedia.com/terms/p/personal-identification-number.asp" ], [ "chip cards", "https://www.investopedia.com/terms/c/chip-card.asp" ], [ "magnetic stripes", "https://www.investopedia.com/terms/m/magnetic-stripe-card.asp" ], [ "automated teller machines (ATMs)", "https://www.investopedia.com/articles/pf/08/avoid-atm-scams-atm-fraud.asp" ], [ "point-of-sale (POS)", "https://www.investopedia.com/terms/p/point-of-sale.asp" ], [ "contactless payment", "https://www.investopedia.com/terms/c/contactless-payment.asp" ], [ "EMV", "https://www.investopedia.com/terms/e/emv.asp" ], [ "Fair Credit Billing Act", "https://www.investopedia.com/terms/f/fair-credit-billing-act-fcba.asp" ], [ "if the theft is reported", "https://www.investopedia.com/ask/answers/09/stolen-credit-card.asp" ] ]
https://www.investopedia.com/terms/c/cusipnumber.asp
What Is a CUSIP Number, and How Do I Find a Stock or Bond CUSIP?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-cusip-number"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a CUSIP Number? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A CUSIP number is a unique nine-digit identification number assigned to financial securities in the United States and Canada. It covers equity, debt, derivatives, and other securities. CUSIP numbers are used to create a concrete distinction between securities that are traded on public markets. </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"> These numbers help facilitate trades and settlements by providing a constant identifier to help distinguish the securities within a trade. Each trade and the corresponding CUSIP number are recorded to facilitate the tracking of actions and activities.<br/> </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 CUSIP number is a unique identification number assigned to stocks and registered bonds in the United States and Canada.</li><li>It comprises nine letters and includes letters and numbers.</li><li>CUSIPs were first introduced in 1964 to simplify the settlement and clearance of stocks.<span class="ql-inline-citation" data-cite="10"></span></li><li>They are mainly used today in computerized trading record-keeping systems for trades and shareholder records.</li><li>Foreign securities have CINS or ISIN numbers instead of a CUSIP.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-cusip-numbers-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> How CUSIP Numbers Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Pronounced Q-sip CUSIP is an acronym for the Committee on Uniform Security Identification Procedures, which oversees the entire CUSIP system. Just like the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stocksymbol.asp">stock symbols</a> assigned to the shares of a publicly traded company, a CUSIP number is a unique identifier attached to the equity, debt, and other securities issued by a company. It is similar to a serial number and is made up of nine digits: </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>The first six alphanumeric characters are known as the base or CUSIP-6, which identifies the issuer</li><li>The seventh and eighth digits identify the type of security</li><li>The ninth digit is a check digit that is automatically generated<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_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The table below highlights some of the securities that are identified by CUSIP numbers.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_15-0"> <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>Equity</b> </td> <td><b>Debt</b> </td> <td><b>Other</b> </td> </tr> <tr> <td>Common Stock </td> <td>Corporate Bonds </td> <td>Hedge Funds </td> </tr> <tr> <td>Preferred Stock </td> <td>Municipal Bonds </td> <td>Derivatives</td> </tr> <tr> <td>Exchange-Traded Funds (ETFs)</td> <td>Commercial Paper</td> <td>Variable Annuities</td> </tr> <tr> <td>Mutual Funds</td> <td>Collateralized Debt Obligations (CDOs)</td> <td>Insurance-Related Vehicles</td> </tr> <tr> <td>Real Estate Investment Trusts (REITs)</td> <td>Certificates of Deposit (CDs)</td> <td>Capital Securities</td> </tr> <tr> <td>American Depository Receipts (ADRs)</td> <td>Asset-Backed Securities</td> <td>Equity-Linked Notes</td> </tr> <tr> <td>Indexes</td> <td>Syndicated Loans</td> <td>Credit Derivatives</td> </tr> </tbody> </table> </div></figure> <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"> By providing a consistent identifier that distinguishes securities, CUSIP numbers help facilitate and ease actions and activities such as trades and settlements. CUSIP Global Services creates anywhere from 1,000 to 2,000 new identifiers each day.<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_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> CUSIP Global Services is managed by FactSet Research Systems on behalf of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aba.asp">American Bankers Association (ABA)</a>. FactSet purchased CUSIP Global Services from <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp.asp">Standard &amp; Poor's (S&amp;P)</a> in 2022 for about $1.925 billion.<span class="ql-inline-citation" data-cite="6"></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_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">12.8 million+</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The number of U.S. and Canadian issues by the CUSIP system as of September 2022 (latest information).<span class="ql-inline-citation" data-cite="9"></span></p></div></div></div> <span class="heading-toc" id="toc-how-to-locate-a-cusip-number"></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"> How to Locate a CUSIP Number </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/06/cusipforspecificstock.asp">CUSIP numbers are publicly available</a> and can be accessed through the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/msrb.asp">Municipal Securities Rulemaking Board (MSRB)</a> via the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/electronic-municipal-market-access-emma.asp">Electronic Municipal Market Access (EMMA)</a> system. Additionally, the information is often listed on official statements relating to a security such as confirmations of purchase or periodic financial statements, or the information can be accessed through various securities dealers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_26-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_27-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/dummy-cusip-number.asp">dummy CUSIP</a> is a temporary, nine-character placeholder used internally by a company to identify a specific security until its official CUSIP number is assigned.</p></div></div></div> <span class="heading-toc" id="toc-cusip-vs-isin-vs-cins"></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"> CUSIP vs. ISIN vs. CINS </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> CUSIP Global Services also has a series of other important identifiers along with CUSIP. Two of these are ISIN and CINS. </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"> ISIN </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Expanding beyond the CUSIP system is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/isin.asp">International Securities Identification Number (ISIN)</a> system. ISINs are used internationally with most United States and Canadian securities labeled with an additional two-character prefix and one final check character attached at the end of the originally issued CUSIP. </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"> Additionally, information regarding the currency of the specified security is also required to facilitate proper processing and recording. This has helped establish an international system for the clearance of securities. While it is not yet used worldwide, the ISIN system has gained traction across foreign markets as a way to simplify trading processes, particularly for international investing. </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"> CINS </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cins.asp">CINS number</a>, which is known as the CUSIP International Numbering System, is another international extension of the CUSIP numbering system. A CINS number consists of nine characters and is used for securities issued in 30 markets outside North America. In this case, the first letter represents the issuing country. For example, E09876AA7 represents an AA credit-rating corporate bond issued in Spain (E is the letter used to identify Spain) and offered in a foreign market.<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-examples-of-cusip-numbers"></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"> Examples of CUSIP Numbers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Here are a few examples of actual CUSIPs for companies across various sectors.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_42-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">CUSIP Numbers for Select Stocks</th> </tr> </thead> <tbody data-check="-1"> <tr> <th>Apple</th> <td>037833100</td> </tr> <tr> <th>Alphabet</th> <td>02079K107</td> </tr> <tr> <th>Alaska Air Group</th> <td>011659109</td> </tr> <tr> <th>Walmart</th> <td>931142103</td> </tr> </tbody> </table> <figcaption>CUSIP numbers</figcaption> </div></figure> <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-cusip-numbers-important"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Are CUSIP Numbers Important?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>CUSIP numbers are unique identifiers attached to listed stocks and bonds. They provide a standardized method for identifying securities to facilitate the clearance and settlement of trading market transactions.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-what-does-a-cusip-number-tell-you"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does a CUSIP Number Tell You?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A CUSIP will tell you the exact type of security it references and who issued it. The unique identifier will also tell you what type of security it is (e.g., a corporate bond or common stock).</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-can-i-do-with-a-cusip-number"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Can I Do With a CUSIP Number?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As an ordinary investor, CUSIP numbers are not of much use. Instead, these are used primarily by brokerage and clearing firms to ensure that transactions are properly settled and recorded.</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-do-i-look-up-a-cusip-number"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Look Up a CUSIP Number?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are several ways to do this. Perhaps the simplest is to request a stock quote on a broker's website, which often will include the CUSIP. You can also find the numbers on a brokerage's official statements sent to clients, or on physical stock or bond certificates if you own them. Certain bond CUSIPs may also be obtained through the Municipal Securities Rule-Making Board via the Electronic Municipal Market Access system.</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"> A CUSIP number is a nine-digit alphanumeric code that is used to identify securities, such as stocks, bonds, and other financial instruments. The CUSIP (Committee on Uniform Securities Identification Procedures) system was developed in the 1960s as a way to uniquely identify securities and facilitate the settlement of trades. </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"> Each CUSIP number is unique to a specific security, and it is assigned by the CUSIP Service Bureau, which is operated by the American Bankers Association. CUSIP numbers are used by banks, brokerages, and other financial institutions to identify and track securities in their systems, and they are also used to facilitate the clearing and settlement of trades. CUSIP numbers are typically found on the front of a bond certificate, and they can also be found in various databases and other sources of information about securities.<br> </br></p></div>
## What Is a CUSIP Number? A CUSIP number is a unique nine-digit identification number assigned to financial securities in the United States and Canada. It covers equity, debt, derivatives, and other securities. CUSIP numbers are used to create a concrete distinction between securities that are traded on public markets. These numbers help facilitate trades and settlements by providing a constant identifier to help distinguish the securities within a trade. Each trade and the corresponding CUSIP number are recorded to facilitate the tracking of actions and activities. ### Key Takeaways * A CUSIP number is a unique identification number assigned to stocks and registered bonds in the United States and Canada. * It comprises nine letters and includes letters and numbers. * CUSIPs were first introduced in 1964 to simplify the settlement and clearance of stocks. * They are mainly used today in computerized trading record-keeping systems for trades and shareholder records. * Foreign securities have CINS or ISIN numbers instead of a CUSIP. ## How CUSIP Numbers Work Pronounced Q-sip CUSIP is an acronym for the Committee on Uniform Security Identification Procedures, which oversees the entire CUSIP system. Just like the [stock symbols](https://www.investopedia.com/terms/s/stocksymbol.asp) assigned to the shares of a publicly traded company, a CUSIP number is a unique identifier attached to the equity, debt, and other securities issued by a company. It is similar to a serial number and is made up of nine digits: * The first six alphanumeric characters are known as the base or CUSIP-6, which identifies the issuer * The seventh and eighth digits identify the type of security * The ninth digit is a check digit that is automatically generated The table below highlights some of the securities that are identified by CUSIP numbers. | **Equity** | **Debt** | **Other** | | --- | --- | --- | | Common Stock | Corporate Bonds | Hedge Funds | | Preferred Stock | Municipal Bonds | Derivatives | | Exchange-Traded Funds (ETFs) | Commercial Paper | Variable Annuities | | Mutual Funds | Collateralized Debt Obligations (CDOs) | Insurance-Related Vehicles | | Real Estate Investment Trusts (REITs) | Certificates of Deposit (CDs) | Capital Securities | | American Depository Receipts (ADRs) | Asset-Backed Securities | Equity-Linked Notes | | Indexes | Syndicated Loans | Credit Derivatives | By providing a consistent identifier that distinguishes securities, CUSIP numbers help facilitate and ease actions and activities such as trades and settlements. CUSIP Global Services creates anywhere from 1,000 to 2,000 new identifiers each day. CUSIP Global Services is managed by FactSet Research Systems on behalf of the [American Bankers Association (ABA)](https://www.investopedia.com/terms/a/aba.asp). FactSet purchased CUSIP Global Services from [Standard & Poor's (S&P)](https://www.investopedia.com/terms/s/sp.asp) in 2022 for about $1.925 billion. ### 12.8 million+ The number of U.S. and Canadian issues by the CUSIP system as of September 2022 (latest information). ## How to Locate a CUSIP Number [CUSIP numbers are publicly available](https://www.investopedia.com/ask/answers/06/cusipforspecificstock.asp) and can be accessed through the [Municipal Securities Rulemaking Board (MSRB)](https://www.investopedia.com/terms/m/msrb.asp) via the [Electronic Municipal Market Access (EMMA)](https://www.investopedia.com/terms/e/electronic-municipal-market-access-emma.asp) system. Additionally, the information is often listed on official statements relating to a security such as confirmations of purchase or periodic financial statements, or the information can be accessed through various securities dealers. ### A [dummy CUSIP](https://www.investopedia.com/terms/dummy-cusip-number.asp) is a temporary, nine-character placeholder used internally by a company to identify a specific security until its official CUSIP number is assigned. ## CUSIP vs. ISIN vs. CINS CUSIP Global Services also has a series of other important identifiers along with CUSIP. Two of these are ISIN and CINS. ### ISIN Expanding beyond the CUSIP system is the [International Securities Identification Number (ISIN)](https://www.investopedia.com/terms/i/isin.asp) system. ISINs are used internationally with most United States and Canadian securities labeled with an additional two-character prefix and one final check character attached at the end of the originally issued CUSIP. Additionally, information regarding the currency of the specified security is also required to facilitate proper processing and recording. This has helped establish an international system for the clearance of securities. While it is not yet used worldwide, the ISIN system has gained traction across foreign markets as a way to simplify trading processes, particularly for international investing. ### CINS A [CINS number](https://www.investopedia.com/terms/c/cins.asp), which is known as the CUSIP International Numbering System, is another international extension of the CUSIP numbering system. A CINS number consists of nine characters and is used for securities issued in 30 markets outside North America. In this case, the first letter represents the issuing country. For example, E09876AA7 represents an AA credit-rating corporate bond issued in Spain (E is the letter used to identify Spain) and offered in a foreign market. ## Examples of CUSIP Numbers Here are a few examples of actual CUSIPs for companies across various sectors. | CUSIP Numbers for Select Stocks | | | --- | --- | | Apple | 037833100 | | Alphabet | 02079K107 | | Alaska Air Group | 011659109 | | Walmart | 931142103 | CUSIP numbers ## Why Are CUSIP Numbers Important? CUSIP numbers are unique identifiers attached to listed stocks and bonds. They provide a standardized method for identifying securities to facilitate the clearance and settlement of trading market transactions. ## What Does a CUSIP Number Tell You? A CUSIP will tell you the exact type of security it references and who issued it. The unique identifier will also tell you what type of security it is (e.g., a corporate bond or common stock). ## What Can I Do With a CUSIP Number? As an ordinary investor, CUSIP numbers are not of much use. Instead, these are used primarily by brokerage and clearing firms to ensure that transactions are properly settled and recorded. ## How Do I Look Up a CUSIP Number? There are several ways to do this. Perhaps the simplest is to request a stock quote on a broker's website, which often will include the CUSIP. You can also find the numbers on a brokerage's official statements sent to clients, or on physical stock or bond certificates if you own them. Certain bond CUSIPs may also be obtained through the Municipal Securities Rule-Making Board via the Electronic Municipal Market Access system. ## The Bottom Line A CUSIP number is a nine-digit alphanumeric code that is used to identify securities, such as stocks, bonds, and other financial instruments. The CUSIP (Committee on Uniform Securities Identification Procedures) system was developed in the 1960s as a way to uniquely identify securities and facilitate the settlement of trades. Each CUSIP number is unique to a specific security, and it is assigned by the CUSIP Service Bureau, which is operated by the American Bankers Association. CUSIP numbers are used by banks, brokerages, and other financial institutions to identify and track securities in their systems, and they are also used to facilitate the clearing and settlement of trades. CUSIP numbers are typically found on the front of a bond certificate, and they can also be found in various databases and other sources of information about securities.
What Is a CUSIP Number? A CUSIP number is a unique nine-digit identification number assigned to financial securities in the United States and Canada. It covers equity, debt, derivatives, and other securities. CUSIP numbers are used to create a concrete distinction between securities that are traded on public markets. These numbers help facilitate trades and settlements by providing a constant identifier to help distinguish the securities within a trade. Each trade and the corresponding CUSIP number are recorded to facilitate the tracking of actions and activities. Key Takeaways A CUSIP number is a unique identification number assigned to stocks and registered bonds in the United States and Canada.It comprises nine letters and includes letters and numbers.CUSIPs were first introduced in 1964 to simplify the settlement and clearance of stocks.They are mainly used today in computerized trading record-keeping systems for trades and shareholder records.Foreign securities have CINS or ISIN numbers instead of a CUSIP. How CUSIP Numbers Work Pronounced Q-sip CUSIP is an acronym for the Committee on Uniform Security Identification Procedures, which oversees the entire CUSIP system. Just like the stock symbols assigned to the shares of a publicly traded company, a CUSIP number is a unique identifier attached to the equity, debt, and other securities issued by a company. It is similar to a serial number and is made up of nine digits: The first six alphanumeric characters are known as the base or CUSIP-6, which identifies the issuerThe seventh and eighth digits identify the type of securityThe ninth digit is a check digit that is automatically generated The table below highlights some of the securities that are identified by CUSIP numbers. Equity  Debt  Other  Common Stock  Corporate Bonds  Hedge Funds  Preferred Stock  Municipal Bonds  Derivatives Exchange-Traded Funds (ETFs) Commercial Paper Variable Annuities Mutual Funds Collateralized Debt Obligations (CDOs) Insurance-Related Vehicles Real Estate Investment Trusts (REITs) Certificates of Deposit (CDs) Capital Securities American Depository Receipts (ADRs) Asset-Backed Securities Equity-Linked Notes Indexes Syndicated Loans Credit Derivatives By providing a consistent identifier that distinguishes securities, CUSIP numbers help facilitate and ease actions and activities such as trades and settlements. CUSIP Global Services creates anywhere from 1,000 to 2,000 new identifiers each day. CUSIP Global Services is managed by FactSet Research Systems on behalf of the American Bankers Association (ABA). FactSet purchased CUSIP Global Services from Standard & Poor's (S&P) in 2022 for about $1.925 billion. 12.8 million+ The number of U.S. and Canadian issues by the CUSIP system as of September 2022 (latest information). How to Locate a CUSIP Number CUSIP numbers are publicly available and can be accessed through the Municipal Securities Rulemaking Board (MSRB) via the Electronic Municipal Market Access (EMMA) system. Additionally, the information is often listed on official statements relating to a security such as confirmations of purchase or periodic financial statements, or the information can be accessed through various securities dealers. A dummy CUSIP is a temporary, nine-character placeholder used internally by a company to identify a specific security until its official CUSIP number is assigned. CUSIP vs. ISIN vs. CINS CUSIP Global Services also has a series of other important identifiers along with CUSIP. Two of these are ISIN and CINS. ISIN Expanding beyond the CUSIP system is the International Securities Identification Number (ISIN) system. ISINs are used internationally with most United States and Canadian securities labeled with an additional two-character prefix and one final check character attached at the end of the originally issued CUSIP. Additionally, information regarding the currency of the specified security is also required to facilitate proper processing and recording. This has helped establish an international system for the clearance of securities. While it is not yet used worldwide, the ISIN system has gained traction across foreign markets as a way to simplify trading processes, particularly for international investing. CINS A CINS number, which is known as the CUSIP International Numbering System, is another international extension of the CUSIP numbering system. A CINS number consists of nine characters and is used for securities issued in 30 markets outside North America. In this case, the first letter represents the issuing country. For example, E09876AA7 represents an AA credit-rating corporate bond issued in Spain (E is the letter used to identify Spain) and offered in a foreign market. Examples of CUSIP Numbers Here are a few examples of actual CUSIPs for companies across various sectors. CUSIP Numbers for Select Stocks Apple 037833100 Alphabet 02079K107 Alaska Air Group 011659109 Walmart 931142103 CUSIP numbers Why Are CUSIP Numbers Important? CUSIP numbers are unique identifiers attached to listed stocks and bonds. They provide a standardized method for identifying securities to facilitate the clearance and settlement of trading market transactions. What Does a CUSIP Number Tell You? A CUSIP will tell you the exact type of security it references and who issued it. The unique identifier will also tell you what type of security it is (e.g., a corporate bond or common stock). What Can I Do With a CUSIP Number? As an ordinary investor, CUSIP numbers are not of much use. Instead, these are used primarily by brokerage and clearing firms to ensure that transactions are properly settled and recorded. How Do I Look Up a CUSIP Number? There are several ways to do this. Perhaps the simplest is to request a stock quote on a broker's website, which often will include the CUSIP. You can also find the numbers on a brokerage's official statements sent to clients, or on physical stock or bond certificates if you own them. Certain bond CUSIPs may also be obtained through the Municipal Securities Rule-Making Board via the Electronic Municipal Market Access system. The Bottom Line A CUSIP number is a nine-digit alphanumeric code that is used to identify securities, such as stocks, bonds, and other financial instruments. The CUSIP (Committee on Uniform Securities Identification Procedures) system was developed in the 1960s as a way to uniquely identify securities and facilitate the settlement of trades. Each CUSIP number is unique to a specific security, and it is assigned by the CUSIP Service Bureau, which is operated by the American Bankers Association. CUSIP numbers are used by banks, brokerages, and other financial institutions to identify and track securities in their systems, and they are also used to facilitate the clearing and settlement of trades. CUSIP numbers are typically found on the front of a bond certificate, and they can also be found in various databases and other sources of information about securities.
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https://www.investopedia.com/articles/investing/010716/top-5-municipal-bond-funds-2016.asp
Top 5 Municipal Bond Funds for 2022
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> For individual investors seeking <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tax-advantaged.asp">tax-advantaged</a> investment strategies in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedincome.asp">fixed-income</a> space, municipal bonds offer an attractive solution. <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/municipalbond.asp">Municipal bonds</a>, also known as “munis,” are <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtsecurity.asp">debt securities</a> issued by government entities that provide modest returns by way of interest payments over the duration of the bonds. The interest received on a municipal bond is generally exempt from federal tax, and in some cases, state and city taxes as well. </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"> Individual investors may either purchase municipal bonds individually through the entity issuing the security or use a pooled <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentstrategy.asp">investment strategy</a> such as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">mutual fund</a> to gain more exposure to multiple municipal bond issues. </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>Municipal bond mutual funds outperformed their respective Morningstar bond fund categories over the past year, as demonstrated below.</li><li>The funds with the best one-year trailing total returns are BATEX, MDYHX, THYTX, DVHIX, and TXRAX.</li><li>The top holdings of the first, third, and fourth of these funds are bonds issued by the Tobacco Settlement Financing Authority of Buckeye, Ohio; the top holdings of the second fund are bonds issued by the Washington State Housing Finance Commission; and the top holdings of the fifth fund are bonds issued by the state of California.</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"> We look at the top five municipal bond funds as ranked by each’s one-year trailing total return (<a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/ttm.asp">TTM</a>) as of the close of markets on Dec. 10, 2021. The funds were selected from a group of funds that are open to new investors, require a minimum initial investment of $1,000 at most, and have <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> of at least $50 million. The first four funds all fall under Morningstar’s “High Yield Muni” category, which had an average total return of 6.0% over the past year. The last fund belongs to the “Muni National Intermediate” category, which provided a total return of 1.9% over the same period. </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"> All data below is as of Dec. 10, 2021. </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-blackrock-allocation-target-shares-series-e-batex"></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"> BlackRock Allocation Target Shares Series E (BATEX) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <li>One-Year Trailing Return: 10.0%</li><li>Expense Ratio: 0.05%</li><li>Trailing-12-Month (TTM) Dividend Yield: 3.68%</li><li>Assets Under Management: $426.1 million<span class="ql-inline-citation" data-cite="5"></span></li><li>Inception Date: Aug. 4, 2014<span class="ql-inline-citation" data-cite="4"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> BATEX is managed by Theodore R. Jaeckel, Walter O’Connor, and Michael Perilli.<span class="ql-inline-citation" data-cite="4"></span> The fund’s primary objective is to maximize federal tax-free yield, which it aims to achieve by investing in a combination of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentgrade.asp">investment grade</a> and non-investment grade municipal bonds. Its secondary goal is focused on total return.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> More than half of BATEX’s bond holdings are either not rated or have a credit rating of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/ba2-bb.asp">BB</a>, which is just below investment grade. Most of the fund’s holdings have a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturity.asp">maturity</a> of 20 years or more. BATEX has an effective <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/duration.asp">duration</a> of approximately 8.5 years.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> BATEX’s top three holdings are bonds issued by the Tobacco Settlement Financing Authority of Buckeye, Ohio; the city of Reno, Nev.; and the New Jersey Transportation Trust Fund Authority.<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_19-0"></div> <span class="heading-toc" id="toc-blackrock-high-yield-municipal-fund-investor-a-shares-mdyhx"></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"> BlackRock High Yield Municipal Fund Investor A Shares (MDYHX) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <li>One-Year Trailing Return: 9.6%</li><li>Expense Ratio: 0.85%</li><li>Trailing-12-Month (TTM) Dividend Yield: 2.81%</li><li>Assets Under Management: $2.3 billion<span class="ql-inline-citation" data-cite="7"></span></li><li>Inception Date: Aug. 1, 2006<span class="ql-inline-citation" data-cite="6"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Like BATEX, MDYHX is also managed by Jaeckel, O’Connor, and Perilli.<span class="ql-inline-citation" data-cite="6"></span> The fund attempts to achieve attractive, tax-advantaged income through exposure to high-income and low-volatility holdings. </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"> MDYHX invests at least 80% of its assets in munis. At least 65% of its net assets are invested in medium- to low-quality bonds. The majority of its bond holdings have a maturity of at least 20 years. The fund has an effective duration of approximately 7.8 years.<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_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> MDYHX’s top three holdings are bonds issued by the Washington State Housing Finance Commission, the commonwealth of Puerto Rico, and the Arkansas Development Finance Authority.<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> <span class="heading-toc" id="toc-transamerica-high-yield-muni-i2-thytx"></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"> Transamerica High Yield Muni I2 (THYTX) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <li>One-Year Trailing Return: 8.7%</li><li>Expense Ratio: 0.75%</li><li>Trailing-12-Month (TTM) Dividend Yield: 3.06%</li><li>Assets Under Management: $187.6 million<span class="ql-inline-citation" data-cite="9"></span></li><li>Inception Date: Sept. 30, 2016<span class="ql-inline-citation" data-cite="10"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> THYTX is managed by Matthew Dalton and Max Christiana.<span class="ql-inline-citation" data-cite="10"></span> The fund aims to maximize total return by investing in medium- and lower-grade munis that are exempt from federal income tax. </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 majority of THYTX’s holdings have a credit rating of either BBB or BB or are not rated. Most of the bonds in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a> have a maturity of 20 years or more.<span class="ql-inline-citation" data-cite="12"></span> The fund has an effective duration of approximately 4.9 years.<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_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> THYTX’s top three holdings are bonds issued by the Tobacco Settlement Financing Authority of Buckeye, Ohio; the Development Authority of LaGrange, Ga.; and the Virginia Small Business Financing Authority.<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_37-0"></div> <span class="heading-toc" id="toc-delaware-national-high-yield-municipal-bond-fund-institutional-class-dvhix"></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"> Delaware National High Yield Municipal Bond Fund Institutional Class (DVHIX) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <li>One-Year Trailing Return: 8.4%</li><li>Expense Ratio: 0.60%</li><li>Trailing-12-Month (TTM) Dividend Yield: 3.66%</li><li>Assets Under Management: $1.8 billion<span class="ql-inline-citation" data-cite="13"></span></li><li>Inception Date: Dec. 31, 2008<span class="ql-inline-citation" data-cite="14"></span></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"> DVHIX is managed by Stephen J. Czepiel, Gregory A. Gizzi, and Jake van Roden.<span class="ql-inline-citation" data-cite="14"></span> The fund aims to maximize income that is exempt from federal income tax by primarily investing in munis of medium- and lower-grade credit quality.<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_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> The majority of DVHIX’s bond holdings are not rated. Its next largest exposure is to munis with a BBB credit rating, followed by BB and AAA munis.<span class="ql-inline-citation" data-cite="15"></span> Most of the fund’s holdings have a maturity of at least 20 years. DVHIX has an effective duration of approximately 8.1 years.<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_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> DVHIX’s top three holdings are bonds issued by the Tobacco Settlement Financing Authority of Buckeye, Ohio; the Puerto Rico Sales Tax Financing Corp.; and the University of Texas.<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_46-0"></div> <span class="heading-toc" id="toc-jpmorgan-tax-aware-real-return-fund-class-a-txrax"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> JPMorgan Tax Aware Real Return Fund Class A (TXRAX) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> <li>One-Year Trailing Return: 8.3%</li><li>Expense Ratio: 0.75%</li><li>Trailing-12-Month (TTM) Dividend Yield: 1.32%</li><li>Assets Under Management: $597.2 million<span class="ql-inline-citation" data-cite="18"></span></li><li>Inception Date: Aug. 31, 2005<span class="ql-inline-citation" data-cite="19"></span></li> </ul> <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"> TXRAX is managed by Richard D. Taormina and David P. Rooney.<span class="ql-inline-citation" data-cite="19"></span> The fund primarily invests in munis whose interest payments are exempt from federal income taxes. It also uses inflation <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/swap.asp">swap</a> contracts to minimize the impact of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</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"> TXRAX’s largest exposure is in municipal bonds with a AA credit rating, followed by munis with A and AAA credit ratings. The majority of its bond holdings have a maturity from five to 15 years.<span class="ql-inline-citation" data-cite="21"></span> TXRAX has an effective duration of approximately 3.5 years.<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_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> TXRAX’s top three holdings are bonds issued by the state of California, the Tennessee Energy Acquisition Corp., and the Water &amp; Sewer System of Houston, Texas.<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_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> <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>
For individual investors seeking [tax-advantaged](https://www.investopedia.com/terms/t/tax-advantaged.asp) investment strategies in the [fixed-income](https://www.investopedia.com/terms/f/fixedincome.asp) space, municipal bonds offer an attractive solution. [Municipal bonds](https://www.investopedia.com/terms/m/municipalbond.asp), also known as “munis,” are [debt securities](https://www.investopedia.com/terms/d/debtsecurity.asp) issued by government entities that provide modest returns by way of interest payments over the duration of the bonds. The interest received on a municipal bond is generally exempt from federal tax, and in some cases, state and city taxes as well. Individual investors may either purchase municipal bonds individually through the entity issuing the security or use a pooled [investment strategy](https://www.investopedia.com/terms/i/investmentstrategy.asp) such as a [mutual fund](https://www.investopedia.com/terms/m/mutualfund.asp) to gain more exposure to multiple municipal bond issues. ### Key Takeaways * Municipal bond mutual funds outperformed their respective Morningstar bond fund categories over the past year, as demonstrated below. * The funds with the best one-year trailing total returns are BATEX, MDYHX, THYTX, DVHIX, and TXRAX. * The top holdings of the first, third, and fourth of these funds are bonds issued by the Tobacco Settlement Financing Authority of Buckeye, Ohio; the top holdings of the second fund are bonds issued by the Washington State Housing Finance Commission; and the top holdings of the fifth fund are bonds issued by the state of California. We look at the top five municipal bond funds as ranked by each’s one-year trailing total return ([TTM](https://www.investopedia.com/terms/t/ttm.asp)) as of the close of markets on Dec. 10, 2021. The funds were selected from a group of funds that are open to new investors, require a minimum initial investment of $1,000 at most, and have [assets under management (AUM)](https://www.investopedia.com/terms/a/aum.asp) of at least $50 million. The first four funds all fall under Morningstar’s “High Yield Muni” category, which had an average total return of 6.0% over the past year. The last fund belongs to the “Muni National Intermediate” category, which provided a total return of 1.9% over the same period. All data below is as of Dec. 10, 2021. ## BlackRock Allocation Target Shares Series E (BATEX) * One-Year Trailing Return: 10.0% * Expense Ratio: 0.05% * Trailing-12-Month (TTM) Dividend Yield: 3.68% * Assets Under Management: $426.1 million * Inception Date: Aug. 4, 2014 BATEX is managed by Theodore R. Jaeckel, Walter O’Connor, and Michael Perilli. The fund’s primary objective is to maximize federal tax-free yield, which it aims to achieve by investing in a combination of [investment grade](https://www.investopedia.com/terms/i/investmentgrade.asp) and non-investment grade municipal bonds. Its secondary goal is focused on total return. More than half of BATEX’s bond holdings are either not rated or have a credit rating of [BB](https://www.investopedia.com/terms/b/ba2-bb.asp), which is just below investment grade. Most of the fund’s holdings have a [maturity](https://www.investopedia.com/terms/m/maturity.asp) of 20 years or more. BATEX has an effective [duration](https://www.investopedia.com/terms/d/duration.asp) of approximately 8.5 years. BATEX’s top three holdings are bonds issued by the Tobacco Settlement Financing Authority of Buckeye, Ohio; the city of Reno, Nev.; and the New Jersey Transportation Trust Fund Authority. ## BlackRock High Yield Municipal Fund Investor A Shares (MDYHX) * One-Year Trailing Return: 9.6% * Expense Ratio: 0.85% * Trailing-12-Month (TTM) Dividend Yield: 2.81% * Assets Under Management: $2.3 billion * Inception Date: Aug. 1, 2006 Like BATEX, MDYHX is also managed by Jaeckel, O’Connor, and Perilli. The fund attempts to achieve attractive, tax-advantaged income through exposure to high-income and low-volatility holdings. MDYHX invests at least 80% of its assets in munis. At least 65% of its net assets are invested in medium- to low-quality bonds. The majority of its bond holdings have a maturity of at least 20 years. The fund has an effective duration of approximately 7.8 years. MDYHX’s top three holdings are bonds issued by the Washington State Housing Finance Commission, the commonwealth of Puerto Rico, and the Arkansas Development Finance Authority. ## Transamerica High Yield Muni I2 (THYTX) * One-Year Trailing Return: 8.7% * Expense Ratio: 0.75% * Trailing-12-Month (TTM) Dividend Yield: 3.06% * Assets Under Management: $187.6 million * Inception Date: Sept. 30, 2016 THYTX is managed by Matthew Dalton and Max Christiana. The fund aims to maximize total return by investing in medium- and lower-grade munis that are exempt from federal income tax. The majority of THYTX’s holdings have a credit rating of either BBB or BB or are not rated. Most of the bonds in the [portfolio](https://www.investopedia.com/terms/p/portfolio.asp) have a maturity of 20 years or more. The fund has an effective duration of approximately 4.9 years. THYTX’s top three holdings are bonds issued by the Tobacco Settlement Financing Authority of Buckeye, Ohio; the Development Authority of LaGrange, Ga.; and the Virginia Small Business Financing Authority. ## Delaware National High Yield Municipal Bond Fund Institutional Class (DVHIX) * One-Year Trailing Return: 8.4% * Expense Ratio: 0.60% * Trailing-12-Month (TTM) Dividend Yield: 3.66% * Assets Under Management: $1.8 billion * Inception Date: Dec. 31, 2008 DVHIX is managed by Stephen J. Czepiel, Gregory A. Gizzi, and Jake van Roden. The fund aims to maximize income that is exempt from federal income tax by primarily investing in munis of medium- and lower-grade credit quality. The majority of DVHIX’s bond holdings are not rated. Its next largest exposure is to munis with a BBB credit rating, followed by BB and AAA munis. Most of the fund’s holdings have a maturity of at least 20 years. DVHIX has an effective duration of approximately 8.1 years. DVHIX’s top three holdings are bonds issued by the Tobacco Settlement Financing Authority of Buckeye, Ohio; the Puerto Rico Sales Tax Financing Corp.; and the University of Texas. ## JPMorgan Tax Aware Real Return Fund Class A (TXRAX) * One-Year Trailing Return: 8.3% * Expense Ratio: 0.75% * Trailing-12-Month (TTM) Dividend Yield: 1.32% * Assets Under Management: $597.2 million * Inception Date: Aug. 31, 2005 TXRAX is managed by Richard D. Taormina and David P. Rooney. The fund primarily invests in munis whose interest payments are exempt from federal income taxes. It also uses inflation [swap](https://www.investopedia.com/terms/s/swap.asp) contracts to minimize the impact of [inflation](https://www.investopedia.com/terms/i/inflation.asp). TXRAX’s largest exposure is in municipal bonds with a AA credit rating, followed by munis with A and AAA credit ratings. The majority of its bond holdings have a maturity from five to 15 years. TXRAX has an effective duration of approximately 3.5 years. TXRAX’s top three holdings are bonds issued by the state of California, the Tennessee Energy Acquisition Corp., and the Water & Sewer System of Houston, Texas. *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.*
For individual investors seeking tax-advantaged investment strategies in the fixed-income space, municipal bonds offer an attractive solution. Municipal bonds, also known as “munis,” are debt securities issued by government entities that provide modest returns by way of interest payments over the duration of the bonds. The interest received on a municipal bond is generally exempt from federal tax, and in some cases, state and city taxes as well. Individual investors may either purchase municipal bonds individually through the entity issuing the security or use a pooled investment strategy such as a mutual fund to gain more exposure to multiple municipal bond issues. Key Takeaways Municipal bond mutual funds outperformed their respective Morningstar bond fund categories over the past year, as demonstrated below.The funds with the best one-year trailing total returns are BATEX, MDYHX, THYTX, DVHIX, and TXRAX.The top holdings of the first, third, and fourth of these funds are bonds issued by the Tobacco Settlement Financing Authority of Buckeye, Ohio; the top holdings of the second fund are bonds issued by the Washington State Housing Finance Commission; and the top holdings of the fifth fund are bonds issued by the state of California. We look at the top five municipal bond funds as ranked by each’s one-year trailing total return (TTM) as of the close of markets on Dec. 10, 2021. The funds were selected from a group of funds that are open to new investors, require a minimum initial investment of $1,000 at most, and have assets under management (AUM) of at least $50 million. The first four funds all fall under Morningstar’s “High Yield Muni” category, which had an average total return of 6.0% over the past year. The last fund belongs to the “Muni National Intermediate” category, which provided a total return of 1.9% over the same period. All data below is as of Dec. 10, 2021. BlackRock Allocation Target Shares Series E (BATEX) One-Year Trailing Return: 10.0%Expense Ratio: 0.05%Trailing-12-Month (TTM) Dividend Yield: 3.68%Assets Under Management: $426.1 millionInception Date: Aug. 4, 2014 BATEX is managed by Theodore R. Jaeckel, Walter O’Connor, and Michael Perilli. The fund’s primary objective is to maximize federal tax-free yield, which it aims to achieve by investing in a combination of investment grade and non-investment grade municipal bonds. Its secondary goal is focused on total return. More than half of BATEX’s bond holdings are either not rated or have a credit rating of BB, which is just below investment grade. Most of the fund’s holdings have a maturity of 20 years or more. BATEX has an effective duration of approximately 8.5 years. BATEX’s top three holdings are bonds issued by the Tobacco Settlement Financing Authority of Buckeye, Ohio; the city of Reno, Nev.; and the New Jersey Transportation Trust Fund Authority. BlackRock High Yield Municipal Fund Investor A Shares (MDYHX) One-Year Trailing Return: 9.6%Expense Ratio: 0.85%Trailing-12-Month (TTM) Dividend Yield: 2.81%Assets Under Management: $2.3 billionInception Date: Aug. 1, 2006 Like BATEX, MDYHX is also managed by Jaeckel, O’Connor, and Perilli. The fund attempts to achieve attractive, tax-advantaged income through exposure to high-income and low-volatility holdings. MDYHX invests at least 80% of its assets in munis. At least 65% of its net assets are invested in medium- to low-quality bonds. The majority of its bond holdings have a maturity of at least 20 years. The fund has an effective duration of approximately 7.8 years. MDYHX’s top three holdings are bonds issued by the Washington State Housing Finance Commission, the commonwealth of Puerto Rico, and the Arkansas Development Finance Authority. Transamerica High Yield Muni I2 (THYTX) One-Year Trailing Return: 8.7%Expense Ratio: 0.75%Trailing-12-Month (TTM) Dividend Yield: 3.06%Assets Under Management: $187.6 millionInception Date: Sept. 30, 2016 THYTX is managed by Matthew Dalton and Max Christiana. The fund aims to maximize total return by investing in medium- and lower-grade munis that are exempt from federal income tax. The majority of THYTX’s holdings have a credit rating of either BBB or BB or are not rated. Most of the bonds in the portfolio have a maturity of 20 years or more. The fund has an effective duration of approximately 4.9 years. THYTX’s top three holdings are bonds issued by the Tobacco Settlement Financing Authority of Buckeye, Ohio; the Development Authority of LaGrange, Ga.; and the Virginia Small Business Financing Authority. Delaware National High Yield Municipal Bond Fund Institutional Class (DVHIX) One-Year Trailing Return: 8.4%Expense Ratio: 0.60%Trailing-12-Month (TTM) Dividend Yield: 3.66%Assets Under Management: $1.8 billionInception Date: Dec. 31, 2008 DVHIX is managed by Stephen J. Czepiel, Gregory A. Gizzi, and Jake van Roden. The fund aims to maximize income that is exempt from federal income tax by primarily investing in munis of medium- and lower-grade credit quality. The majority of DVHIX’s bond holdings are not rated. Its next largest exposure is to munis with a BBB credit rating, followed by BB and AAA munis. Most of the fund’s holdings have a maturity of at least 20 years. DVHIX has an effective duration of approximately 8.1 years. DVHIX’s top three holdings are bonds issued by the Tobacco Settlement Financing Authority of Buckeye, Ohio; the Puerto Rico Sales Tax Financing Corp.; and the University of Texas. JPMorgan Tax Aware Real Return Fund Class A (TXRAX) One-Year Trailing Return: 8.3%Expense Ratio: 0.75%Trailing-12-Month (TTM) Dividend Yield: 1.32%Assets Under Management: $597.2 millionInception Date: Aug. 31, 2005 TXRAX is managed by Richard D. Taormina and David P. Rooney. The fund primarily invests in munis whose interest payments are exempt from federal income taxes. It also uses inflation swap contracts to minimize the impact of inflation. TXRAX’s largest exposure is in municipal bonds with a AA credit rating, followed by munis with A and AAA credit ratings. The majority of its bond holdings have a maturity from five to 15 years. TXRAX has an effective duration of approximately 3.5 years. TXRAX’s top three holdings are bonds issued by the state of California, the Tennessee Energy Acquisition Corp., and the Water & Sewer System of Houston, Texas. 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.
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https://www.investopedia.com/what-is-plaid-5207625
Plaid: What It Is, How It Works, Is It Safe?
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> You’ll probably run into Plaid when you connect your bank account to apps run by financial services like American Express, Venmo, or Upstart. Plaid authenticates your financial information, permitting companies to transfer sensitive information securely. But is Plaid safe? Yes, it's considered safe to use. That's because it employs advanced security and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/encryption.asp">encryption</a> protocols to protect your data during transmission. Plus, it never shares personal information unless it has permission to do so. </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"> Plaid’s software sits as an intermediary between your bank or credit card accounts and other financial companies’ apps. One example would be a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/031115/5-top-portfolio-management-apps.asp">portfolio management site</a> like Personal Capital or a budgeting app like Mint. For sites like these to work, they need to access your account information. You may be hesitant to share your sensitive financial information with another company. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> That’s where Plaid comes in. Instead of giving Mint or Personal Capital all of your bank login information, Plaid sits in between. Plaid currently connects with a variety of large bank and credit card companies including Bank of America, Wells Fargo, American Express, and U.S. Bank. </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>Plaid is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fintech.asp">fintech</a> company that facilitates communication between financial services apps and users’ banks and credit card providers.</li> <li>During a transaction, Plaid communicates with your bank to keep your login information private.</li> <li>Plaid claims to use best-in-class encryption protocols to protect users’ information.</li> </ul></div></div></div> <span class="heading-toc" id="toc-how-does-plaid-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 Does Plaid Work? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> For example, you can use Plaid to connect to your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-chime-makes-money-4796705">Chime bank or credit card account</a>. When you need to pass your bank credentials to another finance app, you’ll be prompted with a Plaid window.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> You’ll enter your Chime username and password and submit the form. That information stays only with Plaid, which will contact Chime and verify your login information. If you have set up <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/twofactor-authentication-2fa.asp">two-factor authentication</a> (2FA), you will enter that information as well. Plaid also has the option to use its own 2FA if your bank doesn’t support that extra layer of security. According to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://plaid.com/blog/plaids-continued-investment-in-security-and-privacy-standards/">its website</a>, Plaid is certified in <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/international-organization-for-standardization-iso.asp">internationally recognized security standards</a>, like ISO 27001, ISO 27701, and is SSAE18 SOC2 compliant. </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"> Once you have used Plaid to authenticate your bank information, the connection is in place and can be used to transfer the financial information that you authorize. This could be information like transaction history, balance, or other information. Installment payment platform Sezzle is one finance company that is using Plaid for financial authorization. Through the partnership, Sezzle customers will be able to connect their financial accounts via Plaid. This will allow them to pay more efficiently using <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/ach.asp">Automated Clearing House</a> (ACH) instead of a credit or debit card. </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-warning" 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">Plaid Class Action</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Plaid settled a class action in which it agreed to pay $58 million to individuals who had used its interface, including Venmo, Robinhood, and Coinbase users. The lawsuit was based on Plaid acquiring more data than it needed and storing the user's bank account login credentials on Plaid's systems.</p></div></div></div> <span class="heading-toc" id="toc-is-plaid-safe-to-use"></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"> Is Plaid Safe to Use? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> As with most companies that transfer financial information, Plaid says it takes the security of its customers’ data very seriously. Plaid uses <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/encryption.asp">encryption</a> protocols like the Advanced Encryption Standard (AES 256) and Transport Layer Security (TLS) when transmitting financial data. Knowing that your data is transmitted using these security settings may give you an extra layer of confidence. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> In addition to following best-in-class security protocols when handling data, Plaid follows a number of other security best practices to make sure that your information remains safe. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://plaid.com/safety/">Plaid’s Trust and Safety page</a> details that it: </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>Uses multifactor authentication (MFA) to further secure your account if your financial institution doesn’t offer it;</li><li>Operates a bug bounty program to get even more eyes on security at Plaid;</li><li>Promises to never share your data without your permission, and to never sell or rent your information to other companies;</li><li>Allows you control over which companies have access to your data and what data is shared with each company.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_25-0"><span class="heading-toc" id="toc-what-is-plaid"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Plaid?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Plaid software operates between your financial information and financial sites that you want to receive your data. Using a service like Plaid prevents financial sites from having access to all of your banking and other data. Instead, you only share the specific information that you indicate.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_27-0"><span class="heading-toc" id="toc-how-does-plaid-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does Plaid Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Many financial companies have a valid reason to have access to some of your financial information. This could include a portfolio aggregator needing access to your investments or a budget site accessing your bank and credit card transactions. Using Plaid allows these sites to access this information without giving them your bank or credit card login credentials.</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-is-plaid-safe"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Plaid Safe?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Plaid uses some of the highest encryption protocols available when sending your financial data. This includes the Advanced Encryption Standard (AES 256) and Transport Layer Security (TLS). Plaid also uses multifactor authentication (MFA), which gives an added layer of security to the transmission of your financial data.</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-why-did-my-chase-account-stop-linking-to-plaid"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Did My Chase Account Stop Linking to Plaid?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Plaid used to link to Chase accounts, but it is no longer listed on their website as a supported institution. Plaid has not made any announcement about their agreement with Chase ending.<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_32-0"></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_33-0"> <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_34-0"> Plaid is a fintech company used by 11,000 companies to connect users to other third-party financial applications. This includes Venmo, Acorns, Betterment, and many other fintech companies. When you use Plaid with a third-party application, you authenticate using your login credentials directly with your bank. The third-party application never sees your username or password—instead, it only receives notice that the login was successful and then whatever information you allow it to see. </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"> While you may be hesitant to trust an outside company with your sensitive financial account information, Plaid claims to take security seriously. It doesn’t sell or rent users’ financial information, and it gives users complete control over what data is shared with each company. </p></div>
You’ll probably run into Plaid when you connect your bank account to apps run by financial services like American Express, Venmo, or Upstart. Plaid authenticates your financial information, permitting companies to transfer sensitive information securely. But is Plaid safe? Yes, it's considered safe to use. That's because it employs advanced security and [encryption](https://www.investopedia.com/terms/e/encryption.asp) protocols to protect your data during transmission. Plus, it never shares personal information unless it has permission to do so. Plaid’s software sits as an intermediary between your bank or credit card accounts and other financial companies’ apps. One example would be a [portfolio management site](https://www.investopedia.com/articles/investing/031115/5-top-portfolio-management-apps.asp) like Personal Capital or a budgeting app like Mint. For sites like these to work, they need to access your account information. You may be hesitant to share your sensitive financial information with another company. That’s where Plaid comes in. Instead of giving Mint or Personal Capital all of your bank login information, Plaid sits in between. Plaid currently connects with a variety of large bank and credit card companies including Bank of America, Wells Fargo, American Express, and U.S. Bank. ### Key Takeaways * Plaid is a [fintech](https://www.investopedia.com/terms/f/fintech.asp) company that facilitates communication between financial services apps and users’ banks and credit card providers. * During a transaction, Plaid communicates with your bank to keep your login information private. * Plaid claims to use best-in-class encryption protocols to protect users’ information. ## How Does Plaid Work? For example, you can use Plaid to connect to your [Chime bank or credit card account](https://www.investopedia.com/how-chime-makes-money-4796705). When you need to pass your bank credentials to another finance app, you’ll be prompted with a Plaid window. You’ll enter your Chime username and password and submit the form. That information stays only with Plaid, which will contact Chime and verify your login information. If you have set up [two-factor authentication](https://www.investopedia.com/terms/t/twofactor-authentication-2fa.asp) (2FA), you will enter that information as well. Plaid also has the option to use its own 2FA if your bank doesn’t support that extra layer of security. According to [its website](https://plaid.com/blog/plaids-continued-investment-in-security-and-privacy-standards/), Plaid is certified in [internationally recognized security standards](https://www.investopedia.com/terms/i/international-organization-for-standardization-iso.asp), like ISO 27001, ISO 27701, and is SSAE18 SOC2 compliant. Once you have used Plaid to authenticate your bank information, the connection is in place and can be used to transfer the financial information that you authorize. This could be information like transaction history, balance, or other information. Installment payment platform Sezzle is one finance company that is using Plaid for financial authorization. Through the partnership, Sezzle customers will be able to connect their financial accounts via Plaid. This will allow them to pay more efficiently using [Automated Clearing House](https://www.investopedia.com/terms/a/ach.asp) (ACH) instead of a credit or debit card. ### Plaid Class Action Plaid settled a class action in which it agreed to pay $58 million to individuals who had used its interface, including Venmo, Robinhood, and Coinbase users. The lawsuit was based on Plaid acquiring more data than it needed and storing the user's bank account login credentials on Plaid's systems. ## Is Plaid Safe to Use? As with most companies that transfer financial information, Plaid says it takes the security of its customers’ data very seriously. Plaid uses [encryption](https://www.investopedia.com/terms/e/encryption.asp) protocols like the Advanced Encryption Standard (AES 256) and Transport Layer Security (TLS) when transmitting financial data. Knowing that your data is transmitted using these security settings may give you an extra layer of confidence. In addition to following best-in-class security protocols when handling data, Plaid follows a number of other security best practices to make sure that your information remains safe. [Plaid’s Trust and Safety page](https://plaid.com/safety/) details that it: * Uses multifactor authentication (MFA) to further secure your account if your financial institution doesn’t offer it; * Operates a bug bounty program to get even more eyes on security at Plaid; * Promises to never share your data without your permission, and to never sell or rent your information to other companies; * Allows you control over which companies have access to your data and what data is shared with each company. ## What Is Plaid? Plaid software operates between your financial information and financial sites that you want to receive your data. Using a service like Plaid prevents financial sites from having access to all of your banking and other data. Instead, you only share the specific information that you indicate. ## How Does Plaid Work? Many financial companies have a valid reason to have access to some of your financial information. This could include a portfolio aggregator needing access to your investments or a budget site accessing your bank and credit card transactions. Using Plaid allows these sites to access this information without giving them your bank or credit card login credentials. ## Is Plaid Safe? Plaid uses some of the highest encryption protocols available when sending your financial data. This includes the Advanced Encryption Standard (AES 256) and Transport Layer Security (TLS). Plaid also uses multifactor authentication (MFA), which gives an added layer of security to the transmission of your financial data. ## Why Did My Chase Account Stop Linking to Plaid? Plaid used to link to Chase accounts, but it is no longer listed on their website as a supported institution. Plaid has not made any announcement about their agreement with Chase ending. ## The Bottom Line Plaid is a fintech company used by 11,000 companies to connect users to other third-party financial applications. This includes Venmo, Acorns, Betterment, and many other fintech companies. When you use Plaid with a third-party application, you authenticate using your login credentials directly with your bank. The third-party application never sees your username or password—instead, it only receives notice that the login was successful and then whatever information you allow it to see. While you may be hesitant to trust an outside company with your sensitive financial account information, Plaid claims to take security seriously. It doesn’t sell or rent users’ financial information, and it gives users complete control over what data is shared with each company.
You’ll probably run into Plaid when you connect your bank account to apps run by financial services like American Express, Venmo, or Upstart. Plaid authenticates your financial information, permitting companies to transfer sensitive information securely. But is Plaid safe? Yes, it's considered safe to use. That's because it employs advanced security and encryption protocols to protect your data during transmission. Plus, it never shares personal information unless it has permission to do so. Plaid’s software sits as an intermediary between your bank or credit card accounts and other financial companies’ apps. One example would be a portfolio management site like Personal Capital or a budgeting app like Mint. For sites like these to work, they need to access your account information. You may be hesitant to share your sensitive financial information with another company. That’s where Plaid comes in. Instead of giving Mint or Personal Capital all of your bank login information, Plaid sits in between. Plaid currently connects with a variety of large bank and credit card companies including Bank of America, Wells Fargo, American Express, and U.S. Bank. Key Takeaways Plaid is a fintech company that facilitates communication between financial services apps and users’ banks and credit card providers. During a transaction, Plaid communicates with your bank to keep your login information private. Plaid claims to use best-in-class encryption protocols to protect users’ information. How Does Plaid Work? For example, you can use Plaid to connect to your Chime bank or credit card account. When you need to pass your bank credentials to another finance app, you’ll be prompted with a Plaid window. You’ll enter your Chime username and password and submit the form. That information stays only with Plaid, which will contact Chime and verify your login information. If you have set up two-factor authentication (2FA), you will enter that information as well. Plaid also has the option to use its own 2FA if your bank doesn’t support that extra layer of security. According to its website, Plaid is certified in internationally recognized security standards, like ISO 27001, ISO 27701, and is SSAE18 SOC2 compliant. Once you have used Plaid to authenticate your bank information, the connection is in place and can be used to transfer the financial information that you authorize. This could be information like transaction history, balance, or other information. Installment payment platform Sezzle is one finance company that is using Plaid for financial authorization. Through the partnership, Sezzle customers will be able to connect their financial accounts via Plaid. This will allow them to pay more efficiently using Automated Clearing House (ACH) instead of a credit or debit card. Plaid Class Action Plaid settled a class action in which it agreed to pay $58 million to individuals who had used its interface, including Venmo, Robinhood, and Coinbase users. The lawsuit was based on Plaid acquiring more data than it needed and storing the user's bank account login credentials on Plaid's systems. Is Plaid Safe to Use? As with most companies that transfer financial information, Plaid says it takes the security of its customers’ data very seriously. Plaid uses encryption protocols like the Advanced Encryption Standard (AES 256) and Transport Layer Security (TLS) when transmitting financial data. Knowing that your data is transmitted using these security settings may give you an extra layer of confidence. In addition to following best-in-class security protocols when handling data, Plaid follows a number of other security best practices to make sure that your information remains safe. Plaid’s Trust and Safety page details that it: Uses multifactor authentication (MFA) to further secure your account if your financial institution doesn’t offer it;Operates a bug bounty program to get even more eyes on security at Plaid;Promises to never share your data without your permission, and to never sell or rent your information to other companies;Allows you control over which companies have access to your data and what data is shared with each company. What Is Plaid? Plaid software operates between your financial information and financial sites that you want to receive your data. Using a service like Plaid prevents financial sites from having access to all of your banking and other data. Instead, you only share the specific information that you indicate. How Does Plaid Work? Many financial companies have a valid reason to have access to some of your financial information. This could include a portfolio aggregator needing access to your investments or a budget site accessing your bank and credit card transactions. Using Plaid allows these sites to access this information without giving them your bank or credit card login credentials. Is Plaid Safe? Plaid uses some of the highest encryption protocols available when sending your financial data. This includes the Advanced Encryption Standard (AES 256) and Transport Layer Security (TLS). Plaid also uses multifactor authentication (MFA), which gives an added layer of security to the transmission of your financial data. Why Did My Chase Account Stop Linking to Plaid? Plaid used to link to Chase accounts, but it is no longer listed on their website as a supported institution. Plaid has not made any announcement about their agreement with Chase ending. The Bottom Line Plaid is a fintech company used by 11,000 companies to connect users to other third-party financial applications. This includes Venmo, Acorns, Betterment, and many other fintech companies. When you use Plaid with a third-party application, you authenticate using your login credentials directly with your bank. The third-party application never sees your username or password—instead, it only receives notice that the login was successful and then whatever information you allow it to see. While you may be hesitant to trust an outside company with your sensitive financial account information, Plaid claims to take security seriously. It doesn’t sell or rent users’ financial information, and it gives users complete control over what data is shared with each company.
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https://www.investopedia.com/get-personal-loan-while-unemployed-8410063
How to Get a Personal Loan While Unemployed
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> When you apply for a personal loan, most lenders will check your credit history and current employment. But what happens if you need to borrow money while you're unemployed? You might still be able to get a personal loan under those circumstances, but you could have more hoops to jump through compared to someone who is working. An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/emergency-loans-for-bad-credit-5075539">emergency loan for bad credit</a> may be an option, and it's smart to first learn all you can about applying for a loan while unemployed. </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>Taking on extra debt while you're unemployed might be a little risky, but it's possible to qualify for a personal loan if you need one.</li><li>You might have to prove your income on a personal loan application through other means, such as income from rental properties, investment dividends, or alimony.</li><li>Comparing lenders to see which ones you might qualify for before completing a full application can save you time and effort.</li></ul></div></div></div> <span class="heading-toc" id="toc-can-you-get-approved-for-a-personal-loan-if-youre-unemployed"></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"> Can You Get Approved for a Personal Loan if You're Unemployed? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> For most personal loan lenders, checking that you have a reliable income is part of the approval process. The lender wants to make sure you can repay your loan within the agreed-upon time frame. If you're unemployed, that can raise some serious questions about your ability to pay back your debt. Here are some steps to take before you apply: </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"> Calculate How Much You Actually Need to Live On </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> If you've lost your job and you're hoping to take out a personal loan for everyday expenses, it's worth calculating exactly how much you'd actually require. Determine what it'll take to cover your needs for the next few months, or however long you expect to be without a paycheck. That way you can aim to borrow enough to pay your expenses while you're unemployed but not go into any more debt than necessary. </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"> Weigh Your Ability to Repay </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Adding another bill to your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/budget.asp">budget</a> while you're unemployed is an extra financial burden. So when thinking about your monthly expenses, be sure to include to cost of the loan repayments. If you have any doubts about your ability to repay your loan, you might want to consider some <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/7-alternatives-personal-loan-7567417">alternatives</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-subheading__text"> Check Your Credit Reports and Credit Score </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> You can pull 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> for free from all three of the major credit bureaus at <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.annualcreditreport.com/index.action" rel="sponsored nofollow">AnnualCreditReport.com</a>. Comb through each report to see if there are any errors and dispute them as soon as you can. Try to clean up your credit report before submitting a loan application.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> You can usually obtain 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> through your bank, credit card issuer, or other lender you have a relationship with. There are also online resources for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/091714/top-websites-checking-your-credit-scores.asp">checking your credit scores</a> for free. This will give you an idea of what lenders will see when they pull your <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a>. It can also help you figure out which lenders to compare, as some have minimum credit score requirements, and they can vary heavily. </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"> Gather Your Paperwork </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Even without a current job, you can prove the last time you earned a paycheck with your most recent pay stubs or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/w2form.asp">W-2 forms</a>. You can also show other types of income through tax returns, bank statements, and other official documents. </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"> Be Ready to Explain the Loan's Intended Use in Your Application </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Some lenders will ask you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/say-when-asking-personal-loan-7559777">what you intend to use the loan for</a>, while others won't. Your answer can, in some cases, affect the amount of your loan, the interest rate, or both. </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"> Consider a Co-Signer </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> There's a good chance you might not qualify for a personal loan on your own when you're unemployed and lack sufficient income from other sources. If that's the case, you may want to consider getting a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/co_sign.asp">co-signer</a>. </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 co-signer is someone who signs onto your loan just as you do and is ultimately <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">responsible for it</a>. If you fall behind on payments, and the co-signer doesn't make them for you, both of you will suffer a serious drop in your credit scores. Only go this route if you and your co-signer have worked out a clear plan about who will be paying off the loan. </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"> Consider Offering Collateral </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Most personal loans are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecured.asp">unsecured</a>. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-secured-personal-loans-5114143">Secured personal loans</a> let you back your loan with <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateral</a>, like a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savingsaccount.asp">savings account</a> or <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificate of deposit (CD)</a>. If you can't get an unsecured loan because you're unemployed, there's a chance you could qualify for a secured one.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Bear in mind that you might not get the same interest rates, borrowing options, or repayment terms as with an unsecured personal loan, but if you need the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/emergency-loans-for-bad-credit-5075539">money for an emergency</a> or to cover basic needs, a secured loan could be a good option. </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-factors-that-lenders-may-use-to-evaluate-your-loan-application"></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"> Factors That Lenders May Use to Evaluate Your Loan Application </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Lenders look at a few key factors when reviewing your application, including: </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>Credit score and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a></li> <li>Income</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dti.asp">Debt-to-income (DTI) ratio</a></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"> Each lender weighs these factors differently, but they all hold some significance in your application. </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"> Credit Score and History </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> The higher your credit score, the more likely you are to qualify for a personal loan for the amount you need at the lowest available interest rate. Having fair or even poor credit doesn't mean you won't qualify, but you may have a harder time getting the full amount you've requested or securing a good interest rate. </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 have a history of unpaid debt or late payments on your credit report, that could hurt your chances of getting approved. It is also the single most important factor in determining your credit score.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <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"> Income </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> While being employed is one way to prove you have a source of income, it isn't the only one. You may have other sources of income, such as: </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>Unemployment benefits</li> <li>Your spouse or partner's income, if applicable</li> <li>Alimony</li> <li>Child support</li> <li><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 benefits</a> (either <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/can-you-get-a-personal-loan-while-on-disability-8413952">disability</a> or retirement payouts)</li> <li>Investment interest and dividends</li> <li>Rental income</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"> Debt-to-Income (DTI) Ratio </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Your DTI ratio shows how much of your income goes toward paying off your debts.<span class="ql-inline-citation" data-cite="1"></span> A high DTI ratio suggests to lenders that it could be difficult for you to make payments on a new loan. A low DTI suggests that even if something happens, you could likely repay your loan. Different lenders have different DTI requirements. </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-where-to-apply-for-a-personal-loan-while-unemployed"></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"> Where to Apply for a Personal Loan While Unemployed </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> If you're unemployed, there are a number of sources worth checking out when you're thinking of applying for a personal loan. In addition to traditional banks, you might want to consider: </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"> Credit Unions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Even if you don't belong to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditunion.asp">credit union</a> right now, you can look into credit union <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/emergency-loans-for-bad-credit-5075539">emergency loans</a>. Use the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://mapping.ncua.gov">credit union locator</a> to find one near you and see if you're eligible based on its requirements. <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/penfed-personal-loans-review-4800862">PenFed Credit Union</a>, for example, will evaluate your income depending on your personal situation. So you may have to turn over <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank-statement.asp">bank statements</a> or <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxreturn.asp">tax returns</a> instead of pay stubs.<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_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Federal credit unions offer payday alternative loans (PALs) with amounts ranging from $200 to $1,000, but you'll need to be a credit union member for at least a month before you can take out one of these. Loan terms range from one to six months.<span class="ql-inline-citation" data-cite="2"></span> Their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">annual percentage rates (APRs)</a> are capped at 28%, while other loans from federal credit unions are capped at 18%.<span class="ql-inline-citation" data-cite="4"></span> But even at 28%, PALs may be an attractive option compared to loans from <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payday-loans.asp">private payday lenders</a>, which can carry costs and fees approaching 400% in some states.<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_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> You can get a personal loan from many different banks or lenders, such as U.S. Bank, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/old-national-bank-personal-loans-review-8402577">Old National Bank</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/teachers-federal-credit-union-personal-loan-review-8399783">Teachers Federal Credit Union</a>, NASA Federal, and more. You can check with your financial institution, too. So if you have a NASA Federal account already, you may find that <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nasa-federal-credit-union-personal-loans-review-8384484">NASA Federal also has personal loans</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_65-0"> <span class="mntl-sc-block-subheading__text"> Online Lenders  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Some lenders <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-personal-loans-with-no-income-verification-7153103">don't have any income verification processes</a>, which makes it easier for you to get a loan based on other merits, like your credit score or credit history. With <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/upgrade-personal-loans-review-4842832">Upgrade</a>, for example, if you get approved for a loan and accept the terms, you could receive funds in as little as a day. Keep in mind that online lenders often charge an <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/origination-fee.asp">origination fee</a> and have a higher maximum APR compared to other lending options, such as credit unions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <span class="heading-toc" id="toc-alternatives-to-personal-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-heading__text"> Alternatives to Personal Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> If you can't get a personal loan because you're unemployed, you might have some other options, including: </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><strong>Get a co-signer</strong>: As mentioned above, if you can find someone with good or excellent credit who can show proof of employment, and who is willing to co-sign on your loan, you may want to ask them for help.</li> <li><strong>Apply for a secured loan</strong>: Also previously mentioned, secured personal loans let you put up collateral to back the loan, giving the lender some reassurance that it will be able to recover its money if you're unable to make payments.</li> <li><strong>Take out a home equity loan or home equity line of credit (HELOC)</strong>: If you own your home, you could tap into its current equity by taking out a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/heloc/">home equity loan or home equity line of credit (HELOC)</a>. Interest rates are typically lower than those of unsecured personal loans, and repayment terms are often longer, which makes monthly payments lower as well. Bear in mind, however, that if you're unable to repay the loan, you could lose your home.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Less formally, you might also want to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/unemployed-raid-401k-or-borrow-from-parents/">ask friends and family</a> if they'd be willing to lend you some money to cover immediate costs. It's a good idea to still treat this like an actual loan, including getting everything in writing, to ensure that both you and the lender are on the same page. Additionally, make sure you pay back a loan from a friend or family member within the agreed-upon time frame, otherwise you risk damaging your relationship. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_75-0"><span class="heading-toc" id="toc-what-credit-score-do-you-need-to-get-a-loan-without-a-job"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Credit Score Do You Need to Get a Loan Without a Job?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Different lenders will have different minimum credit score requirements. In some cases, you can find their requirements online. Otherwise, you may need to inquire before applying.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_77-0"><span class="heading-toc" id="toc-are-there-government-loans-for-the-unemployed"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Government Loans for the Unemployed?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Depending on your resources, you might <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.usa.gov/benefits">qualify for government assistance</a>, whether that's help with bills or paying for food, for example. These are not loans but money you simply don't have to pay back.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_79-0"><span class="heading-toc" id="toc-can-you-apply-for-a-loan-and-receive-the-funds-on-the-same-day"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Apply for a Loan and Receive the Funds on the Same Day?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, many of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-fast-personal-loans-7110852">best personal lenders</a> offer fund disbursement as soon as the same day or within a day or two.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_81-0"><span class="heading-toc" id="toc-which-bank-has-the-easiest-personal-loan-approval"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Bank Has the Easiest Personal Loan Approval?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Every bank, credit union, and online lender has a different approval process. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/easiest-personal-loans-approved-7644059">Online lenders offer the quickest and easiest application process</a>, and in some cases, you can find out whether you qualified almost immediately.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_83-0"><span class="heading-toc" id="toc-who-is-most-likely-to-get-approved-for-a-personal-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Is Most Likely to Get Approved for a Personal Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>People with the highest credit scores and with a long history of responsible credit use are the ones most likely to be approved for a personal loan. But that doesn't mean you can't get approved for a loan if you don't meet those qualifications, you may just have to work with specific lenders and/or be saddled with a high interest rate.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_85-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> Taking on additional debt while you're unemployed can be risky and should usually be avoided, if possible. But if you need to take out a personal loan, you may have some options. Take a little time to review your credit profile and compare potential lenders before you apply. </p></div>
When you apply for a personal loan, most lenders will check your credit history and current employment. But what happens if you need to borrow money while you're unemployed? You might still be able to get a personal loan under those circumstances, but you could have more hoops to jump through compared to someone who is working. An [emergency loan for bad credit](https://www.investopedia.com/emergency-loans-for-bad-credit-5075539) may be an option, and it's smart to first learn all you can about applying for a loan while unemployed. ### Key Takeaways * Taking on extra debt while you're unemployed might be a little risky, but it's possible to qualify for a personal loan if you need one. * You might have to prove your income on a personal loan application through other means, such as income from rental properties, investment dividends, or alimony. * Comparing lenders to see which ones you might qualify for before completing a full application can save you time and effort. ## Can You Get Approved for a Personal Loan if You're Unemployed? For most personal loan lenders, checking that you have a reliable income is part of the approval process. The lender wants to make sure you can repay your loan within the agreed-upon time frame. If you're unemployed, that can raise some serious questions about your ability to pay back your debt. Here are some steps to take before you apply: ### Calculate How Much You Actually Need to Live On If you've lost your job and you're hoping to take out a personal loan for everyday expenses, it's worth calculating exactly how much you'd actually require. Determine what it'll take to cover your needs for the next few months, or however long you expect to be without a paycheck. That way you can aim to borrow enough to pay your expenses while you're unemployed but not go into any more debt than necessary. ### Weigh Your Ability to Repay Adding another bill to your [budget](https://www.investopedia.com/terms/b/budget.asp) while you're unemployed is an extra financial burden. So when thinking about your monthly expenses, be sure to include to cost of the loan repayments. If you have any doubts about your ability to repay your loan, you might want to consider some [alternatives](https://www.investopedia.com/7-alternatives-personal-loan-7567417). ### Check Your Credit Reports and Credit Score You can pull your [credit report](https://www.investopedia.com/terms/c/creditreport.asp) for free from all three of the major credit bureaus at [AnnualCreditReport.com](https://www.annualcreditreport.com/index.action). Comb through each report to see if there are any errors and dispute them as soon as you can. Try to clean up your credit report before submitting a loan application.  You can usually obtain your [credit score](https://www.investopedia.com/terms/c/credit_score.asp) through your bank, credit card issuer, or other lender you have a relationship with. There are also online resources for [checking your credit scores](https://www.investopedia.com/articles/personal-finance/091714/top-websites-checking-your-credit-scores.asp) for free. This will give you an idea of what lenders will see when they pull your [credit report](https://www.investopedia.com/terms/c/creditreport.asp). It can also help you figure out which lenders to compare, as some have minimum credit score requirements, and they can vary heavily. ### Gather Your Paperwork Even without a current job, you can prove the last time you earned a paycheck with your most recent pay stubs or [W-2 forms](https://www.investopedia.com/terms/w/w2form.asp). You can also show other types of income through tax returns, bank statements, and other official documents. ### Be Ready to Explain the Loan's Intended Use in Your Application Some lenders will ask you [what you intend to use the loan for](https://www.investopedia.com/say-when-asking-personal-loan-7559777), while others won't. Your answer can, in some cases, affect the amount of your loan, the interest rate, or both. ### Consider a Co-Signer There's a good chance you might not qualify for a personal loan on your own when you're unemployed and lack sufficient income from other sources. If that's the case, you may want to consider getting a [co-signer](https://www.investopedia.com/terms/c/co_sign.asp). A co-signer is someone who signs onto your loan just as you do and is ultimately [responsible for it](https://www.investopedia.com/articles/personal-finance/082115/what-are-cosigners-liable-responsible.asp). If you fall behind on payments, and the co-signer doesn't make them for you, both of you will suffer a serious drop in your credit scores. Only go this route if you and your co-signer have worked out a clear plan about who will be paying off the loan. ### Consider Offering Collateral Most personal loans are [unsecured](https://www.investopedia.com/terms/u/unsecured.asp). [Secured personal loans](https://www.investopedia.com/best-secured-personal-loans-5114143) let you back your loan with [collateral](https://www.investopedia.com/terms/c/collateral.asp), like a [savings account](https://www.investopedia.com/terms/s/savingsaccount.asp) or [certificate of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp). If you can't get an unsecured loan because you're unemployed, there's a chance you could qualify for a secured one.  Bear in mind that you might not get the same interest rates, borrowing options, or repayment terms as with an unsecured personal loan, but if you need the [money for an emergency](https://www.investopedia.com/emergency-loans-for-bad-credit-5075539) or to cover basic needs, a secured loan could be a good option. ## Factors That Lenders May Use to Evaluate Your Loan Application Lenders look at a few key factors when reviewing your application, including: * Credit score and [credit history](https://www.investopedia.com/terms/c/credit-history.asp) * Income * [Debt-to-income (DTI) ratio](https://www.investopedia.com/terms/d/dti.asp) Each lender weighs these factors differently, but they all hold some significance in your application. ### Credit Score and History The higher your credit score, the more likely you are to qualify for a personal loan for the amount you need at the lowest available interest rate. Having fair or even poor credit doesn't mean you won't qualify, but you may have a harder time getting the full amount you've requested or securing a good interest rate. If you have a history of unpaid debt or late payments on your credit report, that could hurt your chances of getting approved. It is also the single most important factor in determining your credit score. ### Income While being employed is one way to prove you have a source of income, it isn't the only one. You may have other sources of income, such as: * Unemployment benefits * Your spouse or partner's income, if applicable * Alimony * Child support * [Social Security benefits](https://www.investopedia.com/terms/s/social-security-benefits.asp) (either [disability](https://www.investopedia.com/can-you-get-a-personal-loan-while-on-disability-8413952) or retirement payouts) * Investment interest and dividends * Rental income ### Debt-to-Income (DTI) Ratio Your DTI ratio shows how much of your income goes toward paying off your debts. A high DTI ratio suggests to lenders that it could be difficult for you to make payments on a new loan. A low DTI suggests that even if something happens, you could likely repay your loan. Different lenders have different DTI requirements. ## Where to Apply for a Personal Loan While Unemployed If you're unemployed, there are a number of sources worth checking out when you're thinking of applying for a personal loan. In addition to traditional banks, you might want to consider: ### Credit Unions Even if you don't belong to a [credit union](https://www.investopedia.com/terms/c/creditunion.asp) right now, you can look into credit union [emergency loans](https://www.investopedia.com/emergency-loans-for-bad-credit-5075539). Use the [credit union locator](https://mapping.ncua.gov) to find one near you and see if you're eligible based on its requirements. [PenFed Credit Union](https://www.investopedia.com/penfed-personal-loans-review-4800862), for example, will evaluate your income depending on your personal situation. So you may have to turn over [bank statements](https://www.investopedia.com/terms/b/bank-statement.asp) or [tax returns](https://www.investopedia.com/terms/t/taxreturn.asp) instead of pay stubs. Federal credit unions offer payday alternative loans (PALs) with amounts ranging from $200 to $1,000, but you'll need to be a credit union member for at least a month before you can take out one of these. Loan terms range from one to six months. Their [annual percentage rates (APRs)](https://www.investopedia.com/terms/a/apr.asp) are capped at 28%, while other loans from federal credit unions are capped at 18%. But even at 28%, PALs may be an attractive option compared to loans from [private payday lenders](https://www.investopedia.com/terms/p/payday-loans.asp), which can carry costs and fees approaching 400% in some states. You can get a personal loan from many different banks or lenders, such as U.S. Bank, [Old National Bank](https://www.investopedia.com/old-national-bank-personal-loans-review-8402577), [Teachers Federal Credit Union](https://www.investopedia.com/teachers-federal-credit-union-personal-loan-review-8399783), NASA Federal, and more. You can check with your financial institution, too. So if you have a NASA Federal account already, you may find that [NASA Federal also has personal loans](https://www.investopedia.com/nasa-federal-credit-union-personal-loans-review-8384484). ### Online Lenders Some lenders [don't have any income verification processes](https://www.investopedia.com/how-to-get-personal-loans-with-no-income-verification-7153103), which makes it easier for you to get a loan based on other merits, like your credit score or credit history. With [Upgrade](https://www.investopedia.com/upgrade-personal-loans-review-4842832), for example, if you get approved for a loan and accept the terms, you could receive funds in as little as a day. Keep in mind that online lenders often charge an [origination fee](https://www.investopedia.com/terms/o/origination-fee.asp) and have a higher maximum APR compared to other lending options, such as credit unions. ## Alternatives to Personal Loans If you can't get a personal loan because you're unemployed, you might have some other options, including: * **Get a co-signer**: As mentioned above, if you can find someone with good or excellent credit who can show proof of employment, and who is willing to co-sign on your loan, you may want to ask them for help. * **Apply for a secured loan**: Also previously mentioned, secured personal loans let you put up collateral to back the loan, giving the lender some reassurance that it will be able to recover its money if you're unable to make payments. * **Take out a home equity loan or home equity line of credit (HELOC)**: If you own your home, you could tap into its current equity by taking out a [home equity loan or home equity line of credit (HELOC)](https://www.investopedia.com/mortgage/heloc/). Interest rates are typically lower than those of unsecured personal loans, and repayment terms are often longer, which makes monthly payments lower as well. Bear in mind, however, that if you're unable to repay the loan, you could lose your home. Less formally, you might also want to [ask friends and family](https://www.investopedia.com/personal-finance/unemployed-raid-401k-or-borrow-from-parents/) if they'd be willing to lend you some money to cover immediate costs. It's a good idea to still treat this like an actual loan, including getting everything in writing, to ensure that both you and the lender are on the same page. Additionally, make sure you pay back a loan from a friend or family member within the agreed-upon time frame, otherwise you risk damaging your relationship. ## What Credit Score Do You Need to Get a Loan Without a Job? Different lenders will have different minimum credit score requirements. In some cases, you can find their requirements online. Otherwise, you may need to inquire before applying. ## Are There Government Loans for the Unemployed? Depending on your resources, you might [qualify for government assistance](https://www.usa.gov/benefits), whether that's help with bills or paying for food, for example. These are not loans but money you simply don't have to pay back. ## Can You Apply for a Loan and Receive the Funds on the Same Day? Yes, many of the [best personal lenders](https://www.investopedia.com/best-fast-personal-loans-7110852) offer fund disbursement as soon as the same day or within a day or two. ## Which Bank Has the Easiest Personal Loan Approval? Every bank, credit union, and online lender has a different approval process. [Online lenders offer the quickest and easiest application process](https://www.investopedia.com/easiest-personal-loans-approved-7644059), and in some cases, you can find out whether you qualified almost immediately. ## Who Is Most Likely to Get Approved for a Personal Loan? People with the highest credit scores and with a long history of responsible credit use are the ones most likely to be approved for a personal loan. But that doesn't mean you can't get approved for a loan if you don't meet those qualifications, you may just have to work with specific lenders and/or be saddled with a high interest rate. ## The Bottom Line Taking on additional debt while you're unemployed can be risky and should usually be avoided, if possible. But if you need to take out a personal loan, you may have some options. Take a little time to review your credit profile and compare potential lenders before you apply.
When you apply for a personal loan, most lenders will check your credit history and current employment. But what happens if you need to borrow money while you're unemployed? You might still be able to get a personal loan under those circumstances, but you could have more hoops to jump through compared to someone who is working. An emergency loan for bad credit may be an option, and it's smart to first learn all you can about applying for a loan while unemployed. Key Takeaways Taking on extra debt while you're unemployed might be a little risky, but it's possible to qualify for a personal loan if you need one.You might have to prove your income on a personal loan application through other means, such as income from rental properties, investment dividends, or alimony.Comparing lenders to see which ones you might qualify for before completing a full application can save you time and effort. Can You Get Approved for a Personal Loan if You're Unemployed? For most personal loan lenders, checking that you have a reliable income is part of the approval process. The lender wants to make sure you can repay your loan within the agreed-upon time frame. If you're unemployed, that can raise some serious questions about your ability to pay back your debt. Here are some steps to take before you apply: Calculate How Much You Actually Need to Live On If you've lost your job and you're hoping to take out a personal loan for everyday expenses, it's worth calculating exactly how much you'd actually require. Determine what it'll take to cover your needs for the next few months, or however long you expect to be without a paycheck. That way you can aim to borrow enough to pay your expenses while you're unemployed but not go into any more debt than necessary. Weigh Your Ability to Repay Adding another bill to your budget while you're unemployed is an extra financial burden. So when thinking about your monthly expenses, be sure to include to cost of the loan repayments. If you have any doubts about your ability to repay your loan, you might want to consider some alternatives. Check Your Credit Reports and Credit Score You can pull your credit report for free from all three of the major credit bureaus at AnnualCreditReport.com. Comb through each report to see if there are any errors and dispute them as soon as you can. Try to clean up your credit report before submitting a loan application.  You can usually obtain your credit score through your bank, credit card issuer, or other lender you have a relationship with. There are also online resources for checking your credit scores for free. This will give you an idea of what lenders will see when they pull your credit report. It can also help you figure out which lenders to compare, as some have minimum credit score requirements, and they can vary heavily. Gather Your Paperwork Even without a current job, you can prove the last time you earned a paycheck with your most recent pay stubs or W-2 forms. You can also show other types of income through tax returns, bank statements, and other official documents. Be Ready to Explain the Loan's Intended Use in Your Application Some lenders will ask you what you intend to use the loan for, while others won't. Your answer can, in some cases, affect the amount of your loan, the interest rate, or both. Consider a Co-Signer There's a good chance you might not qualify for a personal loan on your own when you're unemployed and lack sufficient income from other sources. If that's the case, you may want to consider getting a co-signer. A co-signer is someone who signs onto your loan just as you do and is ultimately responsible for it. If you fall behind on payments, and the co-signer doesn't make them for you, both of you will suffer a serious drop in your credit scores. Only go this route if you and your co-signer have worked out a clear plan about who will be paying off the loan. Consider Offering Collateral Most personal loans are unsecured. Secured personal loans let you back your loan with collateral, like a savings account or certificate of deposit (CD). If you can't get an unsecured loan because you're unemployed, there's a chance you could qualify for a secured one.  Bear in mind that you might not get the same interest rates, borrowing options, or repayment terms as with an unsecured personal loan, but if you need the money for an emergency or to cover basic needs, a secured loan could be a good option. Factors That Lenders May Use to Evaluate Your Loan Application Lenders look at a few key factors when reviewing your application, including: Credit score and credit history Income Debt-to-income (DTI) ratio Each lender weighs these factors differently, but they all hold some significance in your application. Credit Score and History The higher your credit score, the more likely you are to qualify for a personal loan for the amount you need at the lowest available interest rate. Having fair or even poor credit doesn't mean you won't qualify, but you may have a harder time getting the full amount you've requested or securing a good interest rate. If you have a history of unpaid debt or late payments on your credit report, that could hurt your chances of getting approved. It is also the single most important factor in determining your credit score. Income While being employed is one way to prove you have a source of income, it isn't the only one. You may have other sources of income, such as: Unemployment benefits Your spouse or partner's income, if applicable Alimony Child support Social Security benefits (either disability or retirement payouts) Investment interest and dividends Rental income Debt-to-Income (DTI) Ratio Your DTI ratio shows how much of your income goes toward paying off your debts. A high DTI ratio suggests to lenders that it could be difficult for you to make payments on a new loan. A low DTI suggests that even if something happens, you could likely repay your loan. Different lenders have different DTI requirements. Where to Apply for a Personal Loan While Unemployed If you're unemployed, there are a number of sources worth checking out when you're thinking of applying for a personal loan. In addition to traditional banks, you might want to consider: Credit Unions Even if you don't belong to a credit union right now, you can look into credit union emergency loans. Use the credit union locator to find one near you and see if you're eligible based on its requirements. PenFed Credit Union, for example, will evaluate your income depending on your personal situation. So you may have to turn over bank statements or tax returns instead of pay stubs. Federal credit unions offer payday alternative loans (PALs) with amounts ranging from $200 to $1,000, but you'll need to be a credit union member for at least a month before you can take out one of these. Loan terms range from one to six months. Their annual percentage rates (APRs) are capped at 28%, while other loans from federal credit unions are capped at 18%. But even at 28%, PALs may be an attractive option compared to loans from private payday lenders, which can carry costs and fees approaching 400% in some states. You can get a personal loan from many different banks or lenders, such as U.S. Bank, Old National Bank, Teachers Federal Credit Union, NASA Federal, and more. You can check with your financial institution, too. So if you have a NASA Federal account already, you may find that NASA Federal also has personal loans. Online Lenders  Some lenders don't have any income verification processes, which makes it easier for you to get a loan based on other merits, like your credit score or credit history. With Upgrade, for example, if you get approved for a loan and accept the terms, you could receive funds in as little as a day. Keep in mind that online lenders often charge an origination fee and have a higher maximum APR compared to other lending options, such as credit unions. Alternatives to Personal Loans If you can't get a personal loan because you're unemployed, you might have some other options, including: Get a co-signer: As mentioned above, if you can find someone with good or excellent credit who can show proof of employment, and who is willing to co-sign on your loan, you may want to ask them for help. Apply for a secured loan: Also previously mentioned, secured personal loans let you put up collateral to back the loan, giving the lender some reassurance that it will be able to recover its money if you're unable to make payments. Take out a home equity loan or home equity line of credit (HELOC): If you own your home, you could tap into its current equity by taking out a home equity loan or home equity line of credit (HELOC). Interest rates are typically lower than those of unsecured personal loans, and repayment terms are often longer, which makes monthly payments lower as well. Bear in mind, however, that if you're unable to repay the loan, you could lose your home. Less formally, you might also want to ask friends and family if they'd be willing to lend you some money to cover immediate costs. It's a good idea to still treat this like an actual loan, including getting everything in writing, to ensure that both you and the lender are on the same page. Additionally, make sure you pay back a loan from a friend or family member within the agreed-upon time frame, otherwise you risk damaging your relationship. What Credit Score Do You Need to Get a Loan Without a Job? Different lenders will have different minimum credit score requirements. In some cases, you can find their requirements online. Otherwise, you may need to inquire before applying. Are There Government Loans for the Unemployed? Depending on your resources, you might qualify for government assistance, whether that's help with bills or paying for food, for example. These are not loans but money you simply don't have to pay back. Can You Apply for a Loan and Receive the Funds on the Same Day? Yes, many of the best personal lenders offer fund disbursement as soon as the same day or within a day or two. Which Bank Has the Easiest Personal Loan Approval? Every bank, credit union, and online lender has a different approval process. Online lenders offer the quickest and easiest application process, and in some cases, you can find out whether you qualified almost immediately. Who Is Most Likely to Get Approved for a Personal Loan? People with the highest credit scores and with a long history of responsible credit use are the ones most likely to be approved for a personal loan. But that doesn't mean you can't get approved for a loan if you don't meet those qualifications, you may just have to work with specific lenders and/or be saddled with a high interest rate. The Bottom Line Taking on additional debt while you're unemployed can be risky and should usually be avoided, if possible. But if you need to take out a personal loan, you may have some options. Take a little time to review your credit profile and compare potential lenders before you apply.
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https://www.investopedia.com/articles/trading/11/understanding-liquidity-risk.asp
Understanding Liquidity Risk
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Before the global financial crisis (GFC), <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidityrisk.asp">liquidity risk</a> was not on everybody's radar. Financial models routinely omitted liquidity risk. But the GFC prompted a renewal to understand liquidity risk.<span class="ql-inline-citation" data-cite="2"></span> One reason was a consensus that the crisis included a run on the non-depository, shadow banking system—providers of short-term financing, notably in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repurchaseagreement.asp">repo</a> market—systematically withdrew liquidity. They did this indirectly but undeniably by increasing collateral haircuts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> After the GFC, all major <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> and governments are acutely aware of the risk that liquidity withdrawal can be a nasty accomplice in transmitting shocks through the system—or even exacerbating <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/contagion.asp">contagion</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>Liquidity is how easily an asset or security can be bought or sold in the market, and converted to cash.</li><li>There are two different types of liquidity risk: Funding liquidity and market liquidity risk.</li><li>Funding or cash flow liquidity risk is the chief concern of a corporate treasurer who asks whether the firm can fund its liabilities.</li><li>Market or asset liquidity risk is asset illiquidity or the inability to easily exit a position. </li><li>The most popular and crudest measure of liquidity is the bid-ask spread—a low or narrow bid-ask spread is said to be tight and tends to reflect a more liquid market. </li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-liquidity-risk"></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 Liquidity Risk? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Liquidity is a term used to refer to how easily an asset or security can be bought or sold in the market. It basically describes how quickly something can be converted to cash. There are two different types of liquidity risk. The first is funding liquidity or <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> risk, while the second is market liquidity risk, also referred to as asset/product risk. </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"> Funding Liquidity Risk </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Funding or cash flow liquidity risk is the chief concern of a corporate treasurer who asks whether the firm can fund its liabilities. A classic indicator of funding liquidity risk is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currentratio.asp">current ratio</a> (current assets/current liabilities) or, for that matter, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/quickratio.asp">quick ratio</a>. A <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lineofcredit.asp">line of credit</a> would be a classic mitigant. </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"> Market Liquidity Risk </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Market or asset liquidity risk is asset <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/illiquid.asp">illiquidity</a>. This is the inability to easily exit a position. For example, we may own <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/realestate.asp">real estate</a> but, owing to bad market conditions, it can only be sold imminently at a fire sale price. The asset surely has value, but as buyers have temporarily evaporated, the value cannot be realized. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Consider its virtual opposite, a U.S. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurybond.asp">Treasury bond</a>. True, a U.S. Treasury bond is considered almost risk-free as few imagine the U.S. government will <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">default</a>. But additionally, this bond has extremely low liquidity risk. Its owner can easily exit the position at the prevailing market price.<span class="ql-inline-citation" data-cite="5"></span> Small positions in S&amp;P 500 stocks are similarly liquid. They can be quickly exited at the market price. But positions in many other asset classes, especially in <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/alternative_investment.asp">alternative assets</a>, cannot be exited with ease. In fact, we might even define alternative assets as those with high liquidity risk. </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 liquidity risk can be a function 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>The market microstructure. Exchanges such as commodity futures are typically <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deep-market.asp">deep markets</a>, but many over-the-counter (OTC) markets are <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/thinmarket.asp">thin</a>.</li> <li>Asset type. Simple assets are more liquid than complex assets. For example, in the crisis, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cdo.asp">CDOs</a>-squared—CDO<sup>2 </sup>are <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/structurednote.asp">structured notes</a> collateralized by CDO tranches—became especially illiquid due to their complexity.</li> <li>Substitution. If a position can be easily replaced with another instrument, the substitution costs are low and the liquidity tends to be higher.</li> <li>Time horizon. If the seller has urgency, this tends to exacerbate the liquidity risk. If a seller is patient, then liquidity risk is less of a threat.</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"> Note the common feature of both types of liquidity risk: In a sense, they both involve the fact that there's not enough time. Illiquidity is generally a problem that can be solved with more time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-square figure-high-res" id="mntl-sc-block_24-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:96.9%;"> <img alt="Liquidity Risk" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/wnmw60qtv4I5h-cM9nTiulEfnto=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/UnderstandingLiquidityRisk32-e6abfec5376d4c85a60e0565eb856d37.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/wnmw60qtv4I5h-cM9nTiulEfnto=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/UnderstandingLiquidityRisk32-e6abfec5376d4c85a60e0565eb856d37.png" data-srcset="https://www.investopedia.com/thmb/A6uFoStl7FTHPfoaDQcM5bzYjrI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/UnderstandingLiquidityRisk32-e6abfec5376d4c85a60e0565eb856d37.png 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_1-0" width="4084"/> <noscript> <img alt="Liquidity Risk" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/wnmw60qtv4I5h-cM9nTiulEfnto=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/UnderstandingLiquidityRisk32-e6abfec5376d4c85a60e0565eb856d37.png" srcset="https://www.investopedia.com/thmb/A6uFoStl7FTHPfoaDQcM5bzYjrI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/UnderstandingLiquidityRisk32-e6abfec5376d4c85a60e0565eb856d37.png 750w" width="4084"/> </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 Julie Bang © Investopedia 2020</span> </figcaption></figure> <span class="heading-toc" id="toc-measures-of-market-liquidity-risk"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> Measures of Market Liquidity Risk </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> There are at least three perspectives on market liquidity as per the above figure. The most popular and crudest measure is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bid-askspread.asp">bid-ask spread</a>. This is also called width. A low or narrow bid-ask spread is said to be tight and tends to reflect a more <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidmarket.asp">liquid market</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/depth-of-market.asp">Depth</a> refers to the ability of the market to absorb the sale or exit of a position. An individual investor who sells shares of Apple, for example, is not likely to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/061615/how-companys-share-price-determined.asp">impact the share price</a>. On the other hand, an <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/institutionalinvestor.asp">institutional investor</a> selling a large block of shares in a small <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalization.asp">capitalization</a> company will probably cause the price to fall. Finally, resiliency refers to the market's ability to bounce back from temporarily incorrect prices. </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"> To summarize: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <li>The bid-ask spread measures liquidity in the price dimension and is a feature of the market, not the seller or the seller's position. Financial models that incorporate the bid-ask spread adjust for exogenous liquidity and are exogenous liquidity models.</li><li>Position size, relative to the market, is a feature of the seller. Models that use this measure liquidity in the quantity dimension and are generally known as endogenous liquidity models.</li><li>Resiliency measures liquidity in the time dimensions and such models are currently rare.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> At one extreme, high market liquidity would be characterized by the owner of a small position relative to a deep market that exits into a tight bid-ask spread and a highly resilient market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_36-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_37-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>A low or narrow bid-ask spread is said to be tight and tends to reflect a more liquid market.</p></div></div></div> <span class="heading-toc" id="toc-what-about-volume"></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"> What About Volume? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Trading volume is a popular measure of liquidity but is now considered to be a flawed indicator. High trading volume does not necessarily imply high liquidity. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/flash-crash.asp">Flash Crash</a> of May 6, 2010, proved this with painful, concrete examples.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> In that case, according to 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), sell <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/algorithm.asp">algorithms</a> were feeding orders into the system faster than they could be executed. Volume jumped, but many backlog orders were not filled. According to the SEC, "especially in times of significant volatility, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/technical/02/010702.asp">high trading volume</a> is not necessarily a reliable indicator of market liquidity."<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_42-0"></div> <span class="heading-toc" id="toc-incorporating-liquidity-risk"></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"> Incorporating Liquidity Risk </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> In the case of exogenous liquidity risk, one approach is to use the bid-ask spread to directly adjust the metric. Please note: Risk models are different than <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/fundamental-analysis/11/choosing-valuation-methods.asp">valuation models</a> and this method assumes there are observable bid/ask prices. </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"> Let's illustrate with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/var.asp">value-at-risk</a> (VAR). Assume the daily volatility of a $1,000,000 position is 1.0%. The position has positive <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expectedreturn.asp">expected return</a>, also referred to as drift, but as our horizon is daily, we bring our tiny daily expected return down to zero. This is a common practice. So let the expected daily return equal zero. If the returns are normally distributed, then the one-tailed deviate at 5.0% is 1.65. That is, the 5% left tail of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/normaldistribution.asp">normal distribution</a> is 1.65 <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/standarddeviation.asp">standard deviations</a> to the left of mean. In excel, we get this result with =NORM.S.INV(5%) = -1.645. </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 95% value at risk (VAR) is given by: </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"> $1,000,000 * 1.0% volatility * 1.65 = $16,500 </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"> Under these assumptions, we can say "only 1/20 days (5% of the time) do we expect the daily loss to exceed $16,500." But this does not adjust for liquidity. </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"> Let's assume the position is in a single stock where the ask price is $20.40 and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bidprice.asp">bid price</a> is $19.60, with a midpoint of $20. In percentage terms the spread (%) is: </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"> ($20.40 - $19.60) ÷ $20 = 4.0% </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> The full spread represents the cost of a round trip: Buying and selling the stock. But, as we are only interested in the liquidity cost if we need to exit (sell) the position, the liquidity adjustment consists of adding one-half (0.5) the spread. In the case of VaR, we have: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> <li>Liquidity cost (LC) = 0.5 x spread</li><li>Liquidity-adjusted VaR (LVaR) = position ($) * [-drift (%) + volatility *deviate + LC], or</li><li>Liquidity-adjusted VaR (LVaR) = position ($) * [-drift (%) + volatility *deviate + 0.5 * spread].</li> </ul> <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"> In our example, </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"> LVaR = $1,000,000 * [-0% + 1.0% * 1.65 + 0.5 * 4.0%] = $36,500 </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> In this way, the liquidity adjustment increases the VaR by one-half the spread ($1,000,000 * 2% = +$20,000). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> Liquidity risk can be parsed into funding (cash-flow) or market (asset) liquidity risk. Funding liquidity tends to manifest as <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>, or the inability to fund liabilities produces defaults. Market liquidity risk manifests as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketrisk.asp">market risk</a>, or the inability to sell an asset drives its market price down, or worse, renders the market price indecipherable. Market liquidity risk is a problem created by the interaction of the seller and buyers in the marketplace. If the seller's position is large relative to the market, this is called endogenous liquidity risk (a feature of the seller). If the marketplace has withdrawn buyers, this is called exogenous liquidity risk—a characteristic of the market which is a collection of buyers—a typical indicator here is an abnormally wide bid-ask spread. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> A common way to include market liquidity risk in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialrisk.asp">financial risk</a> model (not necessarily a valuation model) is to adjust or "penalize" the measure by adding/subtracting one-half the bid-ask spread. </p></div>
Before the global financial crisis (GFC), [liquidity risk](https://www.investopedia.com/terms/l/liquidityrisk.asp) was not on everybody's radar. Financial models routinely omitted liquidity risk. But the GFC prompted a renewal to understand liquidity risk. One reason was a consensus that the crisis included a run on the non-depository, shadow banking system—providers of short-term financing, notably in the [repo](https://www.investopedia.com/terms/r/repurchaseagreement.asp) market—systematically withdrew liquidity. They did this indirectly but undeniably by increasing collateral haircuts. After the GFC, all major [financial institutions](https://www.investopedia.com/terms/f/financialinstitution.asp) and governments are acutely aware of the risk that liquidity withdrawal can be a nasty accomplice in transmitting shocks through the system—or even exacerbating [contagion](https://www.investopedia.com/terms/c/contagion.asp). ### Key Takeaways * Liquidity is how easily an asset or security can be bought or sold in the market, and converted to cash. * There are two different types of liquidity risk: Funding liquidity and market liquidity risk. * Funding or cash flow liquidity risk is the chief concern of a corporate treasurer who asks whether the firm can fund its liabilities. * Market or asset liquidity risk is asset illiquidity or the inability to easily exit a position. * The most popular and crudest measure of liquidity is the bid-ask spread—a low or narrow bid-ask spread is said to be tight and tends to reflect a more liquid market. ## What Is Liquidity Risk? Liquidity is a term used to refer to how easily an asset or security can be bought or sold in the market. It basically describes how quickly something can be converted to cash. There are two different types of liquidity risk. The first is funding liquidity or [cash flow](https://www.investopedia.com/terms/c/cashflow.asp) risk, while the second is market liquidity risk, also referred to as asset/product risk. ### Funding Liquidity Risk Funding or cash flow liquidity risk is the chief concern of a corporate treasurer who asks whether the firm can fund its liabilities. A classic indicator of funding liquidity risk is the [current ratio](https://www.investopedia.com/terms/c/currentratio.asp) (current assets/current liabilities) or, for that matter, the [quick ratio](https://www.investopedia.com/terms/q/quickratio.asp). A [line of credit](https://www.investopedia.com/terms/l/lineofcredit.asp) would be a classic mitigant. ### Market Liquidity Risk Market or asset liquidity risk is asset [illiquidity](https://www.investopedia.com/terms/i/illiquid.asp). This is the inability to easily exit a position. For example, we may own [real estate](https://www.investopedia.com/terms/r/realestate.asp) but, owing to bad market conditions, it can only be sold imminently at a fire sale price. The asset surely has value, but as buyers have temporarily evaporated, the value cannot be realized. Consider its virtual opposite, a U.S. [Treasury bond](https://www.investopedia.com/terms/t/treasurybond.asp). True, a U.S. Treasury bond is considered almost risk-free as few imagine the U.S. government will [default](https://www.investopedia.com/terms/d/default2.asp). But additionally, this bond has extremely low liquidity risk. Its owner can easily exit the position at the prevailing market price. Small positions in S&P 500 stocks are similarly liquid. They can be quickly exited at the market price. But positions in many other asset classes, especially in [alternative assets](https://www.investopedia.com/terms/a/alternative_investment.asp), cannot be exited with ease. In fact, we might even define alternative assets as those with high liquidity risk. Market liquidity risk can be a function of the following: * The market microstructure. Exchanges such as commodity futures are typically [deep markets](https://www.investopedia.com/terms/d/deep-market.asp), but many over-the-counter (OTC) markets are [thin](https://www.investopedia.com/terms/t/thinmarket.asp). * Asset type. Simple assets are more liquid than complex assets. For example, in the crisis, [CDOs](https://www.investopedia.com/terms/c/cdo.asp)-squared—CDO2 are [structured notes](https://www.investopedia.com/terms/s/structurednote.asp) collateralized by CDO tranches—became especially illiquid due to their complexity. * Substitution. If a position can be easily replaced with another instrument, the substitution costs are low and the liquidity tends to be higher. * Time horizon. If the seller has urgency, this tends to exacerbate the liquidity risk. If a seller is patient, then liquidity risk is less of a threat. Note the common feature of both types of liquidity risk: In a sense, they both involve the fact that there's not enough time. Illiquidity is generally a problem that can be solved with more time. ![Liquidity Risk]() ![Liquidity Risk](https://www.investopedia.com/thmb/wnmw60qtv4I5h-cM9nTiulEfnto=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/UnderstandingLiquidityRisk32-e6abfec5376d4c85a60e0565eb856d37.png) Image by Julie Bang © Investopedia 2020 ## Measures of Market Liquidity Risk There are at least three perspectives on market liquidity as per the above figure. The most popular and crudest measure is the [bid-ask spread](https://www.investopedia.com/terms/b/bid-askspread.asp). This is also called width. A low or narrow bid-ask spread is said to be tight and tends to reflect a more [liquid market](https://www.investopedia.com/terms/l/liquidmarket.asp). [Depth](https://www.investopedia.com/terms/d/depth-of-market.asp) refers to the ability of the market to absorb the sale or exit of a position. An individual investor who sells shares of Apple, for example, is not likely to [impact the share price](https://www.investopedia.com/ask/answers/061615/how-companys-share-price-determined.asp). On the other hand, an [institutional investor](https://www.investopedia.com/terms/i/institutionalinvestor.asp) selling a large block of shares in a small [capitalization](https://www.investopedia.com/terms/c/capitalization.asp) company will probably cause the price to fall. Finally, resiliency refers to the market's ability to bounce back from temporarily incorrect prices. To summarize: * The bid-ask spread measures liquidity in the price dimension and is a feature of the market, not the seller or the seller's position. Financial models that incorporate the bid-ask spread adjust for exogenous liquidity and are exogenous liquidity models. * Position size, relative to the market, is a feature of the seller. Models that use this measure liquidity in the quantity dimension and are generally known as endogenous liquidity models. * Resiliency measures liquidity in the time dimensions and such models are currently rare. At one extreme, high market liquidity would be characterized by the owner of a small position relative to a deep market that exits into a tight bid-ask spread and a highly resilient market. ### A low or narrow bid-ask spread is said to be tight and tends to reflect a more liquid market. ## What About Volume? Trading volume is a popular measure of liquidity but is now considered to be a flawed indicator. High trading volume does not necessarily imply high liquidity. The [Flash Crash](https://www.investopedia.com/terms/f/flash-crash.asp) of May 6, 2010, proved this with painful, concrete examples. In that case, according to the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC), sell [algorithms](https://www.investopedia.com/terms/a/algorithm.asp) were feeding orders into the system faster than they could be executed. Volume jumped, but many backlog orders were not filled. According to the SEC, "especially in times of significant volatility, [high trading volume](https://www.investopedia.com/articles/technical/02/010702.asp) is not necessarily a reliable indicator of market liquidity." ## Incorporating Liquidity Risk In the case of exogenous liquidity risk, one approach is to use the bid-ask spread to directly adjust the metric. Please note: Risk models are different than [valuation models](https://www.investopedia.com/articles/fundamental-analysis/11/choosing-valuation-methods.asp) and this method assumes there are observable bid/ask prices. Let's illustrate with [value-at-risk](https://www.investopedia.com/terms/v/var.asp) (VAR). Assume the daily volatility of a $1,000,000 position is 1.0%. The position has positive [expected return](https://www.investopedia.com/terms/e/expectedreturn.asp), also referred to as drift, but as our horizon is daily, we bring our tiny daily expected return down to zero. This is a common practice. So let the expected daily return equal zero. If the returns are normally distributed, then the one-tailed deviate at 5.0% is 1.65. That is, the 5% left tail of [normal distribution](https://www.investopedia.com/terms/n/normaldistribution.asp) is 1.65 [standard deviations](https://www.investopedia.com/terms/s/standarddeviation.asp) to the left of mean. In excel, we get this result with =NORM.S.INV(5%) = -1.645. The 95% value at risk (VAR) is given by: $1,000,000 \* 1.0% volatility \* 1.65 = $16,500 Under these assumptions, we can say "only 1/20 days (5% of the time) do we expect the daily loss to exceed $16,500." But this does not adjust for liquidity. Let's assume the position is in a single stock where the ask price is $20.40 and the [bid price](https://www.investopedia.com/terms/b/bidprice.asp) is $19.60, with a midpoint of $20. In percentage terms the spread (%) is: ($20.40 - $19.60) ÷ $20 = 4.0% The full spread represents the cost of a round trip: Buying and selling the stock. But, as we are only interested in the liquidity cost if we need to exit (sell) the position, the liquidity adjustment consists of adding one-half (0.5) the spread. In the case of VaR, we have: * Liquidity cost (LC) = 0.5 x spread * Liquidity-adjusted VaR (LVaR) = position ($) \* [-drift (%) + volatility \*deviate + LC], or * Liquidity-adjusted VaR (LVaR) = position ($) \* [-drift (%) + volatility \*deviate + 0.5 \* spread]. In our example, LVaR = $1,000,000 \* [-0% + 1.0% \* 1.65 + 0.5 \* 4.0%] = $36,500 In this way, the liquidity adjustment increases the VaR by one-half the spread ($1,000,000 \* 2% = +$20,000). ## The Bottom Line Liquidity risk can be parsed into funding (cash-flow) or market (asset) liquidity risk. Funding liquidity tends to manifest as [credit risk](https://www.investopedia.com/terms/c/creditrisk.asp), or the inability to fund liabilities produces defaults. Market liquidity risk manifests as [market risk](https://www.investopedia.com/terms/m/marketrisk.asp), or the inability to sell an asset drives its market price down, or worse, renders the market price indecipherable. Market liquidity risk is a problem created by the interaction of the seller and buyers in the marketplace. If the seller's position is large relative to the market, this is called endogenous liquidity risk (a feature of the seller). If the marketplace has withdrawn buyers, this is called exogenous liquidity risk—a characteristic of the market which is a collection of buyers—a typical indicator here is an abnormally wide bid-ask spread. A common way to include market liquidity risk in a [financial risk](https://www.investopedia.com/terms/f/financialrisk.asp) model (not necessarily a valuation model) is to adjust or "penalize" the measure by adding/subtracting one-half the bid-ask spread.
Before the global financial crisis (GFC), liquidity risk was not on everybody's radar. Financial models routinely omitted liquidity risk. But the GFC prompted a renewal to understand liquidity risk. One reason was a consensus that the crisis included a run on the non-depository, shadow banking system—providers of short-term financing, notably in the repo market—systematically withdrew liquidity. They did this indirectly but undeniably by increasing collateral haircuts. After the GFC, all major financial institutions and governments are acutely aware of the risk that liquidity withdrawal can be a nasty accomplice in transmitting shocks through the system—or even exacerbating contagion. Key Takeaways Liquidity is how easily an asset or security can be bought or sold in the market, and converted to cash.There are two different types of liquidity risk: Funding liquidity and market liquidity risk.Funding or cash flow liquidity risk is the chief concern of a corporate treasurer who asks whether the firm can fund its liabilities.Market or asset liquidity risk is asset illiquidity or the inability to easily exit a position. The most popular and crudest measure of liquidity is the bid-ask spread—a low or narrow bid-ask spread is said to be tight and tends to reflect a more liquid market. What Is Liquidity Risk? Liquidity is a term used to refer to how easily an asset or security can be bought or sold in the market. It basically describes how quickly something can be converted to cash. There are two different types of liquidity risk. The first is funding liquidity or cash flow risk, while the second is market liquidity risk, also referred to as asset/product risk. Funding Liquidity Risk Funding or cash flow liquidity risk is the chief concern of a corporate treasurer who asks whether the firm can fund its liabilities. A classic indicator of funding liquidity risk is the current ratio (current assets/current liabilities) or, for that matter, the quick ratio. A line of credit would be a classic mitigant. Market Liquidity Risk Market or asset liquidity risk is asset illiquidity. This is the inability to easily exit a position. For example, we may own real estate but, owing to bad market conditions, it can only be sold imminently at a fire sale price. The asset surely has value, but as buyers have temporarily evaporated, the value cannot be realized. Consider its virtual opposite, a U.S. Treasury bond. True, a U.S. Treasury bond is considered almost risk-free as few imagine the U.S. government will default. But additionally, this bond has extremely low liquidity risk. Its owner can easily exit the position at the prevailing market price. Small positions in S&P 500 stocks are similarly liquid. They can be quickly exited at the market price. But positions in many other asset classes, especially in alternative assets, cannot be exited with ease. In fact, we might even define alternative assets as those with high liquidity risk. Market liquidity risk can be a function of the following: The market microstructure. Exchanges such as commodity futures are typically deep markets, but many over-the-counter (OTC) markets are thin. Asset type. Simple assets are more liquid than complex assets. For example, in the crisis, CDOs-squared—CDO2 are structured notes collateralized by CDO tranches—became especially illiquid due to their complexity. Substitution. If a position can be easily replaced with another instrument, the substitution costs are low and the liquidity tends to be higher. Time horizon. If the seller has urgency, this tends to exacerbate the liquidity risk. If a seller is patient, then liquidity risk is less of a threat. Note the common feature of both types of liquidity risk: In a sense, they both involve the fact that there's not enough time. Illiquidity is generally a problem that can be solved with more time. Image by Julie Bang © Investopedia 2020 Measures of Market Liquidity Risk There are at least three perspectives on market liquidity as per the above figure. The most popular and crudest measure is the bid-ask spread. This is also called width. A low or narrow bid-ask spread is said to be tight and tends to reflect a more liquid market. Depth refers to the ability of the market to absorb the sale or exit of a position. An individual investor who sells shares of Apple, for example, is not likely to impact the share price. On the other hand, an institutional investor selling a large block of shares in a small capitalization company will probably cause the price to fall. Finally, resiliency refers to the market's ability to bounce back from temporarily incorrect prices. To summarize: The bid-ask spread measures liquidity in the price dimension and is a feature of the market, not the seller or the seller's position. Financial models that incorporate the bid-ask spread adjust for exogenous liquidity and are exogenous liquidity models.Position size, relative to the market, is a feature of the seller. Models that use this measure liquidity in the quantity dimension and are generally known as endogenous liquidity models.Resiliency measures liquidity in the time dimensions and such models are currently rare. At one extreme, high market liquidity would be characterized by the owner of a small position relative to a deep market that exits into a tight bid-ask spread and a highly resilient market. A low or narrow bid-ask spread is said to be tight and tends to reflect a more liquid market. What About Volume? Trading volume is a popular measure of liquidity but is now considered to be a flawed indicator. High trading volume does not necessarily imply high liquidity. The Flash Crash of May 6, 2010, proved this with painful, concrete examples. In that case, according to the Securities and Exchange Commission (SEC), sell algorithms were feeding orders into the system faster than they could be executed. Volume jumped, but many backlog orders were not filled. According to the SEC, "especially in times of significant volatility, high trading volume is not necessarily a reliable indicator of market liquidity." Incorporating Liquidity Risk In the case of exogenous liquidity risk, one approach is to use the bid-ask spread to directly adjust the metric. Please note: Risk models are different than valuation models and this method assumes there are observable bid/ask prices. Let's illustrate with value-at-risk (VAR). Assume the daily volatility of a $1,000,000 position is 1.0%. The position has positive expected return, also referred to as drift, but as our horizon is daily, we bring our tiny daily expected return down to zero. This is a common practice. So let the expected daily return equal zero. If the returns are normally distributed, then the one-tailed deviate at 5.0% is 1.65. That is, the 5% left tail of normal distribution is 1.65 standard deviations to the left of mean. In excel, we get this result with =NORM.S.INV(5%) = -1.645. The 95% value at risk (VAR) is given by: $1,000,000 * 1.0% volatility * 1.65 = $16,500 Under these assumptions, we can say "only 1/20 days (5% of the time) do we expect the daily loss to exceed $16,500." But this does not adjust for liquidity. Let's assume the position is in a single stock where the ask price is $20.40 and the bid price is $19.60, with a midpoint of $20. In percentage terms the spread (%) is: ($20.40 - $19.60) ÷ $20 = 4.0% The full spread represents the cost of a round trip: Buying and selling the stock. But, as we are only interested in the liquidity cost if we need to exit (sell) the position, the liquidity adjustment consists of adding one-half (0.5) the spread. In the case of VaR, we have: Liquidity cost (LC) = 0.5 x spreadLiquidity-adjusted VaR (LVaR) = position ($) * [-drift (%) + volatility *deviate + LC], orLiquidity-adjusted VaR (LVaR) = position ($) * [-drift (%) + volatility *deviate + 0.5 * spread]. In our example, LVaR = $1,000,000 * [-0% + 1.0% * 1.65 + 0.5 * 4.0%] = $36,500 In this way, the liquidity adjustment increases the VaR by one-half the spread ($1,000,000 * 2% = +$20,000). The Bottom Line Liquidity risk can be parsed into funding (cash-flow) or market (asset) liquidity risk. Funding liquidity tends to manifest as credit risk, or the inability to fund liabilities produces defaults. Market liquidity risk manifests as market risk, or the inability to sell an asset drives its market price down, or worse, renders the market price indecipherable. Market liquidity risk is a problem created by the interaction of the seller and buyers in the marketplace. If the seller's position is large relative to the market, this is called endogenous liquidity risk (a feature of the seller). If the marketplace has withdrawn buyers, this is called exogenous liquidity risk—a characteristic of the market which is a collection of buyers—a typical indicator here is an abnormally wide bid-ask spread. A common way to include market liquidity risk in a financial risk model (not necessarily a valuation model) is to adjust or "penalize" the measure by adding/subtracting one-half the bid-ask spread.
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https://www.investopedia.com/what-the-implications-of-a-partnership-between-openai-and-apple-would-be-8647392
What The Implications Of A Partnership Between OpenAI and Apple Would Be
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Apple is nearing a partnership deal with OpenAI that would bring artificial intelligence tech to the next iPhone, <em>Bloomberg</em> reported.</li><li>The deal would help Apple establish itself as a benefactor of the AI boom while expanding OpenAI's reach. Using OpenAI's tech, Apple could upgrade Siri as the ChatGPT maker unveiled GPT-4o, a new and more capable model with voice capabilities.</li><li>It is unclear what an OpenAI-Apple partnership would mean for Alphabet, as the iPhone maker is reportedly also in talks to use Google Gemini.</li><li>As a major OpenAI investor, Microsoft could share some of the gains of the increased exposure of OpenAI through an Apple partnership.<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"> 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>) is reportedly nearing a deal with OpenAI that would bring <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI)</a> tech to the next iPhone, strengthening its position amid the AI boom and potentially increasing competition among big tech players such as Alphabet (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL">GOOGL</a>) and Microsoft (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>). </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-openai-partnership-could-put-apple-on-ai-map"></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"> OpenAI Partnership Could Put Apple on AI Map </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Under the partnership, Apple would integrate the ChatGPT maker's AI tech into Apple's next iPhone, according to <em>Bloomberg</em>.<span class="ql-inline-citation" data-cite="1"></span> The partnership could help Apple establish itself as a major benefactor of the AI era while expanding OpenAI's reach. </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"> Wedbush analysts led by Dan Ives said they expect the partnership will affect iOS 18 and the upcoming iPhone 16 expected in September.<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"> The partnership "will consist of an OpenAI Chatbot with exclusive features" that build upon "on-device Apple LLMs" and "cloud-powered Apple LLMs" alongside "Apple powering AI on its own high end chips," the analysts wrote. </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"> CFRA analysts noted that "most importantly" the OpenAI deal could catalyze "a slew of new revenue streams," including increased iPhone 16 sales, subscriptions, licensing revenue, new apps, and higher advertising revenue.<span class="ql-inline-citation" data-cite="5"></span> They wrote the "partnership would significantly boost AAPL's AI capabilities, injecting excitement across its hardware, software, and services portfolio." </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 news comes shortly after Apple <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/apple-pushes-into-ai-with-launch-of-new-ipad-pro-powered-by-m4-ai-chip-8644559">unveiled</a> an iPad Pro powered by its new AI-capable M4 chip, last week, marking a key milestone in Apple's push into AI. Before the iPad announcement, the iPhone maker had been <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/4-key-takeaways-from-apple-fiscal-q1-2024-earnings-call-8557738">quiet about its AI initiatives</a> unlike many of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-we-learned-from-big-tech-earnings-last-week-meta-microsoft-alphabet-8639439">its big tech peers</a> though the company has indicated it views the emerging tech as a source of major opportunity.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-ai-supercharged-siri-could-be-coming"></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"> AI-Supercharged Siri Could Be Coming </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Analysts said that the partnership could be the beginning of a major Siri upgrade. </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"> Wedbush analysts said they anticipate Apple will "build out a next level Siri technology with OpenAI that can do complex tasks for Apple users and more advanced features that will eventually be a separate monthly subscription service along with other AI features." </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"> They noted they don't expect Apple to make an official announcement at its annual developers conference set for June 10. </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"> CFRA analysts said that "Siri is poised to get its biggest-ever upgrade and could be marketed as potentially being the best personal assistant to consumers." </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 reports come as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-backed-openai-unveils-most-capable-ai-model-gpt-4o-8647639">OpenAI announced its latest AI model</a>, GPT-4o, at an event on Monday where the company showcased ChatGPT powered by GPT-4o's voice capabilities. </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-impact-on-alphabet-unclear-amid-reports-of-ongoing-apple-and-google-gemini-talks"></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"> Impact on Alphabet Unclear Amid Reports of Ongoing Apple and Google Gemini Talks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The report from <em>Bloomberg</em> also indicated that the iPhone maker has been in talks with Alphabet's Google about a similar deal to use its AI model, Gemini, but has not reached an agreement. </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"> Wedbush analysts said that they expect an Apple and OpenAI deal would be exclusive, but CFRA said it might be too early to tell. </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"> Alphabet shares fell following the release of the report, but CFRA analyst Angelo Zino told Investopedia that the sell-off "could be premature as an OpenAI/AAPL partnership doesn’t necessarily mean that AAPL won’t strike a separate partnership with GOOGL (Gemini) for different AI capabilities tied to search." </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"> He did underline that "it does create more long-term risk to that search business if AAPL’s ties with OpenAI/Microsoft get stronger." </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-openai-deal-may-strengthen-ties-between-microsoft-and-apple"></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"> OpenAI Deal May Strengthen Ties Between Microsoft and Apple </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Microsoft has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-becomes-second-company-ever-to-hit-usd3-trillion-market-cap-amid-ai-optimism-8549133">established</a> itself as an early leader in the AI boom with its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-openai-partnership-draws-scrutiny-of-uk-competition-watchdog-8413335">partnership</a> with OpenAI through multi-billion dollar investments. </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 Microsoft is positioned to share some of OpenAI's gains, the deal could have minimal impact on the company beyond relationship building with Apple. </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"> It's "not a huge deal for MSFT at the moment," Zino told Investopedia, though he noted that depending on the outcome of the ongoing Department of Justice (DOJ) case against Google, Microsoft could become a better cloud option for Apple, which faces <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/why-the-department-of-justice-is-suing-apple-8612745">its own DOJ case</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_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Wedbush analysts said the partnership may benefit Microsoft, writing that the "OpenAI chatbox embedded in iPhone 16 will also open up avenues of growth and the all-important developers to flock to the Apple ecosystem along with the Microsoft developer ecosystem in tow." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> "It changes the game having a tight partnership with OpenAI and for Microsoft/OpenAI" as it's a "smart strategic move to tie themselves in with the biggest consumer installed base in the world looking forward," the analysts said. </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"> Apple, OpenAI, Google, and Microsoft did not immediately respond to Investopedia's requests for comment.<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 * Apple is nearing a partnership deal with OpenAI that would bring artificial intelligence tech to the next iPhone, *Bloomberg* reported. * The deal would help Apple establish itself as a benefactor of the AI boom while expanding OpenAI's reach. Using OpenAI's tech, Apple could upgrade Siri as the ChatGPT maker unveiled GPT-4o, a new and more capable model with voice capabilities. * It is unclear what an OpenAI-Apple partnership would mean for Alphabet, as the iPhone maker is reportedly also in talks to use Google Gemini. * As a major OpenAI investor, Microsoft could share some of the gains of the increased exposure of OpenAI through an Apple partnership. Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) is reportedly nearing a deal with OpenAI that would bring [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) tech to the next iPhone, strengthening its position amid the AI boom and potentially increasing competition among big tech players such as Alphabet ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL)) and Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)). ## OpenAI Partnership Could Put Apple on AI Map Under the partnership, Apple would integrate the ChatGPT maker's AI tech into Apple's next iPhone, according to *Bloomberg*. The partnership could help Apple establish itself as a major benefactor of the AI era while expanding OpenAI's reach. Wedbush analysts led by Dan Ives said they expect the partnership will affect iOS 18 and the upcoming iPhone 16 expected in September. The partnership "will consist of an OpenAI Chatbot with exclusive features" that build upon "on-device Apple LLMs" and "cloud-powered Apple LLMs" alongside "Apple powering AI on its own high end chips," the analysts wrote. CFRA analysts noted that "most importantly" the OpenAI deal could catalyze "a slew of new revenue streams," including increased iPhone 16 sales, subscriptions, licensing revenue, new apps, and higher advertising revenue. They wrote the "partnership would significantly boost AAPL's AI capabilities, injecting excitement across its hardware, software, and services portfolio." The news comes shortly after Apple [unveiled](https://www.investopedia.com/apple-pushes-into-ai-with-launch-of-new-ipad-pro-powered-by-m4-ai-chip-8644559) an iPad Pro powered by its new AI-capable M4 chip, last week, marking a key milestone in Apple's push into AI. Before the iPad announcement, the iPhone maker had been [quiet about its AI initiatives](https://www.investopedia.com/4-key-takeaways-from-apple-fiscal-q1-2024-earnings-call-8557738) unlike many of [its big tech peers](https://www.investopedia.com/what-we-learned-from-big-tech-earnings-last-week-meta-microsoft-alphabet-8639439) though the company has indicated it views the emerging tech as a source of major opportunity. ## AI-Supercharged Siri Could Be Coming Analysts said that the partnership could be the beginning of a major Siri upgrade. Wedbush analysts said they anticipate Apple will "build out a next level Siri technology with OpenAI that can do complex tasks for Apple users and more advanced features that will eventually be a separate monthly subscription service along with other AI features." They noted they don't expect Apple to make an official announcement at its annual developers conference set for June 10. CFRA analysts said that "Siri is poised to get its biggest-ever upgrade and could be marketed as potentially being the best personal assistant to consumers." The reports come as [OpenAI announced its latest AI model](https://www.investopedia.com/microsoft-backed-openai-unveils-most-capable-ai-model-gpt-4o-8647639), GPT-4o, at an event on Monday where the company showcased ChatGPT powered by GPT-4o's voice capabilities. ## Impact on Alphabet Unclear Amid Reports of Ongoing Apple and Google Gemini Talks The report from *Bloomberg* also indicated that the iPhone maker has been in talks with Alphabet's Google about a similar deal to use its AI model, Gemini, but has not reached an agreement. Wedbush analysts said that they expect an Apple and OpenAI deal would be exclusive, but CFRA said it might be too early to tell. Alphabet shares fell following the release of the report, but CFRA analyst Angelo Zino told Investopedia that the sell-off "could be premature as an OpenAI/AAPL partnership doesn’t necessarily mean that AAPL won’t strike a separate partnership with GOOGL (Gemini) for different AI capabilities tied to search." He did underline that "it does create more long-term risk to that search business if AAPL’s ties with OpenAI/Microsoft get stronger." ## OpenAI Deal May Strengthen Ties Between Microsoft and Apple Microsoft has [established](https://www.investopedia.com/microsoft-becomes-second-company-ever-to-hit-usd3-trillion-market-cap-amid-ai-optimism-8549133) itself as an early leader in the AI boom with its [partnership](https://www.investopedia.com/microsoft-openai-partnership-draws-scrutiny-of-uk-competition-watchdog-8413335) with OpenAI through multi-billion dollar investments. While Microsoft is positioned to share some of OpenAI's gains, the deal could have minimal impact on the company beyond relationship building with Apple. It's "not a huge deal for MSFT at the moment," Zino told Investopedia, though he noted that depending on the outcome of the ongoing Department of Justice (DOJ) case against Google, Microsoft could become a better cloud option for Apple, which faces [its own DOJ case](https://www.investopedia.com/why-the-department-of-justice-is-suing-apple-8612745). Wedbush analysts said the partnership may benefit Microsoft, writing that the "OpenAI chatbox embedded in iPhone 16 will also open up avenues of growth and the all-important developers to flock to the Apple ecosystem along with the Microsoft developer ecosystem in tow." "It changes the game having a tight partnership with OpenAI and for Microsoft/OpenAI" as it's a "smart strategic move to tie themselves in with the biggest consumer installed base in the world looking forward," the analysts said. Apple, OpenAI, Google, and Microsoft did not immediately respond to Investopedia's requests for comment. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
Key Takeaways Apple is nearing a partnership deal with OpenAI that would bring artificial intelligence tech to the next iPhone, Bloomberg reported.The deal would help Apple establish itself as a benefactor of the AI boom while expanding OpenAI's reach. Using OpenAI's tech, Apple could upgrade Siri as the ChatGPT maker unveiled GPT-4o, a new and more capable model with voice capabilities.It is unclear what an OpenAI-Apple partnership would mean for Alphabet, as the iPhone maker is reportedly also in talks to use Google Gemini.As a major OpenAI investor, Microsoft could share some of the gains of the increased exposure of OpenAI through an Apple partnership. Apple (AAPL) is reportedly nearing a deal with OpenAI that would bring artificial intelligence (AI) tech to the next iPhone, strengthening its position amid the AI boom and potentially increasing competition among big tech players such as Alphabet (GOOGL) and Microsoft (MSFT). OpenAI Partnership Could Put Apple on AI Map Under the partnership, Apple would integrate the ChatGPT maker's AI tech into Apple's next iPhone, according to Bloomberg. The partnership could help Apple establish itself as a major benefactor of the AI era while expanding OpenAI's reach. Wedbush analysts led by Dan Ives said they expect the partnership will affect iOS 18 and the upcoming iPhone 16 expected in September. The partnership "will consist of an OpenAI Chatbot with exclusive features" that build upon "on-device Apple LLMs" and "cloud-powered Apple LLMs" alongside "Apple powering AI on its own high end chips," the analysts wrote. CFRA analysts noted that "most importantly" the OpenAI deal could catalyze "a slew of new revenue streams," including increased iPhone 16 sales, subscriptions, licensing revenue, new apps, and higher advertising revenue. They wrote the "partnership would significantly boost AAPL's AI capabilities, injecting excitement across its hardware, software, and services portfolio." The news comes shortly after Apple unveiled an iPad Pro powered by its new AI-capable M4 chip, last week, marking a key milestone in Apple's push into AI. Before the iPad announcement, the iPhone maker had been quiet about its AI initiatives unlike many of its big tech peers though the company has indicated it views the emerging tech as a source of major opportunity. AI-Supercharged Siri Could Be Coming Analysts said that the partnership could be the beginning of a major Siri upgrade. Wedbush analysts said they anticipate Apple will "build out a next level Siri technology with OpenAI that can do complex tasks for Apple users and more advanced features that will eventually be a separate monthly subscription service along with other AI features." They noted they don't expect Apple to make an official announcement at its annual developers conference set for June 10. CFRA analysts said that "Siri is poised to get its biggest-ever upgrade and could be marketed as potentially being the best personal assistant to consumers." The reports come as OpenAI announced its latest AI model, GPT-4o, at an event on Monday where the company showcased ChatGPT powered by GPT-4o's voice capabilities. Impact on Alphabet Unclear Amid Reports of Ongoing Apple and Google Gemini Talks The report from Bloomberg also indicated that the iPhone maker has been in talks with Alphabet's Google about a similar deal to use its AI model, Gemini, but has not reached an agreement. Wedbush analysts said that they expect an Apple and OpenAI deal would be exclusive, but CFRA said it might be too early to tell. Alphabet shares fell following the release of the report, but CFRA analyst Angelo Zino told Investopedia that the sell-off "could be premature as an OpenAI/AAPL partnership doesn’t necessarily mean that AAPL won’t strike a separate partnership with GOOGL (Gemini) for different AI capabilities tied to search." He did underline that "it does create more long-term risk to that search business if AAPL’s ties with OpenAI/Microsoft get stronger." OpenAI Deal May Strengthen Ties Between Microsoft and Apple Microsoft has established itself as an early leader in the AI boom with its partnership with OpenAI through multi-billion dollar investments. While Microsoft is positioned to share some of OpenAI's gains, the deal could have minimal impact on the company beyond relationship building with Apple. It's "not a huge deal for MSFT at the moment," Zino told Investopedia, though he noted that depending on the outcome of the ongoing Department of Justice (DOJ) case against Google, Microsoft could become a better cloud option for Apple, which faces its own DOJ case. Wedbush analysts said the partnership may benefit Microsoft, writing that the "OpenAI chatbox embedded in iPhone 16 will also open up avenues of growth and the all-important developers to flock to the Apple ecosystem along with the Microsoft developer ecosystem in tow." "It changes the game having a tight partnership with OpenAI and for Microsoft/OpenAI" as it's a "smart strategic move to tie themselves in with the biggest consumer installed base in the world looking forward," the analysts said. Apple, OpenAI, Google, and Microsoft did not immediately respond to Investopedia's requests for comment. Do you have a news tip for Investopedia reporters? Please email us at [email protected]
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https://www.investopedia.com/closed-end-line-of-credit-5225175
Closed-End Line of Credit
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 closed-end line of credit combines the features of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closed_end_credit.asp">closed-end loan</a> and a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lineofcredit.asp">line of credit</a>. Closed-end lines of credit are often used for home building. Here is what you need to know about how a closed-end line of credit works. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A line of credit is a type of loan that borrowers can take money from over time, rather than all at once.</li><li>There are two basic kinds of lines of credit: closed-end and open-end.</li><li>A closed-end line of credit must be repaid at a predetermined point, while an open-end line of credit has no fixed end date. </li><li>Closed-end lines of credit are often used in home building, after which the home's owner will refinance with a regular mortgage.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-a-closed-end-line-of-credit"></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 Closed-End Line of Credit? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A line of credit is a type of loan that allows borrowers to take out money as needed, up to a certain predetermined limit. Lines of credit can be either open-ended or closed-ended. </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"> Open-end lines of credit have no fixed end point when they must be repaid. (That is why they are called open-end.) Credit cards are a familiar example. With a typical <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revolvingcredit.asp">revolving</a> credit card, the lender gives you a credit limit you can't exceed, which is based on your credit score and other factors. As you charge purchases to your card, the amount of credit you have available to you on the card will decline. When you pay your monthly credit card bill, your available credit will rise. This can continue for as long as you hold that card.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/reverse-mortgage/">Reverse mortgages</a> for homeowners age 62 and over can also be structured as open-end lines of credit. The lender sets a credit limit based on the value of the home and the borrower's age, which the borrower can then draw on as needed. There is no fixed end point, but the loan must generally be repaid after the borrower dies or moves out of the home.<span class="ql-inline-citation" data-cite="3"></span> The borrower may also have the option to make repayments while they're still in the home, which will replenish their credit line, much like a revolving credit card.   </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/home-equity-line-of-credit-heloc-definition-5217473">home equity lines of credit (HELOCs)</a> also offer revolving credit, though usually for a finite period. One type, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/heloc/fixed-rate-option/">fixed-rate HELOC</a>, combines features of both open- and closed-end credit lines.    </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"> Unlike open-end lines of credit, closed-end lines of credit do have a fixed end point. You can borrow up to the credit limit but must repay your balance in full when the loan ends. Typically the credit line will have a draw period, during which you can make a series of withdrawals, followed by a repayment period when you must begin to pay it off. Some closed-end lines of credit require interest-only payments during the draw period. If you wish to, you can also pay off a portion of your balance before the repayment period, but, unlike an open-end credit line, that won't increase your available credit. </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"> Closed-end lines of credit can have different terms, or lengths, and tend to be relatively short. A typical <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/construction-loan.asp">construction loan</a>, for example, might have to be paid off after six months or a year.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_18-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_19-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>While you may make regular interest payments on a closed-end line of credit, they won't reduce the amount of principal you owe when the loan comes due.</p></div></div></div> <span class="heading-toc" id="toc-how-a-closed-end-line-of-credit-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> How a Closed-End Line of Credit Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Suppose you're about to begin construction on a new house for your family. In order to finance it, you apply for a closed-end line of credit lasting for six months. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-construction-loan-lenders-5078622">lender</a> might offer you a credit line equal to 80% of your expected building costs.   </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"> Because you won't need the money all at once but will be paying the contractor at various points in the project, you can draw on the credit line in a series of predetermined stages (such as the pouring of the foundation) or, in some cases, regular intervals. You don't have to pay off the loan until the home is completed, but you will probably be required to make interest payments each month. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> When the house is finished, you will have to pay off the line of credit. One way to do that is by taking out a regular mortgage and using the new home as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateral</a>. Some lenders offer construction-to-permanent loans, which combine both loans into one application process and one <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closing.asp">closing</a>. Otherwise, you'll need to apply for the two loans separately and at different points. That could be a problem if, for example, your financial situation changes for the worse by the time you're ready to apply for the mortgage, making you less likely to qualify. </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-is-a-closed-end-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Closed-End Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A closed-end loan is one in which the borrower receives a sum of money that they must repay by a certain date, often in monthly installments. <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> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/auto-loans-4689734">car loans</a> are two common examples. Mortgages often have to be repaid in 15, 20, or 30 years, car loans in 24, 36, or 72 months—although there are many different options. Typically, the longer the loan, the lower the monthly payment, although the borrower may pay more in total interest over time.</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-does-a-closed-end-line-of-credit-differ-from-a-closed-end-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does a Closed-End Line of Credit Differ From a Closed-End Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In the typical closed-end loan, the borrower receives a sum of money upfront. By contrast, in a closed-end line of credit, the borrower can take out money in a series of withdrawals over a period of time, up to the credit line's limit. Closed-end lines of credit may also require interest payments from the borrower, but not principal repayments until the full loan comes due.</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-is-the-interest-on-a-closed-end-line-of-credit-tax-deductible"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is the Interest on a Closed-End Line of Credit Tax-Deductible?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>That depends on what you use the money for. For example, you may qualify for a home mortgage interest deduction if you're building a home. According to the IRS, "You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy. The 24-month period can start any time on or after the day construction begins."<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_32-0"></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_33-0"> <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_34-0"> A closed-end line of credit can be useful for certain purposes, such as when you need to borrow money for an expensive project, like building a home, but don't require the money all at once. Unlike open-end lines of credit, closed-end lines of credit have to be paid off in full by a certain point, which is important to consider before you enter into one. </p></div>
A closed-end line of credit combines the features of a [closed-end loan](https://www.investopedia.com/terms/c/closed_end_credit.asp) and a [line of credit](https://www.investopedia.com/terms/l/lineofcredit.asp). Closed-end lines of credit are often used for home building. Here is what you need to know about how a closed-end line of credit works. ### Key Takeaways * A line of credit is a type of loan that borrowers can take money from over time, rather than all at once. * There are two basic kinds of lines of credit: closed-end and open-end. * A closed-end line of credit must be repaid at a predetermined point, while an open-end line of credit has no fixed end date. * Closed-end lines of credit are often used in home building, after which the home's owner will refinance with a regular mortgage. ## What Is a Closed-End Line of Credit? A line of credit is a type of loan that allows borrowers to take out money as needed, up to a certain predetermined limit. Lines of credit can be either open-ended or closed-ended. Open-end lines of credit have no fixed end point when they must be repaid. (That is why they are called open-end.) Credit cards are a familiar example. With a typical [revolving](https://www.investopedia.com/terms/r/revolvingcredit.asp) credit card, the lender gives you a credit limit you can't exceed, which is based on your credit score and other factors. As you charge purchases to your card, the amount of credit you have available to you on the card will decline. When you pay your monthly credit card bill, your available credit will rise. This can continue for as long as you hold that card.  [Reverse mortgages](https://www.investopedia.com/mortgage/reverse-mortgage/) for homeowners age 62 and over can also be structured as open-end lines of credit. The lender sets a credit limit based on the value of the home and the borrower's age, which the borrower can then draw on as needed. There is no fixed end point, but the loan must generally be repaid after the borrower dies or moves out of the home. The borrower may also have the option to make repayments while they're still in the home, which will replenish their credit line, much like a revolving credit card.   Most [home equity lines of credit (HELOCs)](https://www.investopedia.com/home-equity-line-of-credit-heloc-definition-5217473) also offer revolving credit, though usually for a finite period. One type, the [fixed-rate HELOC](https://www.investopedia.com/mortgage/heloc/fixed-rate-option/), combines features of both open- and closed-end credit lines.    Unlike open-end lines of credit, closed-end lines of credit do have a fixed end point. You can borrow up to the credit limit but must repay your balance in full when the loan ends. Typically the credit line will have a draw period, during which you can make a series of withdrawals, followed by a repayment period when you must begin to pay it off. Some closed-end lines of credit require interest-only payments during the draw period. If you wish to, you can also pay off a portion of your balance before the repayment period, but, unlike an open-end credit line, that won't increase your available credit. Closed-end lines of credit can have different terms, or lengths, and tend to be relatively short. A typical [construction loan](https://www.investopedia.com/terms/c/construction-loan.asp), for example, might have to be paid off after six months or a year.   ### Important While you may make regular interest payments on a closed-end line of credit, they won't reduce the amount of principal you owe when the loan comes due. ## How a Closed-End Line of Credit Works Suppose you're about to begin construction on a new house for your family. In order to finance it, you apply for a closed-end line of credit lasting for six months. The [lender](https://www.investopedia.com/best-construction-loan-lenders-5078622) might offer you a credit line equal to 80% of your expected building costs.   Because you won't need the money all at once but will be paying the contractor at various points in the project, you can draw on the credit line in a series of predetermined stages (such as the pouring of the foundation) or, in some cases, regular intervals. You don't have to pay off the loan until the home is completed, but you will probably be required to make interest payments each month. When the house is finished, you will have to pay off the line of credit. One way to do that is by taking out a regular mortgage and using the new home as [collateral](https://www.investopedia.com/terms/c/collateral.asp). Some lenders offer construction-to-permanent loans, which combine both loans into one application process and one [closing](https://www.investopedia.com/terms/c/closing.asp). Otherwise, you'll need to apply for the two loans separately and at different points. That could be a problem if, for example, your financial situation changes for the worse by the time you're ready to apply for the mortgage, making you less likely to qualify. ## What Is a Closed-End Loan? A closed-end loan is one in which the borrower receives a sum of money that they must repay by a certain date, often in monthly installments. [Home mortgages](https://www.investopedia.com/terms/m/mortgage.asp) and [car loans](https://www.investopedia.com/auto-loans-4689734) are two common examples. Mortgages often have to be repaid in 15, 20, or 30 years, car loans in 24, 36, or 72 months—although there are many different options. Typically, the longer the loan, the lower the monthly payment, although the borrower may pay more in total interest over time. ## How Does a Closed-End Line of Credit Differ From a Closed-End Loan? In the typical closed-end loan, the borrower receives a sum of money upfront. By contrast, in a closed-end line of credit, the borrower can take out money in a series of withdrawals over a period of time, up to the credit line's limit. Closed-end lines of credit may also require interest payments from the borrower, but not principal repayments until the full loan comes due. ## Is the Interest on a Closed-End Line of Credit Tax-Deductible? That depends on what you use the money for. For example, you may qualify for a home mortgage interest deduction if you're building a home. According to the IRS, "You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy. The 24-month period can start any time on or after the day construction begins." ## The Bottom Line A closed-end line of credit can be useful for certain purposes, such as when you need to borrow money for an expensive project, like building a home, but don't require the money all at once. Unlike open-end lines of credit, closed-end lines of credit have to be paid off in full by a certain point, which is important to consider before you enter into one.
A closed-end line of credit combines the features of a closed-end loan and a line of credit. Closed-end lines of credit are often used for home building. Here is what you need to know about how a closed-end line of credit works. Key Takeaways A line of credit is a type of loan that borrowers can take money from over time, rather than all at once.There are two basic kinds of lines of credit: closed-end and open-end.A closed-end line of credit must be repaid at a predetermined point, while an open-end line of credit has no fixed end date. Closed-end lines of credit are often used in home building, after which the home's owner will refinance with a regular mortgage. What Is a Closed-End Line of Credit? A line of credit is a type of loan that allows borrowers to take out money as needed, up to a certain predetermined limit. Lines of credit can be either open-ended or closed-ended. Open-end lines of credit have no fixed end point when they must be repaid. (That is why they are called open-end.) Credit cards are a familiar example. With a typical revolving credit card, the lender gives you a credit limit you can't exceed, which is based on your credit score and other factors. As you charge purchases to your card, the amount of credit you have available to you on the card will decline. When you pay your monthly credit card bill, your available credit will rise. This can continue for as long as you hold that card.  Reverse mortgages for homeowners age 62 and over can also be structured as open-end lines of credit. The lender sets a credit limit based on the value of the home and the borrower's age, which the borrower can then draw on as needed. There is no fixed end point, but the loan must generally be repaid after the borrower dies or moves out of the home. The borrower may also have the option to make repayments while they're still in the home, which will replenish their credit line, much like a revolving credit card.   Most home equity lines of credit (HELOCs) also offer revolving credit, though usually for a finite period. One type, the fixed-rate HELOC, combines features of both open- and closed-end credit lines.    Unlike open-end lines of credit, closed-end lines of credit do have a fixed end point. You can borrow up to the credit limit but must repay your balance in full when the loan ends. Typically the credit line will have a draw period, during which you can make a series of withdrawals, followed by a repayment period when you must begin to pay it off. Some closed-end lines of credit require interest-only payments during the draw period. If you wish to, you can also pay off a portion of your balance before the repayment period, but, unlike an open-end credit line, that won't increase your available credit. Closed-end lines of credit can have different terms, or lengths, and tend to be relatively short. A typical construction loan, for example, might have to be paid off after six months or a year.   Important While you may make regular interest payments on a closed-end line of credit, they won't reduce the amount of principal you owe when the loan comes due. How a Closed-End Line of Credit Works Suppose you're about to begin construction on a new house for your family. In order to finance it, you apply for a closed-end line of credit lasting for six months. The lender might offer you a credit line equal to 80% of your expected building costs.   Because you won't need the money all at once but will be paying the contractor at various points in the project, you can draw on the credit line in a series of predetermined stages (such as the pouring of the foundation) or, in some cases, regular intervals. You don't have to pay off the loan until the home is completed, but you will probably be required to make interest payments each month. When the house is finished, you will have to pay off the line of credit. One way to do that is by taking out a regular mortgage and using the new home as collateral. Some lenders offer construction-to-permanent loans, which combine both loans into one application process and one closing. Otherwise, you'll need to apply for the two loans separately and at different points. That could be a problem if, for example, your financial situation changes for the worse by the time you're ready to apply for the mortgage, making you less likely to qualify. What Is a Closed-End Loan? A closed-end loan is one in which the borrower receives a sum of money that they must repay by a certain date, often in monthly installments. Home mortgages and car loans are two common examples. Mortgages often have to be repaid in 15, 20, or 30 years, car loans in 24, 36, or 72 months—although there are many different options. Typically, the longer the loan, the lower the monthly payment, although the borrower may pay more in total interest over time. How Does a Closed-End Line of Credit Differ From a Closed-End Loan? In the typical closed-end loan, the borrower receives a sum of money upfront. By contrast, in a closed-end line of credit, the borrower can take out money in a series of withdrawals over a period of time, up to the credit line's limit. Closed-end lines of credit may also require interest payments from the borrower, but not principal repayments until the full loan comes due. Is the Interest on a Closed-End Line of Credit Tax-Deductible? That depends on what you use the money for. For example, you may qualify for a home mortgage interest deduction if you're building a home. According to the IRS, "You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy. The 24-month period can start any time on or after the day construction begins." The Bottom Line A closed-end line of credit can be useful for certain purposes, such as when you need to borrow money for an expensive project, like building a home, but don't require the money all at once. Unlike open-end lines of credit, closed-end lines of credit have to be paid off in full by a certain point, which is important to consider before you enter into one.
[ [ "closed-end loan", "https://www.investopedia.com/terms/c/closed_end_credit.asp" ], [ "line of credit", "https://www.investopedia.com/terms/l/lineofcredit.asp" ], [ "revolving", "https://www.investopedia.com/terms/r/revolvingcredit.asp" ], [ "Reverse mortgages", "https://www.investopedia.com/mortgage/reverse-mortgage/" ], [ "home equity lines of credit (HELOCs)", "https://www.investopedia.com/home-equity-line-of-credit-heloc-definition-5217473" ], [ "fixed-rate HELOC", "https://www.investopedia.com/mortgage/heloc/fixed-rate-option/" ], [ "construction loan", "https://www.investopedia.com/terms/c/construction-loan.asp" ], [ "lender", "https://www.investopedia.com/best-construction-loan-lenders-5078622" ], [ "collateral", "https://www.investopedia.com/terms/c/collateral.asp" ], [ "closing", "https://www.investopedia.com/terms/c/closing.asp" ], [ "Home mortgages", "https://www.investopedia.com/terms/m/mortgage.asp" ], [ "car loans", "https://www.investopedia.com/auto-loans-4689734" ] ]
https://www.investopedia.com/capital-one-savings-account-interest-rates-7497281
Capital One 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-capital-one-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"> Capital One 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"> Capital One is one of the 10 largest banks in the U.S., and it offers a variety of banking products, including checking and savings accounts.<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"> Although there are banks and credit unions that advertise higher annual percentage yields (APYs), Capital One’s savings accounts stand out because the bank doesn’t charge monthly maintenance or account fees. Nor does Capital One require consumers to maintain a minimum balance, so it’s a useful option for new savers. And Capital One’s savings account interest rates are still better than the national average, so you could grow your money faster.   </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</b></th> <th><b>Balance for Highest APY</b></th> <th><b>APY</b></th> <th><b>Monthly Fee</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>360 Performance Savings</td> <td>No minimum requirement</td> <td>4.25%</td> <td>None<span data-cite="2"></span></td> </tr> <tr> <td>Kids Savings Account</td> <td>No minimum requirement</td> <td>2.50%</td> <td>None<span data-cite="4"></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-capital-one-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"> Capital One 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">Capital One 360 Performance Savings Key Features</th> </tr> </thead> <tbody data-check="-1"> <tr> <th><b>APY Range</b></th> <td>4.25%</td> </tr> <tr> <th><b>Minimum Balance to Earn Highest APY</b></th> <td>No minimum requirement</td> </tr> <tr> <th><b>Minimum Deposit</b></th> <td>$0</td> </tr> <tr> <th><b>Withdrawal Limit</b></th> <td>6 per statement cycle (currently not enforced)</td> </tr> <tr> <th><b>Monthly Service Fee</b></th> <td>$0<span data-cite="10"></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"> For those looking for a simple <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savingsaccount.asp">savings account</a> with a higher-than-average APY, the Capital One 360 Performance Savings account could be an excellent choice. It doesn’t have a monthly maintenance fee, nor does it have a minimum balance requirement.  </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"> Interest is compounded and credited to the account monthly. </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 account offers basic convenience features common among major banks, including:  </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>Mobile check deposits</li><li>Electronic transfers to other accounts</li><li>Automatic transfers into savings</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"> One standout feature that Capital One offers is the ability to create multiple savings accounts. You can use separate accounts to save for specific goals, such as designating one for your emergency fund, one for future travel expenses, and one to save for a down payment for a house. Because there is no fee to open and maintain accounts, this feature can be a convenient way to track your progress toward several goals.<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_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>Like most banks, Capital One permits no more than <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/faq-what-are-the-withdrawal-limits-for-savings-accounts-4589981">six transfers from a savings account</a> to a third party or another Capital One account per statement cycle. However, Capital One stated that it’s currently not enforcing the transfer limit on any of its savings accounts. If that changes, the bank will notify customers.<span class="ql-inline-citation" data-cite="3"></span></p></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_25-0"> <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">Capital One Kids Savings Account Key Features</th> </tr> </thead> <tbody data-check="-1"> <tr> <th><b>APY Range</b></th> <td>2.50%</td> </tr> <tr> <th><b>Minimum Balance to Earn Highest APY</b></th> <td>No minimum requirement</td> </tr> <tr> <th><b>Minimum Deposit</b></th> <td>$0</td> </tr> <tr> <th><b>Withdrawal Limit</b></th> <td>6 per statement cycle (currently not enforced)</td> </tr> <tr> <th><b>Monthly Service Fee</b></th> <td>$0<span data-cite="4"></span></td> </tr> </tbody> </table> </div></figure> <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 Capital One Kids Savings Account is a parent-controlled savings option for young children. It has no minimum balance requirement or monthly fees, making it a useful starter account for kids.  </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"> Children under the age of 18 are eligible for the Kids Savings Account; there is no minimum age requirement, so you can open an account for a new baby and start saving on their behalf.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> The account has several benefits:  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <li><strong>Electronic transfers:</strong> Parents can connect their bank accounts to the savings account to electronically pay their children’s allowances or make regular contributions. </li><li><strong>Multiple accounts:</strong> Like the 360 Performance Savings account, the Kids Savings Account allows users to create multiple accounts to save for several goals. For example, your child can have an account to save for college and another to save for a new tablet. </li><li><strong>Parental controls: </strong>Children can check their balance online at any time, but they’ll need to have their parents or guardians help them transfer money. Transfers can only be completed after the parent or guardian signs in with their information.<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_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> However, the APY on the account is relatively low. You can find other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-savings-accounts-for-kids-5179494">savings accounts for children</a> that have significantly higher APYs from other banks or credit unions, but they may require a higher minimum deposit.  </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-about-capital-one-other-savings-options"></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"> About Capital One: Other Savings Options </span> </h2> <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/capital-one-review-4801658">Capital One</a> was founded in 1994, and it offers a variety of banking and credit products, including bank accounts, credit cards, and loans.<span class="ql-inline-citation" data-cite="8"></span> It’s known for its fee-free account options, especially for checking and savings accounts.  </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"> Capital One is primarily a digital bank, though it does operate some banking cafes and branches in select states. Those looking for a bank with convenient brick-and-mortar locations may find that Capital One isn’t a good match for them, but Capital One does have a network of partner ATMs where you can make withdrawals.  </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"> Besides its savings accounts, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/capital-one-cd-rates-7480645">Capital One also offers certificates of deposit (CDs)</a>. Its CD terms are quite flexible, and CDs have higher-than-average APYs with no account minimums.<span class="ql-inline-citation" data-cite="10"></span> <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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/GuX8B/3/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Capital One Announces Agreement to Acquire Discover Financial Services"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_47-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Although CDs often have higher APYs than savings accounts, be aware that there are penalties for withdrawing money from a CD before it reaches its maturity date. With Capital One, the penalty is three to six months of interest.<span class="ql-inline-citation" data-cite="10"></span></p></div></div></div> <span class="heading-toc" id="toc-compare-savings-account-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-heading__text"> Compare Savings Account Rates </span> </h2> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_49-0"><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_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_51-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_52-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0">In the News</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p><strong>In the News: </strong>Savings account rates reached higher in 2023 than we’d seen in more than 20 years, pushed up by the Federal Reserve’s rate-hike campaign that began in March 2022 to tame decades-high inflation. The Fed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952">held rates steady</a> for a sixth consecutive time at its meeting that concluded May 1, 2024. The 5.25% to 5.50% range is the highest the federal funds rate has been since 2001, and Fed officials noted in their statement that there has been a lack of progress toward the committee’s goal of lowering inflation. With consumer prices showing a 3.5% inflation rate in March, Fed officials don’t foresee reducing their benchmark rate until they're confident inflation is moving toward 2%.<span class="ql-inline-citation" data-cite="22"></span><span class="ql-inline-citation" data-cite="21"></span></p> <p>Because savings account yields closely follow the fed funds rate, the Fed’s current holding pattern has caused savings rates to plateau, and declines should be expected once it appears the Fed is ready to make its first cut.<br/></p></div></div></div> <span class="heading-toc" id="toc-pros-and-cons-of-capital-one-savings-accounts"></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 Capital One Savings Accounts </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_54-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_55-0"> <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>Capital One 360 interest rates are competitive across all balances </p></li> <li><p>No monthly fees or minimum deposit </p></li> <li><p>No limit on monthly withdrawals</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Low APY on Kids Savings account</p></li> <li><p>Few physical branch locations</p></li> <li><p>Easy access to savings can be tempting</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-subheading__text"> Pros Explained </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> <li><strong>Capital One 360 interest rates are competitive across all balances:</strong> The Capital One 360 Performance Savings account interest rate is typically much higher than the national average, with no minimum balance required. Interest is compounded and credited to your account each month. But Capital One’s rates usually aren’t as good as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings accounts</a> available.</li> <li><strong>No monthly fees or minimum deposit: </strong>The 360 Performance Savings account doesn’t charge monthly fees or require a minimum deposit to open.    </li> <li><strong>No limit on monthly withdrawals:</strong> While Capital One previously limited savings account withdrawals to six per month, it’s not currently enforcing this restriction. The bank will notify you if it chooses to re-impose this rule.<span class="ql-inline-citation" data-cite="14"></span><span class="ql-inline-citation" data-cite="5"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Cons Explained </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> <li><strong>Low APY on Kids Savings account:</strong> Capital One offers a Kids Savings account for those who are under the age of 18. While this account doesn’t charge monthly service fees, it typically has a relatively low APY. See the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-savings-accounts-for-kids-5179494">best savings accounts for kids</a> for some more profitable options.</li> <li><strong>Few physical branch locations: </strong>Capital One only has a few physical locations, so most customers will be limited to online and phone banking.</li> <li><strong>Easy access to savings can be tempting: </strong>You may see no monthly withdrawal limits as a good thing, but having such easy access to your savings can tempt you to spend that money. A bank with withdrawal limits may make it easier to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/100516/setting-financial-goals/">stick to your savings goals</a>.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <span class="heading-toc" id="toc-alternatives-to-capital-one-savings-accounts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-heading__text"> Alternatives to Capital One Savings Accounts </span> </h2> <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"> High-Yield Savings Account </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> While Capital One offers a relatively high yield on its Performance 360 Savings account compared to many other banks, you can likely still find better rates elsewhere. Check out the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings accounts</a> from a variety of banks and credit unions to find the right account. </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"> Checking Account </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> A savings account is a good spot to park your extra money, but a checking account is better for regular spending and paying your bills. These accounts come with a debit card so you can spend at stores and take out cash at the ATM, and some even offer some interest. See 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> to find a good companion to your savings account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_70-0"> <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_71-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">money market account</a> (MMA) offers a hybrid of a checking and savings account. It may come with a higher-than-average APY, as well as check-writing abilities and an ATM card. Watch out for higher fees or minimum balance requirements, though.  </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"> Certificate of Deposit </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> If you don’t need to access your cash for a while, you could invest it in a CD. Certificates of deposit offer a guaranteed return on your investment, but you’ll pay a penalty if you withdraw your cash before the CD matures. Browse the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates available today</a> to see if one might be right for your savings strategy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_76-0"> <span class="mntl-sc-block-subheading__text"> I Bonds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> To protect your savings against inflation, you could consider investing in I bonds from the U.S. government. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/i-bonds-vs-cds-which-is-the-better-investment-right-now-7546699">I bonds may have better rates than CDs</a>, but you can’t withdraw your cash until a year has passed. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_79-0"><span class="heading-toc" id="toc-is-capital-one-360-a-high-yield-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Capital One 360 a High-Yield Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Capital One’s 360 Performance Savings account is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings account</a>, offering a much higher-than-average APY with no minimum deposit and no monthly fees.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_81-0"><span class="heading-toc" id="toc-is-capital-one-good-for-savings"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Capital One Good for Savings?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Unlike other banks that charge monthly fees and require minimum deposits of $500 or more, Capital One’s savings accounts have no minimum deposit or monthly fees. Capital One is a good choice for those looking for a basic savings account to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/100516/setting-financial-goals/">save for their goals</a>. </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_83-0"><span class="heading-toc" id="toc-how-often-does-capital-one-360-pay-interest"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Often Does Capital One 360 Pay Interest?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>With the Capital One 360 Performance Savings account, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compoundinterest.asp">interest is compounded</a> and credited to the account on a monthly basis.<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_84-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_85-0"><span class="heading-toc" id="toc-does-capital-one-offer-other-savings-accounts"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Capital One Offer Other Savings Accounts?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Capital One has two savings accounts, the 360 Performance Savings Account and the Kids Savings Account. But <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/capital-one-cd-rates-7480645">Capital One also offers CDs</a> for those who want to lock in a higher APY.<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_86-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_87-0"><span class="heading-toc" id="toc-can-you-open-just-a-capital-one-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Open Just a Capital One Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, you can open just a Capital One 360 Performance Savings account. To open your account you’ll need to provide some personal information, such as your contact information, driver’s license number, Social Security number, and date of birth.<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_88-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_89-0"><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_90-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>Keep in mind that Capital One savings accounts don’t come with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank-card.asp">debit or ATM card</a>. You’ll need to open a checking account if you want the option of spending from the account or withdrawing cash at an ATM. </p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_91-0"><span class="heading-toc" id="toc-how-do-you-get-money-out-of-a-capital-one-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Get Money Out of a Capital One Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can withdraw money from a Capital One savings account by transferring cash to another account, such as your checking account at Capital One or another bank. You can request a withdrawal from your account online, in person at one of Capital One’s branches, or by calling the bank’s customer service team.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_92-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_93-0"><span class="heading-toc" id="toc-how-long-does-it-take-to-transfer-money-out-of-a-capital-one-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Does It Take to Transfer Money Out of a Capital One Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you transfer money out of your Capital One Savings account to another Capital One bank account before 5 p.m. ET, the transfer will take place that day; if the transfer is made after that time, it’ll be made the following day. If you’re transferring the money to another bank, the transaction may take one to three business days to clear.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_94-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_95-0"><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_96-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_6-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_6-0"><p>If you transfer money to an external account right before the weekend or a federal holiday it may take longer to process, since these days are not considered business days.<span class="ql-inline-citation" data-cite="16"></span></p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_97-0"><span class="heading-toc" id="toc-does-capital-one-360-savings-come-with-a-card"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Capital One 360 Savings Come With a Card?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No, the Capital One 360 Performance Savings account doesn’t come with a debit card. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/capital-one-review-4801658">Capital One bank accounts</a> that come with a debit card are the 360 Checking, MONEY Teen Checking, Total Control Checking, and Simply Checking accounts.<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_98-0"></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_99-0"> <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_100-0"> <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" 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## Capital One Savings Account Rates Capital One is one of the 10 largest banks in the U.S., and it offers a variety of banking products, including checking and savings accounts.  Although there are banks and credit unions that advertise higher annual percentage yields (APYs), Capital One’s savings accounts stand out because the bank doesn’t charge monthly maintenance or account fees. Nor does Capital One require consumers to maintain a minimum balance, so it’s a useful option for new savers. And Capital One’s savings account interest rates are still better than the national average, so you could grow your money faster.   | **Account** | **Balance for Highest APY** | **APY** | **Monthly Fee** | | --- | --- | --- | --- | | 360 Performance Savings | No minimum requirement | 4.25% | None | | Kids Savings Account | No minimum requirement | 2.50% | 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. ## Capital One Savings Accounts: Key Features | Capital One 360 Performance Savings Key Features | | | --- | --- | | **APY Range** | 4.25% | | **Minimum Balance to Earn Highest APY** | No minimum requirement | | **Minimum Deposit** | $0 | | **Withdrawal Limit** | 6 per statement cycle (currently not enforced) | | **Monthly Service Fee** | $0 | For those looking for a simple [savings account](https://www.investopedia.com/terms/s/savingsaccount.asp) with a higher-than-average APY, the Capital One 360 Performance Savings account could be an excellent choice. It doesn’t have a monthly maintenance fee, nor does it have a minimum balance requirement.  Interest is compounded and credited to the account monthly. The account offers basic convenience features common among major banks, including:  * Mobile check deposits * Electronic transfers to other accounts * Automatic transfers into savings One standout feature that Capital One offers is the ability to create multiple savings accounts. You can use separate accounts to save for specific goals, such as designating one for your emergency fund, one for future travel expenses, and one to save for a down payment for a house. Because there is no fee to open and maintain accounts, this feature can be a convenient way to track your progress toward several goals.  ### Like most banks, Capital One permits no more than [six transfers from a savings account](https://www.investopedia.com/faq-what-are-the-withdrawal-limits-for-savings-accounts-4589981) to a third party or another Capital One account per statement cycle. However, Capital One stated that it’s currently not enforcing the transfer limit on any of its savings accounts. If that changes, the bank will notify customers. | Capital One Kids Savings Account Key Features | | | --- | --- | | **APY Range** | 2.50% | | **Minimum Balance to Earn Highest APY** | No minimum requirement | | **Minimum Deposit** | $0 | | **Withdrawal Limit** | 6 per statement cycle (currently not enforced) | | **Monthly Service Fee** | $0 | The Capital One Kids Savings Account is a parent-controlled savings option for young children. It has no minimum balance requirement or monthly fees, making it a useful starter account for kids.  Children under the age of 18 are eligible for the Kids Savings Account; there is no minimum age requirement, so you can open an account for a new baby and start saving on their behalf.  The account has several benefits:  * **Electronic transfers:** Parents can connect their bank accounts to the savings account to electronically pay their children’s allowances or make regular contributions. * **Multiple accounts:** Like the 360 Performance Savings account, the Kids Savings Account allows users to create multiple accounts to save for several goals. For example, your child can have an account to save for college and another to save for a new tablet. * **Parental controls:** Children can check their balance online at any time, but they’ll need to have their parents or guardians help them transfer money. Transfers can only be completed after the parent or guardian signs in with their information. However, the APY on the account is relatively low. You can find other [savings accounts for children](https://www.investopedia.com/best-savings-accounts-for-kids-5179494) that have significantly higher APYs from other banks or credit unions, but they may require a higher minimum deposit.  ## About Capital One: Other Savings Options [Capital One](https://www.investopedia.com/capital-one-review-4801658) was founded in 1994, and it offers a variety of banking and credit products, including bank accounts, credit cards, and loans. It’s known for its fee-free account options, especially for checking and savings accounts.  Capital One is primarily a digital bank, though it does operate some banking cafes and branches in select states. Those looking for a bank with convenient brick-and-mortar locations may find that Capital One isn’t a good match for them, but Capital One does have a network of partner ATMs where you can make withdrawals.  Besides its savings accounts, [Capital One also offers certificates of deposit (CDs)](https://www.investopedia.com/capital-one-cd-rates-7480645). Its CD terms are quite flexible, and CDs have higher-than-average APYs with no account minimums.  ### Although CDs often have higher APYs than savings accounts, be aware that there are penalties for withdrawing money from a CD before it reaches its maturity date. With Capital One, the penalty is three to six months of interest. ## Compare Savings Account Rates ### In the News **In the News:** Savings account rates reached higher in 2023 than we’d seen in more than 20 years, pushed up by the Federal Reserve’s rate-hike campaign that began in March 2022 to tame decades-high inflation. The Fed [held rates steady](https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952) for a sixth consecutive time at its meeting that concluded May 1, 2024. The 5.25% to 5.50% range is the highest the federal funds rate has been since 2001, and Fed officials noted in their statement that there has been a lack of progress toward the committee’s goal of lowering inflation. With consumer prices showing a 3.5% inflation rate in March, Fed officials don’t foresee reducing their benchmark rate until they're confident inflation is moving toward 2%. Because savings account yields closely follow the fed funds rate, the Fed’s current holding pattern has caused savings rates to plateau, and declines should be expected once it appears the Fed is ready to make its first cut. ## Pros and Cons of Capital One Savings Accounts Pros * Capital One 360 interest rates are competitive across all balances * No monthly fees or minimum deposit * No limit on monthly withdrawals Cons * Low APY on Kids Savings account * Few physical branch locations * Easy access to savings can be tempting ### Pros Explained * **Capital One 360 interest rates are competitive across all balances:** The Capital One 360 Performance Savings account interest rate is typically much higher than the national average, with no minimum balance required. Interest is compounded and credited to your account each month. But Capital One’s rates usually aren’t as good as the [best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) available. * **No monthly fees or minimum deposit:** The 360 Performance Savings account doesn’t charge monthly fees or require a minimum deposit to open. * **No limit on monthly withdrawals:** While Capital One previously limited savings account withdrawals to six per month, it’s not currently enforcing this restriction. The bank will notify you if it chooses to re-impose this rule. ### Cons Explained * **Low APY on Kids Savings account:** Capital One offers a Kids Savings account for those who are under the age of 18. While this account doesn’t charge monthly service fees, it typically has a relatively low APY. See the [best savings accounts for kids](https://www.investopedia.com/best-savings-accounts-for-kids-5179494) for some more profitable options. * **Few physical branch locations:** Capital One only has a few physical locations, so most customers will be limited to online and phone banking. * **Easy access to savings can be tempting:** You may see no monthly withdrawal limits as a good thing, but having such easy access to your savings can tempt you to spend that money. A bank with withdrawal limits may make it easier to [stick to your savings goals](https://www.investopedia.com/articles/personal-finance/100516/setting-financial-goals/). ## Alternatives to Capital One Savings Accounts ### High-Yield Savings Account While Capital One offers a relatively high yield on its Performance 360 Savings account compared to many other banks, you can likely still find better rates elsewhere. Check out the [best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) from a variety of banks and credit unions to find the right account. ### Checking Account A savings account is a good spot to park your extra money, but a checking account is better for regular spending and paying your bills. These accounts come with a debit card so you can spend at stores and take out cash at the ATM, and some even offer some interest. See the [best high-interest checking accounts](https://www.investopedia.com/best-high-yield-checking-accounts-5070332) to find a good companion to your savings account. ### Money Market Account A [money market account](https://www.investopedia.com/best-money-market-accounts-5096917) (MMA) offers a hybrid of a checking and savings account. It may come with a higher-than-average APY, as well as check-writing abilities and an ATM card. Watch out for higher fees or minimum balance requirements, though.  ### Certificate of Deposit If you don’t need to access your cash for a while, you could invest it in a CD. Certificates of deposit offer a guaranteed return on your investment, but you’ll pay a penalty if you withdraw your cash before the CD matures. Browse the [best CD rates available today](https://www.investopedia.com/best-cd-rates-4770214) to see if one might be right for your savings strategy. ### I Bonds To protect your savings against inflation, you could consider investing in I bonds from the U.S. government. [I bonds may have better rates than CDs](https://www.investopedia.com/i-bonds-vs-cds-which-is-the-better-investment-right-now-7546699), but you can’t withdraw your cash until a year has passed. ## Is Capital One 360 a High-Yield Savings Account? Capital One’s 360 Performance Savings account is a [high-yield savings account](https://www.investopedia.com/best-high-yield-savings-accounts-4770633), offering a much higher-than-average APY with no minimum deposit and no monthly fees. ## Is Capital One Good for Savings? Unlike other banks that charge monthly fees and require minimum deposits of $500 or more, Capital One’s savings accounts have no minimum deposit or monthly fees. Capital One is a good choice for those looking for a basic savings account to [save for their goals](https://www.investopedia.com/articles/personal-finance/100516/setting-financial-goals/).  ## How Often Does Capital One 360 Pay Interest? With the Capital One 360 Performance Savings account, [interest is compounded](https://www.investopedia.com/terms/c/compoundinterest.asp) and credited to the account on a monthly basis. ## Does Capital One Offer Other Savings Accounts? Capital One has two savings accounts, the 360 Performance Savings Account and the Kids Savings Account. But [Capital One also offers CDs](https://www.investopedia.com/capital-one-cd-rates-7480645) for those who want to lock in a higher APY. ## Can You Open Just a Capital One Savings Account? Yes, you can open just a Capital One 360 Performance Savings account. To open your account you’ll need to provide some personal information, such as your contact information, driver’s license number, Social Security number, and date of birth. ### Keep in mind that Capital One savings accounts don’t come with a [debit or ATM card](https://www.investopedia.com/terms/b/bank-card.asp). You’ll need to open a checking account if you want the option of spending from the account or withdrawing cash at an ATM.  ## How Do You Get Money Out of a Capital One Savings Account? You can withdraw money from a Capital One savings account by transferring cash to another account, such as your checking account at Capital One or another bank. You can request a withdrawal from your account online, in person at one of Capital One’s branches, or by calling the bank’s customer service team. ## How Long Does It Take to Transfer Money Out of a Capital One Savings Account? If you transfer money out of your Capital One Savings account to another Capital One bank account before 5 p.m. ET, the transfer will take place that day; if the transfer is made after that time, it’ll be made the following day. If you’re transferring the money to another bank, the transaction may take one to three business days to clear. ### If you transfer money to an external account right before the weekend or a federal holiday it may take longer to process, since these days are not considered business days. ## Does Capital One 360 Savings Come With a Card? No, the Capital One 360 Performance Savings account doesn’t come with a debit card. [Capital One bank accounts](https://www.investopedia.com/capital-one-review-4801658) that come with a debit card are the 360 Checking, MONEY Teen Checking, Total Control Checking, and Simply Checking accounts. ## 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)
Capital One Savings Account Rates Capital One is one of the 10 largest banks in the U.S., and it offers a variety of banking products, including checking and savings accounts.  Although there are banks and credit unions that advertise higher annual percentage yields (APYs), Capital One’s savings accounts stand out because the bank doesn’t charge monthly maintenance or account fees. Nor does Capital One require consumers to maintain a minimum balance, so it’s a useful option for new savers. And Capital One’s savings account interest rates are still better than the national average, so you could grow your money faster.   Account Balance for Highest APY APY Monthly Fee 360 Performance Savings No minimum requirement 4.25% None Kids Savings Account No minimum requirement 2.50% None See the best high-yield savings account rates today before choosing the savings account that is best for you. Capital One Savings Accounts: Key Features Capital One 360 Performance Savings Key Features APY Range 4.25% Minimum Balance to Earn Highest APY No minimum requirement Minimum Deposit $0 Withdrawal Limit 6 per statement cycle (currently not enforced) Monthly Service Fee $0 For those looking for a simple savings account with a higher-than-average APY, the Capital One 360 Performance Savings account could be an excellent choice. It doesn’t have a monthly maintenance fee, nor does it have a minimum balance requirement.  Interest is compounded and credited to the account monthly. The account offers basic convenience features common among major banks, including:  Mobile check depositsElectronic transfers to other accountsAutomatic transfers into savings One standout feature that Capital One offers is the ability to create multiple savings accounts. You can use separate accounts to save for specific goals, such as designating one for your emergency fund, one for future travel expenses, and one to save for a down payment for a house. Because there is no fee to open and maintain accounts, this feature can be a convenient way to track your progress toward several goals.  Like most banks, Capital One permits no more than six transfers from a savings account to a third party or another Capital One account per statement cycle. However, Capital One stated that it’s currently not enforcing the transfer limit on any of its savings accounts. If that changes, the bank will notify customers. Capital One Kids Savings Account Key Features APY Range 2.50% Minimum Balance to Earn Highest APY No minimum requirement Minimum Deposit $0 Withdrawal Limit 6 per statement cycle (currently not enforced) Monthly Service Fee $0 The Capital One Kids Savings Account is a parent-controlled savings option for young children. It has no minimum balance requirement or monthly fees, making it a useful starter account for kids.  Children under the age of 18 are eligible for the Kids Savings Account; there is no minimum age requirement, so you can open an account for a new baby and start saving on their behalf.  The account has several benefits:  Electronic transfers: Parents can connect their bank accounts to the savings account to electronically pay their children’s allowances or make regular contributions. Multiple accounts: Like the 360 Performance Savings account, the Kids Savings Account allows users to create multiple accounts to save for several goals. For example, your child can have an account to save for college and another to save for a new tablet. Parental controls: Children can check their balance online at any time, but they’ll need to have their parents or guardians help them transfer money. Transfers can only be completed after the parent or guardian signs in with their information.  However, the APY on the account is relatively low. You can find other savings accounts for children that have significantly higher APYs from other banks or credit unions, but they may require a higher minimum deposit.  About Capital One: Other Savings Options Capital One was founded in 1994, and it offers a variety of banking and credit products, including bank accounts, credit cards, and loans. It’s known for its fee-free account options, especially for checking and savings accounts.  Capital One is primarily a digital bank, though it does operate some banking cafes and branches in select states. Those looking for a bank with convenient brick-and-mortar locations may find that Capital One isn’t a good match for them, but Capital One does have a network of partner ATMs where you can make withdrawals.  Besides its savings accounts, Capital One also offers certificates of deposit (CDs). Its CD terms are quite flexible, and CDs have higher-than-average APYs with no account minimums.  Although CDs often have higher APYs than savings accounts, be aware that there are penalties for withdrawing money from a CD before it reaches its maturity date. With Capital One, the penalty is three to six months of interest. Compare Savings Account Rates In the News In the News: Savings account rates reached higher in 2023 than we’d seen in more than 20 years, pushed up by the Federal Reserve’s rate-hike campaign that began in March 2022 to tame decades-high inflation. The Fed held rates steady for a sixth consecutive time at its meeting that concluded May 1, 2024. The 5.25% to 5.50% range is the highest the federal funds rate has been since 2001, and Fed officials noted in their statement that there has been a lack of progress toward the committee’s goal of lowering inflation. With consumer prices showing a 3.5% inflation rate in March, Fed officials don’t foresee reducing their benchmark rate until they're confident inflation is moving toward 2%. Because savings account yields closely follow the fed funds rate, the Fed’s current holding pattern has caused savings rates to plateau, and declines should be expected once it appears the Fed is ready to make its first cut. Pros and Cons of Capital One Savings Accounts Pros Capital One 360 interest rates are competitive across all balances  No monthly fees or minimum deposit  No limit on monthly withdrawals Cons Low APY on Kids Savings account Few physical branch locations Easy access to savings can be tempting Pros Explained Capital One 360 interest rates are competitive across all balances: The Capital One 360 Performance Savings account interest rate is typically much higher than the national average, with no minimum balance required. Interest is compounded and credited to your account each month. But Capital One’s rates usually aren’t as good as the best high-yield savings accounts available. No monthly fees or minimum deposit: The 360 Performance Savings account doesn’t charge monthly fees or require a minimum deposit to open.     No limit on monthly withdrawals: While Capital One previously limited savings account withdrawals to six per month, it’s not currently enforcing this restriction. The bank will notify you if it chooses to re-impose this rule. Cons Explained Low APY on Kids Savings account: Capital One offers a Kids Savings account for those who are under the age of 18. While this account doesn’t charge monthly service fees, it typically has a relatively low APY. See the best savings accounts for kids for some more profitable options. Few physical branch locations: Capital One only has a few physical locations, so most customers will be limited to online and phone banking. Easy access to savings can be tempting: You may see no monthly withdrawal limits as a good thing, but having such easy access to your savings can tempt you to spend that money. A bank with withdrawal limits may make it easier to stick to your savings goals. Alternatives to Capital One Savings Accounts High-Yield Savings Account While Capital One offers a relatively high yield on its Performance 360 Savings account compared to many other banks, you can likely still find better rates elsewhere. Check out the best high-yield savings accounts from a variety of banks and credit unions to find the right account. Checking Account A savings account is a good spot to park your extra money, but a checking account is better for regular spending and paying your bills. These accounts come with a debit card so you can spend at stores and take out cash at the ATM, and some even offer some interest. See the best high-interest checking accounts to find a good companion to your savings account. Money Market Account A money market account (MMA) offers a hybrid of a checking and savings account. It may come with a higher-than-average APY, as well as check-writing abilities and an ATM card. Watch out for higher fees or minimum balance requirements, though.  Certificate of Deposit If you don’t need to access your cash for a while, you could invest it in a CD. Certificates of deposit offer a guaranteed return on your investment, but you’ll pay a penalty if you withdraw your cash before the CD matures. Browse the best CD rates available today to see if one might be right for your savings strategy. I Bonds To protect your savings against inflation, you could consider investing in I bonds from the U.S. government. I bonds may have better rates than CDs, but you can’t withdraw your cash until a year has passed. Is Capital One 360 a High-Yield Savings Account? Capital One’s 360 Performance Savings account is a high-yield savings account, offering a much higher-than-average APY with no minimum deposit and no monthly fees. Is Capital One Good for Savings? Unlike other banks that charge monthly fees and require minimum deposits of $500 or more, Capital One’s savings accounts have no minimum deposit or monthly fees. Capital One is a good choice for those looking for a basic savings account to save for their goals.  How Often Does Capital One 360 Pay Interest? With the Capital One 360 Performance Savings account, interest is compounded and credited to the account on a monthly basis. Does Capital One Offer Other Savings Accounts? Capital One has two savings accounts, the 360 Performance Savings Account and the Kids Savings Account. But Capital One also offers CDs for those who want to lock in a higher APY. Can You Open Just a Capital One Savings Account? Yes, you can open just a Capital One 360 Performance Savings account. To open your account you’ll need to provide some personal information, such as your contact information, driver’s license number, Social Security number, and date of birth. Keep in mind that Capital One savings accounts don’t come with a debit or ATM card. You’ll need to open a checking account if you want the option of spending from the account or withdrawing cash at an ATM.  How Do You Get Money Out of a Capital One Savings Account? You can withdraw money from a Capital One savings account by transferring cash to another account, such as your checking account at Capital One or another bank. You can request a withdrawal from your account online, in person at one of Capital One’s branches, or by calling the bank’s customer service team. How Long Does It Take to Transfer Money Out of a Capital One Savings Account? If you transfer money out of your Capital One Savings account to another Capital One bank account before 5 p.m. ET, the transfer will take place that day; if the transfer is made after that time, it’ll be made the following day. If you’re transferring the money to another bank, the transaction may take one to three business days to clear. If you transfer money to an external account right before the weekend or a federal holiday it may take longer to process, since these days are not considered business days. Does Capital One 360 Savings Come With a Card? No, the Capital One 360 Performance Savings account doesn’t come with a debit card. Capital One bank accounts that come with a debit card are the 360 Checking, MONEY Teen Checking, Total Control Checking, and Simply Checking accounts. 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
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https://www.investopedia.com/terms/p/pain-trade.asp
Pain Trade: What it Means, How it Works, Example
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-pain-trade"></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 Pain Trade? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Pain trade is the tendency of markets to deliver the maximum amount of punishment to as many investors as possible from time to time. Pain trade is an informal term that lacks an exact definition, but it's commonly understood in a financial context to mean a trade, asset class, or market movement that inflicts substantial losses to those involved, at least in the short term. </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 pain trade occurs when a popular asset class or widely followed investing strategy takes an unexpected turn that catches most investors flat-footed. Under this definition, a sudden reversal in a niche sector or strategy would not qualify as a pain trade, since not many investors are likely to be in it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Pain trades sorely test the resolve of even the best traders and investors, since they must face the dilemma of whether to hold on in the hope that the trade will eventually work out, or take their losses before the situation worsens. </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>Pain trades occur from time to time as the markets punish a large group of participants all at once.</li><li>Pain trades set themselves up when a mass of market participants all enter the same strategy and the trade becomes crowded.</li><li>Examples include being long tech stocks or real estate before those bubbles popped in 2001 and 2008, respectively.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-pain-trades"></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 Pain Trades </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The periodic peaks and valleys in equity indices over the years provide a perfect example of pain trades at work. Consider the dot-com boom and bust of the late 1990s and early 2000s. As the Nasdaq soared and reached a record high in March 2000,<span class="ql-inline-citation" data-cite="1"></span> technology stocks accounted for a disproportionate part of portfolios held by most investors and mutual funds. </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 subsequent collapse in technology stocks and the Nasdaq led to a recession in the U.S. and a global bear market, wiping out trillions of dollars in market capitalization and household wealth. The pain trade here was being long technology stocks, as the subsequent collapse in the sector reverberated around the world and had an impact on the broad economy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> In general, pain trades manifest in overly crowded trades, where herding behavior leads a mass of actors to take the same position in the same strategy. For instance, the currency <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/carry-trade-definition-4682656">carry trade</a> is a crowded trade that many people believe is a no-brainer. If that trade were to unwind, it would cause a lot of pain to many people and firms. </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-examples-of-pain-trades"></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"> Examples of Pain Trades </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> In 2008, the pain trade was being long equities in general. The U.S. and many major global equity indices had reached record highs in the fourth quarter of 2007, despite a simmering credit crisis that was rapidly coming to a boil.<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"> The collapse of global equity markets in 2008 made this the biggest pain trade by far in terms of the number of people affected and the amount of wealth destroyed. More than $35 trillion, or 60 percent of global market capitalization, was wiped out within 18 months, while the global economy suffered its deepest recession and biggest financial crisis since the Great Depression of the 1930s. In the U.S., plunging housing and stock prices led to the greatest destruction of household wealth in history, even as the recession threw millions of people out of work.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-a-long-term-strategy-may-neutralize-pain-trade"></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"> A Long-Term Strategy May Neutralize Pain Trade </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> One month's pain trade sometimes turns into a long-run winning strategy. The strong recovery in global markets after the 2008-2009 financial crisis has proven that even pain trades can turn to gain over a period of time, with the Dow Jones Industrial Average and S&amp;P 500 reaching new highs by 2013.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="4"></span> However, rising yields in 2013 made the bond market the new pain trade for numerous investors in that year. </p></div>
## What Is Pain Trade? Pain trade is the tendency of markets to deliver the maximum amount of punishment to as many investors as possible from time to time. Pain trade is an informal term that lacks an exact definition, but it's commonly understood in a financial context to mean a trade, asset class, or market movement that inflicts substantial losses to those involved, at least in the short term. A pain trade occurs when a popular asset class or widely followed investing strategy takes an unexpected turn that catches most investors flat-footed. Under this definition, a sudden reversal in a niche sector or strategy would not qualify as a pain trade, since not many investors are likely to be in it. Pain trades sorely test the resolve of even the best traders and investors, since they must face the dilemma of whether to hold on in the hope that the trade will eventually work out, or take their losses before the situation worsens. ### Key Takeaways * Pain trades occur from time to time as the markets punish a large group of participants all at once. * Pain trades set themselves up when a mass of market participants all enter the same strategy and the trade becomes crowded. * Examples include being long tech stocks or real estate before those bubbles popped in 2001 and 2008, respectively. ## Understanding Pain Trades The periodic peaks and valleys in equity indices over the years provide a perfect example of pain trades at work. Consider the dot-com boom and bust of the late 1990s and early 2000s. As the Nasdaq soared and reached a record high in March 2000, technology stocks accounted for a disproportionate part of portfolios held by most investors and mutual funds. The subsequent collapse in technology stocks and the Nasdaq led to a recession in the U.S. and a global bear market, wiping out trillions of dollars in market capitalization and household wealth. The pain trade here was being long technology stocks, as the subsequent collapse in the sector reverberated around the world and had an impact on the broad economy. In general, pain trades manifest in overly crowded trades, where herding behavior leads a mass of actors to take the same position in the same strategy. For instance, the currency [carry trade](https://www.investopedia.com/carry-trade-definition-4682656) is a crowded trade that many people believe is a no-brainer. If that trade were to unwind, it would cause a lot of pain to many people and firms. ## Examples of Pain Trades In 2008, the pain trade was being long equities in general. The U.S. and many major global equity indices had reached record highs in the fourth quarter of 2007, despite a simmering credit crisis that was rapidly coming to a boil. The collapse of global equity markets in 2008 made this the biggest pain trade by far in terms of the number of people affected and the amount of wealth destroyed. More than $35 trillion, or 60 percent of global market capitalization, was wiped out within 18 months, while the global economy suffered its deepest recession and biggest financial crisis since the Great Depression of the 1930s. In the U.S., plunging housing and stock prices led to the greatest destruction of household wealth in history, even as the recession threw millions of people out of work. ## A Long-Term Strategy May Neutralize Pain Trade One month's pain trade sometimes turns into a long-run winning strategy. The strong recovery in global markets after the 2008-2009 financial crisis has proven that even pain trades can turn to gain over a period of time, with the Dow Jones Industrial Average and S&P 500 reaching new highs by 2013. However, rising yields in 2013 made the bond market the new pain trade for numerous investors in that year.
What Is Pain Trade? Pain trade is the tendency of markets to deliver the maximum amount of punishment to as many investors as possible from time to time. Pain trade is an informal term that lacks an exact definition, but it's commonly understood in a financial context to mean a trade, asset class, or market movement that inflicts substantial losses to those involved, at least in the short term. A pain trade occurs when a popular asset class or widely followed investing strategy takes an unexpected turn that catches most investors flat-footed. Under this definition, a sudden reversal in a niche sector or strategy would not qualify as a pain trade, since not many investors are likely to be in it. Pain trades sorely test the resolve of even the best traders and investors, since they must face the dilemma of whether to hold on in the hope that the trade will eventually work out, or take their losses before the situation worsens. Key Takeaways Pain trades occur from time to time as the markets punish a large group of participants all at once.Pain trades set themselves up when a mass of market participants all enter the same strategy and the trade becomes crowded.Examples include being long tech stocks or real estate before those bubbles popped in 2001 and 2008, respectively. Understanding Pain Trades The periodic peaks and valleys in equity indices over the years provide a perfect example of pain trades at work. Consider the dot-com boom and bust of the late 1990s and early 2000s. As the Nasdaq soared and reached a record high in March 2000, technology stocks accounted for a disproportionate part of portfolios held by most investors and mutual funds. The subsequent collapse in technology stocks and the Nasdaq led to a recession in the U.S. and a global bear market, wiping out trillions of dollars in market capitalization and household wealth. The pain trade here was being long technology stocks, as the subsequent collapse in the sector reverberated around the world and had an impact on the broad economy. In general, pain trades manifest in overly crowded trades, where herding behavior leads a mass of actors to take the same position in the same strategy. For instance, the currency carry trade is a crowded trade that many people believe is a no-brainer. If that trade were to unwind, it would cause a lot of pain to many people and firms. Examples of Pain Trades In 2008, the pain trade was being long equities in general. The U.S. and many major global equity indices had reached record highs in the fourth quarter of 2007, despite a simmering credit crisis that was rapidly coming to a boil. The collapse of global equity markets in 2008 made this the biggest pain trade by far in terms of the number of people affected and the amount of wealth destroyed. More than $35 trillion, or 60 percent of global market capitalization, was wiped out within 18 months, while the global economy suffered its deepest recession and biggest financial crisis since the Great Depression of the 1930s. In the U.S., plunging housing and stock prices led to the greatest destruction of household wealth in history, even as the recession threw millions of people out of work. A Long-Term Strategy May Neutralize Pain Trade One month's pain trade sometimes turns into a long-run winning strategy. The strong recovery in global markets after the 2008-2009 financial crisis has proven that even pain trades can turn to gain over a period of time, with the Dow Jones Industrial Average and S&P 500 reaching new highs by 2013. However, rising yields in 2013 made the bond market the new pain trade for numerous investors in that year.
[ [ "carry trade", "https://www.investopedia.com/carry-trade-definition-4682656" ] ]
https://www.investopedia.com/top-stock-movers-now-peloton-ibm-eli-lilly-and-more-8651757
Top Stock Movers Now: Peloton, IBM, Eli Lilly, and More
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><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 Dow, S&amp;P 500, and Nasdaq were little changed at midday Tuesday, May 21, 2024 as the market reacted to the latest corporate earnings news and comments from Federal Reserve officials about the future of interest rates.</li><li>Shares of Eli Lilly gained as the drug maker's approved medicine for ulcerative colitis met late-stage trial endpoints for treating Crohn's disease as well.</li><li>Peloton shares dropped after the company announced it would sell notes and take out a $1 billion loan as it reworks its debt.</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 Dow, S&amp;P 500, and Nasdaq were little changed at midday as the market reacted to the latest corporate earnings reports and comments from Federal Reserve Governor Christopher Waller, who said he would <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-economy-news-today-may-21-8651718">need to see several improved inflation readings</a> before he could vote to lower interest rates. </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"> Shares of Eli Lilly (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LLY">LLY</a>) gained as the drug maker's approved medicine for ulcerative colitis met late-stage trial endpoints for treating Crohn's disease as well. </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"> IBM (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=IBM">IBM</a>) shares advanced as the tech giant <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ibm-strengthens-aws-microsoft-meta-ties-updates-on-ai-push-8651658">unveiled several artificial intelligence (AI) updates</a>, including strengthening collaborations with Microsoft (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>), Amazon (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn">AMZN</a>), and Meta Platforms (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>), and expanded offerings through its partnership with Saudi Arabia. </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"> XPeng (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=XPEV">XPEV</a>) <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adr.asp">American depositary receipts (ADRs)</a> rose after the Chinese electric vehicle (EV) maker <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/xpeng-stock-soars-as-ev-deliveries-take-off-8651621">reported a big rise in revenue</a> as deliveries increased. </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"> Peloton (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PTON">PTON</a>) shares slumped as the fitness equipment and exercise program provider announced plans to begin a global refinancing program of its debt that includes selling convertible senior notes and taking out a $1 billion loan. </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 restaurant payment services company Toast (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TOST">TOST</a>) declined as Baird downgraded the stock, suggesting it could be overvalued after soaring more than 40% since the start of the year. </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"> Palo Alto Networks (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW">PANW</a>) tumbled after the network security firm issued a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-watch-for-on-palo-alto-networks-stock-after-post-earnings-plunge-8651533">lackluster current-quarter and full-year outlook</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Oil futures fell and gold prices were down slightly. The yield on the 10-year Treasury note was lower. The U.S. dollar rose versus the euro but lost ground to the pound and yen. Most major cryptocurrencies traded higher, especially Ether, on optimism that an Ether <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange traded fund (ETF)</a> could be approved by the Securities and Exchange Commission. </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:50.7%;"> <img alt="IBM" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/EatiyWMvvbb3fft9jJuDD1wUXHY=/1216x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBM_2024-05-21_12-12-00-77ccce7e31734363922384dd03ab6788.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/PugnmaFuH4SdujEgSjdL1wpai8Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBM_2024-05-21_12-12-00-77ccce7e31734363922384dd03ab6788.png" data-srcset="https://www.investopedia.com/thmb/VowZeCzksJTO-ZJFh9KQPOEhPUk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBM_2024-05-21_12-12-00-77ccce7e31734363922384dd03ab6788.png 750w" data-tracking-container="true" height="617" id="mntl-sc-block-image_1-0" width="1216"/> <noscript> <img alt="IBM" class="img--noscript universal-image__image" height="617" sizes="750px" src="https://www.investopedia.com/thmb/PugnmaFuH4SdujEgSjdL1wpai8Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBM_2024-05-21_12-12-00-77ccce7e31734363922384dd03ab6788.png" srcset="https://www.investopedia.com/thmb/VowZeCzksJTO-ZJFh9KQPOEhPUk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBM_2024-05-21_12-12-00-77ccce7e31734363922384dd03ab6788.png 750w" width="1216"/> </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 Dow, S&P 500, and Nasdaq were little changed at midday Tuesday, May 21, 2024 as the market reacted to the latest corporate earnings news and comments from Federal Reserve officials about the future of interest rates. * Shares of Eli Lilly gained as the drug maker's approved medicine for ulcerative colitis met late-stage trial endpoints for treating Crohn's disease as well. * Peloton shares dropped after the company announced it would sell notes and take out a $1 billion loan as it reworks its debt. The Dow, S&P 500, and Nasdaq were little changed at midday as the market reacted to the latest corporate earnings reports and comments from Federal Reserve Governor Christopher Waller, who said he would [need to see several improved inflation readings](https://www.investopedia.com/us-economy-news-today-may-21-8651718) before he could vote to lower interest rates. Shares of Eli Lilly ([LLY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LLY)) gained as the drug maker's approved medicine for ulcerative colitis met late-stage trial endpoints for treating Crohn's disease as well. IBM ([IBM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IBM)) shares advanced as the tech giant [unveiled several artificial intelligence (AI) updates](https://www.investopedia.com/ibm-strengthens-aws-microsoft-meta-ties-updates-on-ai-push-8651658), including strengthening collaborations with Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)), Amazon ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn)), and Meta Platforms ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)), and expanded offerings through its partnership with Saudi Arabia. XPeng ([XPEV](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XPEV)) [American depositary receipts (ADRs)](https://www.investopedia.com/terms/a/adr.asp) rose after the Chinese electric vehicle (EV) maker [reported a big rise in revenue](https://www.investopedia.com/xpeng-stock-soars-as-ev-deliveries-take-off-8651621) as deliveries increased. Peloton ([PTON](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PTON)) shares slumped as the fitness equipment and exercise program provider announced plans to begin a global refinancing program of its debt that includes selling convertible senior notes and taking out a $1 billion loan. Shares of restaurant payment services company Toast ([TOST](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TOST)) declined as Baird downgraded the stock, suggesting it could be overvalued after soaring more than 40% since the start of the year. Palo Alto Networks ([PANW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW)) tumbled after the network security firm issued a [lackluster current-quarter and full-year outlook](https://www.investopedia.com/what-to-watch-for-on-palo-alto-networks-stock-after-post-earnings-plunge-8651533). Oil futures fell and gold prices were down slightly. The yield on the 10-year Treasury note was lower. The U.S. dollar rose versus the euro but lost ground to the pound and yen. Most major cryptocurrencies traded higher, especially Ether, on optimism that an Ether [exchange traded fund (ETF)](https://www.investopedia.com/terms/e/etf.asp) could be approved by the Securities and Exchange Commission. ![IBM]() ![IBM](https://www.investopedia.com/thmb/PugnmaFuH4SdujEgSjdL1wpai8Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/IBM_2024-05-21_12-12-00-77ccce7e31734363922384dd03ab6788.png) TradingView Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])
Key Takeaways The Dow, S&P 500, and Nasdaq were little changed at midday Tuesday, May 21, 2024 as the market reacted to the latest corporate earnings news and comments from Federal Reserve officials about the future of interest rates.Shares of Eli Lilly gained as the drug maker's approved medicine for ulcerative colitis met late-stage trial endpoints for treating Crohn's disease as well.Peloton shares dropped after the company announced it would sell notes and take out a $1 billion loan as it reworks its debt. The Dow, S&P 500, and Nasdaq were little changed at midday as the market reacted to the latest corporate earnings reports and comments from Federal Reserve Governor Christopher Waller, who said he would need to see several improved inflation readings before he could vote to lower interest rates. Shares of Eli Lilly (LLY) gained as the drug maker's approved medicine for ulcerative colitis met late-stage trial endpoints for treating Crohn's disease as well. IBM (IBM) shares advanced as the tech giant unveiled several artificial intelligence (AI) updates, including strengthening collaborations with Microsoft (MSFT), Amazon (AMZN), and Meta Platforms (META), and expanded offerings through its partnership with Saudi Arabia. XPeng (XPEV) American depositary receipts (ADRs) rose after the Chinese electric vehicle (EV) maker reported a big rise in revenue as deliveries increased. Peloton (PTON) shares slumped as the fitness equipment and exercise program provider announced plans to begin a global refinancing program of its debt that includes selling convertible senior notes and taking out a $1 billion loan. Shares of restaurant payment services company Toast (TOST) declined as Baird downgraded the stock, suggesting it could be overvalued after soaring more than 40% since the start of the year. Palo Alto Networks (PANW) tumbled after the network security firm issued a lackluster current-quarter and full-year outlook. Oil futures fell and gold prices were down slightly. The yield on the 10-year Treasury note was lower. The U.S. dollar rose versus the euro but lost ground to the pound and yen. Most major cryptocurrencies traded higher, especially Ether, on optimism that an Ether exchange traded fund (ETF) could be approved by the Securities and Exchange Commission. TradingView Do you have a news tip for Investopedia reporters? Please email us at [email protected]
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https://www.investopedia.com/terms/b/bag-holder.asp
Bag Holder Definition and Psychological Analysis
<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-bag-holder"></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 Bag Holder? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A bag holder is an informal term used to describe an investor who holds a position in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp">security</a> that decreases in value until it descends into worthlessness. In most cases, the bag holder stubbornly retains their holding for an extended period, during which time the value of the investment goes to zero. </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 bag holder is slang for an investor who holds onto poorly-performing investments, hoping they will rebound when chances are that they will not.</li><li>There are psychological motivations behind bag-holding behavior: namely, investors tend to fixate on remedying losses, more than they focus on realizing gains.</li><li>Bag holders tend to lose money by being the last owners of a failing investment.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-bag-holders"></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 Bag Holders </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> According to the website Urban Dictionary, the term “bag holder” hails from 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>, where people on soup lines held potato bags filled with their only possessions. Since then, the term has emerged as part of modern-day investment lexicon. A blogger who writes on the subject of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pennystock.asp">penny stock</a> investing once quipped about starting a support group called “Bag Holders Anonymous.” </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 bag holder refers to an investor who symbolically holds a “bag of stock” that has become worthless over time. Suppose an investor purchases 100 shares of a newly public technology start-up. Although the share price preliminarily rises during the <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), it quickly starts dropping after analysts begin questioning the veracity of the <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>. </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"> Subsequent poor <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnings.asp">earnings</a> reports signal that the company is struggling, and the stock price consequently plummets further. An investor who is determined to hang onto the stock, despite this ominous sequence of events, is a bag holder. </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>Bag holders often succumb to the disposition effect or sunk cost fallacy, which causes them to cling to their positions for irrationally long periods.</p></div></div></div> <span class="heading-toc" id="toc-loss-aversion-and-the-disposition-effect"></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"> Loss Aversion and the Disposition Effect </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> There are several reasons why an investor might hold on to underperforming securities. For one, the investor may entirely neglect their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a>, and only be unaware of a stock’s declining value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> It is more likely that an investor will hold onto a position because selling it means acknowledging a poor investment decision in the first place. And then, there is the phenomenon known as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disposition.asp">disposition effect</a>, where investors tend to prematurely sell shares of a security whose price increases, while stubbornly retaining investments that drop in value. Simply stated, investors psychologically hate losing more than they enjoy winning, so they consequently cling to the hope that their losing positions will bounce 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"> This phenomenon relates to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prospecttheory.asp">prospect theory</a>, where individuals make decisions based on perceived gains, rather than perceived losses. This theory is illustrated by the example that people prefer to receive $50, rather than be given $100 and lose half of that amount, even though both cases ultimately net them $50. </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 another example, individuals decline to work overtime hours because they may incur higher <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxes.asp">taxes</a>. Although they eventually stand to gain, the outgoing funds loom larger in their minds. </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-sunk-cost-fallacy"></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"> Sunk Cost Fallacy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sunkcost.asp">sunk cost </a>fallacy is another reason why an investor may become a bag holder. Sunk costs are unrecoverable expenses that have already occurred. </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"> Suppose an investor purchased 100 shares of stock at $10 per share, in a transaction valued at $1,000. If the stock falls to $3 per share, the <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> of the holding is now just $300. Therefore, the $700 loss is considered a sunk cost. Many investors are tempted to wait until the stock slingshots back up to $1,000 to recoup their investment, but the losses have already become a sunk cost and should be considered permanent. </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, many investors hold on to a stock for too long because the drop in value is an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unrealizedloss.asp">unrealized loss</a> that is not reflected in their actual accounting until the sale is complete. This holding on essentially delays the inevitable from happening. </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"> Practically speaking, there are a few ways of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.nasdaq.com/article/how-not-to-be-a-bag-holder-cm807528">determining whether a stock is a likely bag holder candidate</a>. For example, if a company is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cyclicalstock.asp">cyclical</a>, where its share price tends to fluctuate along with disruptions in the economy, then there is a decent chance that riding out rough patches may result in a share price turnaround. </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"> But if a company’s fundamentals are crippled, the share price may never recover. Consequently, a stock’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sector.asp">sector</a> may signal its chances for outperforming, in the long run. </p></div>
## What Is a Bag Holder? A bag holder is an informal term used to describe an investor who holds a position in a [security](https://www.investopedia.com/terms/s/security.asp) that decreases in value until it descends into worthlessness. In most cases, the bag holder stubbornly retains their holding for an extended period, during which time the value of the investment goes to zero. ### Key Takeaways * A bag holder is slang for an investor who holds onto poorly-performing investments, hoping they will rebound when chances are that they will not. * There are psychological motivations behind bag-holding behavior: namely, investors tend to fixate on remedying losses, more than they focus on realizing gains. * Bag holders tend to lose money by being the last owners of a failing investment. ## Understanding Bag Holders According to the website Urban Dictionary, the term “bag holder” hails from the [Great Depression](https://www.investopedia.com/terms/g/great_depression.asp), where people on soup lines held potato bags filled with their only possessions. Since then, the term has emerged as part of modern-day investment lexicon. A blogger who writes on the subject of [penny stock](https://www.investopedia.com/terms/p/pennystock.asp) investing once quipped about starting a support group called “Bag Holders Anonymous.” A bag holder refers to an investor who symbolically holds a “bag of stock” that has become worthless over time. Suppose an investor purchases 100 shares of a newly public technology start-up. Although the share price preliminarily rises during the [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO), it quickly starts dropping after analysts begin questioning the veracity of the [business model](https://www.investopedia.com/terms/b/businessmodel.asp). Subsequent poor [earnings](https://www.investopedia.com/terms/e/earnings.asp) reports signal that the company is struggling, and the stock price consequently plummets further. An investor who is determined to hang onto the stock, despite this ominous sequence of events, is a bag holder. ### Bag holders often succumb to the disposition effect or sunk cost fallacy, which causes them to cling to their positions for irrationally long periods. ## Loss Aversion and the Disposition Effect There are several reasons why an investor might hold on to underperforming securities. For one, the investor may entirely neglect their [portfolio](https://www.investopedia.com/terms/p/portfolio.asp), and only be unaware of a stock’s declining value. It is more likely that an investor will hold onto a position because selling it means acknowledging a poor investment decision in the first place. And then, there is the phenomenon known as the [disposition effect](https://www.investopedia.com/terms/d/disposition.asp), where investors tend to prematurely sell shares of a security whose price increases, while stubbornly retaining investments that drop in value. Simply stated, investors psychologically hate losing more than they enjoy winning, so they consequently cling to the hope that their losing positions will bounce back. This phenomenon relates to the [prospect theory](https://www.investopedia.com/terms/p/prospecttheory.asp), where individuals make decisions based on perceived gains, rather than perceived losses. This theory is illustrated by the example that people prefer to receive $50, rather than be given $100 and lose half of that amount, even though both cases ultimately net them $50. In another example, individuals decline to work overtime hours because they may incur higher [taxes](https://www.investopedia.com/terms/t/taxes.asp). Although they eventually stand to gain, the outgoing funds loom larger in their minds. ## Sunk Cost Fallacy The [sunk cost](https://www.investopedia.com/terms/s/sunkcost.asp)fallacy is another reason why an investor may become a bag holder. Sunk costs are unrecoverable expenses that have already occurred. Suppose an investor purchased 100 shares of stock at $10 per share, in a transaction valued at $1,000. If the stock falls to $3 per share, the [market value](https://www.investopedia.com/terms/m/marketvalue.asp) of the holding is now just $300. Therefore, the $700 loss is considered a sunk cost. Many investors are tempted to wait until the stock slingshots back up to $1,000 to recoup their investment, but the losses have already become a sunk cost and should be considered permanent. Finally, many investors hold on to a stock for too long because the drop in value is an [unrealized loss](https://www.investopedia.com/terms/u/unrealizedloss.asp) that is not reflected in their actual accounting until the sale is complete. This holding on essentially delays the inevitable from happening. ## Special Considerations Practically speaking, there are a few ways of [determining whether a stock is a likely bag holder candidate](https://www.nasdaq.com/article/how-not-to-be-a-bag-holder-cm807528). For example, if a company is [cyclical](https://www.investopedia.com/terms/c/cyclicalstock.asp), where its share price tends to fluctuate along with disruptions in the economy, then there is a decent chance that riding out rough patches may result in a share price turnaround. But if a company’s fundamentals are crippled, the share price may never recover. Consequently, a stock’s [sector](https://www.investopedia.com/terms/s/sector.asp) may signal its chances for outperforming, in the long run.
What Is a Bag Holder? A bag holder is an informal term used to describe an investor who holds a position in a security that decreases in value until it descends into worthlessness. In most cases, the bag holder stubbornly retains their holding for an extended period, during which time the value of the investment goes to zero. Key Takeaways A bag holder is slang for an investor who holds onto poorly-performing investments, hoping they will rebound when chances are that they will not.There are psychological motivations behind bag-holding behavior: namely, investors tend to fixate on remedying losses, more than they focus on realizing gains.Bag holders tend to lose money by being the last owners of a failing investment. Understanding Bag Holders According to the website Urban Dictionary, the term “bag holder” hails from the Great Depression, where people on soup lines held potato bags filled with their only possessions. Since then, the term has emerged as part of modern-day investment lexicon. A blogger who writes on the subject of penny stock investing once quipped about starting a support group called “Bag Holders Anonymous.” A bag holder refers to an investor who symbolically holds a “bag of stock” that has become worthless over time. Suppose an investor purchases 100 shares of a newly public technology start-up. Although the share price preliminarily rises during the initial public offering (IPO), it quickly starts dropping after analysts begin questioning the veracity of the business model. Subsequent poor earnings reports signal that the company is struggling, and the stock price consequently plummets further. An investor who is determined to hang onto the stock, despite this ominous sequence of events, is a bag holder. Bag holders often succumb to the disposition effect or sunk cost fallacy, which causes them to cling to their positions for irrationally long periods. Loss Aversion and the Disposition Effect There are several reasons why an investor might hold on to underperforming securities. For one, the investor may entirely neglect their portfolio, and only be unaware of a stock’s declining value. It is more likely that an investor will hold onto a position because selling it means acknowledging a poor investment decision in the first place. And then, there is the phenomenon known as the disposition effect, where investors tend to prematurely sell shares of a security whose price increases, while stubbornly retaining investments that drop in value. Simply stated, investors psychologically hate losing more than they enjoy winning, so they consequently cling to the hope that their losing positions will bounce back. This phenomenon relates to the prospect theory, where individuals make decisions based on perceived gains, rather than perceived losses. This theory is illustrated by the example that people prefer to receive $50, rather than be given $100 and lose half of that amount, even though both cases ultimately net them $50. In another example, individuals decline to work overtime hours because they may incur higher taxes. Although they eventually stand to gain, the outgoing funds loom larger in their minds. Sunk Cost Fallacy The sunk cost fallacy is another reason why an investor may become a bag holder. Sunk costs are unrecoverable expenses that have already occurred. Suppose an investor purchased 100 shares of stock at $10 per share, in a transaction valued at $1,000. If the stock falls to $3 per share, the market value of the holding is now just $300. Therefore, the $700 loss is considered a sunk cost. Many investors are tempted to wait until the stock slingshots back up to $1,000 to recoup their investment, but the losses have already become a sunk cost and should be considered permanent. Finally, many investors hold on to a stock for too long because the drop in value is an unrealized loss that is not reflected in their actual accounting until the sale is complete. This holding on essentially delays the inevitable from happening. Special Considerations Practically speaking, there are a few ways of determining whether a stock is a likely bag holder candidate. For example, if a company is cyclical, where its share price tends to fluctuate along with disruptions in the economy, then there is a decent chance that riding out rough patches may result in a share price turnaround. But if a company’s fundamentals are crippled, the share price may never recover. Consequently, a stock’s sector may signal its chances for outperforming, in the long run.
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https://www.investopedia.com/terms/m/municipal-bond-arbitrage.asp
Municipal Bond Arbitrage: 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-municipal-bond-arbitrage"></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 Municipal Bond Arbitrage? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Municipal bond arbitrage refers to the strategy that an investor deploys where they leverage the tax-exempt status of <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> to hedge their portfolio's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/duration.asp">duration</a> risk. </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>Municipal bond arbitrage refers to the strategy that an investor deploys where they leverage the tax-exempt status of municipal bonds to hedge their portfolio's duration risk.</li><li>Municipal bond arbitrage involves hedging a portfolio of tax-exempt municipal bonds by simultaneously shorting equivalent taxable corporate bonds of the same maturity.</li><li>Municipal bond arbitrage strategies can be an especially attractive option for some investors in high-income tax brackets.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-municipal-bond-arbitrage"></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 Municipal Bond Arbitrage </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Municipal bond arbitrage involves hedging a portfolio of tax-exempt municipal bonds by simultaneously <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/short.asp">shorting</a> equivalent taxable corporate bonds of the same maturity. Municipal bond arbitrage is also commonly referred to as municipal bond relative value arbitrage, municipal arbitrage or just "muni-arb". </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"> Duration risk is the risk that an investor, especially a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondholder.asp">bondholder</a>, faces from changes in interest rates that may negatively affect the market value of their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedincome.asp">fixed-income</a> investments. The municipal bond arbitrage strategy aims to minimize credit and duration risk by using municipal bonds and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrateswap.asp">interest rate swaps</a> of similar quality and maturity. The implicit assumption in this method is the municipal bonds, and interest rate swaps will continue to have a close correlation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Since interest payments from municipal bonds are exempt from federal income tax, an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arbitrageur.asp">arbitrageur</a> can receive after-tax income from the municipal bond portfolio which is higher than the interest paid on the interest rate swap. This strategy can be an especially attractive option for some investors in high-income tax brackets. Arbitrage opportunities are often considered low-risk because they generally involve very little or no negative cash flow. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> For example, municipal bondholders will often purchase a portfolio of tax-exempt, high-quality municipal bonds. At the same time, they will sell a collection of equivalent taxable corporate bonds to profit from the tax rate. Positive, tax-free returns from municipal bond arbitrage can reach into the double digits. </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"> Calculating municipal bond arbitrage requires numerous complex factors and computations. Computations include determining the actual <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yield.asp">yield</a> on a municipal bond issue and calculating the true allowable earnings using this actual yield. The investor would then use <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futurevalue.asp">future value</a> calculations on the difference between the investment earnings receipt date and the computation date. </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-municipal-bond-arbitrage-compliance"></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"> Municipal Bond Arbitrage Compliance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Tax-exempt municipal bond issuers are subject to strict federal arbitrage compliance rules as a condition of issuance requirements, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond-covenant.asp">bond covenants</a>. Any computed profits, which are called rebates, must be paid to the federal government. Federal arbitrage rules are designed to prevent issuers of tax-exempt bond debt from obtaining excessive or premature debt and therefore profiting from the investment of bond proceeds in income-generating investments. </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"> Federal income tax laws limit the ability to earn arbitrage in connection with tax-exempt bonds or other federally tax-advantaged bonds. Arbitrage must be carefully calculated and documented to comply with a potential IRS arbitrage rebate exam. Profits must be reported on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.irs.gov/pub/irs-pdf/f8038t.pdf">IRS Form 8038-T</a> and must be filed at least once every five years. Failure to comply with these requirements may result in financial penalties or the loss of the bonds’ tax-exempt status. </p></div>
## What is Municipal Bond Arbitrage? Municipal bond arbitrage refers to the strategy that an investor deploys where they leverage the tax-exempt status of [municipal bonds](https://www.investopedia.com/terms/m/municipalbond.asp) to hedge their portfolio's [duration](https://www.investopedia.com/terms/d/duration.asp) risk. ### Key Takeaways * Municipal bond arbitrage refers to the strategy that an investor deploys where they leverage the tax-exempt status of municipal bonds to hedge their portfolio's duration risk. * Municipal bond arbitrage involves hedging a portfolio of tax-exempt municipal bonds by simultaneously shorting equivalent taxable corporate bonds of the same maturity. * Municipal bond arbitrage strategies can be an especially attractive option for some investors in high-income tax brackets. ## Understanding Municipal Bond Arbitrage Municipal bond arbitrage involves hedging a portfolio of tax-exempt municipal bonds by simultaneously [shorting](https://www.investopedia.com/terms/s/short.asp) equivalent taxable corporate bonds of the same maturity. Municipal bond arbitrage is also commonly referred to as municipal bond relative value arbitrage, municipal arbitrage or just "muni-arb". Duration risk is the risk that an investor, especially a [bondholder](https://www.investopedia.com/terms/b/bondholder.asp), faces from changes in interest rates that may negatively affect the market value of their [fixed-income](https://www.investopedia.com/terms/f/fixedincome.asp) investments. The municipal bond arbitrage strategy aims to minimize credit and duration risk by using municipal bonds and [interest rate swaps](https://www.investopedia.com/terms/i/interestrateswap.asp) of similar quality and maturity. The implicit assumption in this method is the municipal bonds, and interest rate swaps will continue to have a close correlation. Since interest payments from municipal bonds are exempt from federal income tax, an [arbitrageur](https://www.investopedia.com/terms/a/arbitrageur.asp) can receive after-tax income from the municipal bond portfolio which is higher than the interest paid on the interest rate swap. This strategy can be an especially attractive option for some investors in high-income tax brackets. Arbitrage opportunities are often considered low-risk because they generally involve very little or no negative cash flow. For example, municipal bondholders will often purchase a portfolio of tax-exempt, high-quality municipal bonds. At the same time, they will sell a collection of equivalent taxable corporate bonds to profit from the tax rate. Positive, tax-free returns from municipal bond arbitrage can reach into the double digits. Calculating municipal bond arbitrage requires numerous complex factors and computations. Computations include determining the actual [yield](https://www.investopedia.com/terms/y/yield.asp) on a municipal bond issue and calculating the true allowable earnings using this actual yield. The investor would then use [future value](https://www.investopedia.com/terms/f/futurevalue.asp) calculations on the difference between the investment earnings receipt date and the computation date. ## Municipal Bond Arbitrage Compliance Tax-exempt municipal bond issuers are subject to strict federal arbitrage compliance rules as a condition of issuance requirements, such as [bond covenants](https://www.investopedia.com/terms/b/bond-covenant.asp). Any computed profits, which are called rebates, must be paid to the federal government. Federal arbitrage rules are designed to prevent issuers of tax-exempt bond debt from obtaining excessive or premature debt and therefore profiting from the investment of bond proceeds in income-generating investments. Federal income tax laws limit the ability to earn arbitrage in connection with tax-exempt bonds or other federally tax-advantaged bonds. Arbitrage must be carefully calculated and documented to comply with a potential IRS arbitrage rebate exam. Profits must be reported on [IRS Form 8038-T](https://www.irs.gov/pub/irs-pdf/f8038t.pdf) and must be filed at least once every five years. Failure to comply with these requirements may result in financial penalties or the loss of the bonds’ tax-exempt status.
What is Municipal Bond Arbitrage? Municipal bond arbitrage refers to the strategy that an investor deploys where they leverage the tax-exempt status of municipal bonds to hedge their portfolio's duration risk. Key Takeaways Municipal bond arbitrage refers to the strategy that an investor deploys where they leverage the tax-exempt status of municipal bonds to hedge their portfolio's duration risk.Municipal bond arbitrage involves hedging a portfolio of tax-exempt municipal bonds by simultaneously shorting equivalent taxable corporate bonds of the same maturity.Municipal bond arbitrage strategies can be an especially attractive option for some investors in high-income tax brackets. Understanding Municipal Bond Arbitrage Municipal bond arbitrage involves hedging a portfolio of tax-exempt municipal bonds by simultaneously shorting equivalent taxable corporate bonds of the same maturity. Municipal bond arbitrage is also commonly referred to as municipal bond relative value arbitrage, municipal arbitrage or just "muni-arb". Duration risk is the risk that an investor, especially a bondholder, faces from changes in interest rates that may negatively affect the market value of their fixed-income investments. The municipal bond arbitrage strategy aims to minimize credit and duration risk by using municipal bonds and interest rate swaps of similar quality and maturity. The implicit assumption in this method is the municipal bonds, and interest rate swaps will continue to have a close correlation. Since interest payments from municipal bonds are exempt from federal income tax, an arbitrageur can receive after-tax income from the municipal bond portfolio which is higher than the interest paid on the interest rate swap. This strategy can be an especially attractive option for some investors in high-income tax brackets. Arbitrage opportunities are often considered low-risk because they generally involve very little or no negative cash flow. For example, municipal bondholders will often purchase a portfolio of tax-exempt, high-quality municipal bonds. At the same time, they will sell a collection of equivalent taxable corporate bonds to profit from the tax rate. Positive, tax-free returns from municipal bond arbitrage can reach into the double digits. Calculating municipal bond arbitrage requires numerous complex factors and computations. Computations include determining the actual yield on a municipal bond issue and calculating the true allowable earnings using this actual yield. The investor would then use future value calculations on the difference between the investment earnings receipt date and the computation date. Municipal Bond Arbitrage Compliance Tax-exempt municipal bond issuers are subject to strict federal arbitrage compliance rules as a condition of issuance requirements, such as bond covenants. Any computed profits, which are called rebates, must be paid to the federal government. Federal arbitrage rules are designed to prevent issuers of tax-exempt bond debt from obtaining excessive or premature debt and therefore profiting from the investment of bond proceeds in income-generating investments. Federal income tax laws limit the ability to earn arbitrage in connection with tax-exempt bonds or other federally tax-advantaged bonds. Arbitrage must be carefully calculated and documented to comply with a potential IRS arbitrage rebate exam. Profits must be reported on IRS Form 8038-T and must be filed at least once every five years. Failure to comply with these requirements may result in financial penalties or the loss of the bonds’ tax-exempt status.
[ [ "municipal bonds", "https://www.investopedia.com/terms/m/municipalbond.asp" ], [ "duration", "https://www.investopedia.com/terms/d/duration.asp" ], [ "shorting", "https://www.investopedia.com/terms/s/short.asp" ], [ "bondholder", "https://www.investopedia.com/terms/b/bondholder.asp" ], [ "fixed-income", "https://www.investopedia.com/terms/f/fixedincome.asp" ], [ "interest rate swaps", "https://www.investopedia.com/terms/i/interestrateswap.asp" ], [ "arbitrageur", "https://www.investopedia.com/terms/a/arbitrageur.asp" ], [ "yield", "https://www.investopedia.com/terms/y/yield.asp" ], [ "future value", "https://www.investopedia.com/terms/f/futurevalue.asp" ], [ "bond covenants", "https://www.investopedia.com/terms/b/bond-covenant.asp" ], [ "IRS Form 8038-T", "https://www.irs.gov/pub/irs-pdf/f8038t.pdf" ] ]
https://www.investopedia.com/best-rewards-checking-accounts-5069834
Best Rewards Checking Accounts of 2024
<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content list-sc" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <svg class="mntl-svg-resource is-hidden"> <defs> <symbol id="featured-partners__info-svg"><svg fill="none" height="13" width="12" xmlns="http://www.w3.org/2000/svg"><path d="M5.5 9h1V6h-1v3zM6 1.5c-2.76 0-5 2.24-5 5s2.24 5 5 5 5-2.24 5-5-2.24-5-5-5zm0 9c-2.205 0-4-1.795-4-4s1.795-4 4-4 4 1.795 4 4-1.795 4-4 4zM5.5 5h1V4h-1v1z" fill="#000" fill-opacity=".95" fill-rule="evenodd"></path></svg></symbol> <symbol id="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"> If you prefer using debit cards over credit cards, you may find yourself suffering rewards envy, given the constant parade of ads and offers for cash back and travel reward credit cards. But earning points, miles, and cash back on your purchases doesn't have to mean buying on credit. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/checkingaccount.asp">Checking accounts</a> with cash-back <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitcard.asp">debit cards</a> do exist. You just have to look for them. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-1"> In the credit card industry, "rewards" is used to indicate a monetary bonus given on qualified purchases with the card. These rewards typically consist of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cash-back.asp">cash back</a>, airline miles, hotel points, and other travel bonuses. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-2"> It's also important to understand and remember the specific rules and requirements of your checking account so you can maximize potential rewards. Violate any of the requirements and you may find yourself surprised by having no cash back at the end of the month. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-3"> Below you'll find the top checking account rates available from our partners, followed by our complete ranking of the best rewards checking accounts nationwide. </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 Rewards Checking Accounts 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 Low Balances:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://discoverdeposit.sjv.io/c/328256/1741472/12559?subId1=links" rel="nofollow noskim noopener nocaes" target="_blank"> Discover Cashback Debit</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 Those With Direct Deposit:</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.lendingclub.com/personal-checking/rewards-checking" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> LendingClub Rewards Checking</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 Heavy Debit Users:</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.axosbank.com/Personal/Checking/Cashback-Checking" rel="nofollow noskim noopener sponsored nocaes" target="_blank"> Axos Bank CashBack Checking</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 mntl-sc-block--ma-rate-table--finance-mma mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block" id="mntl-sc-block_2-0"> <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 --> </div><!-- end: comp mntl-sc-block--ma-rate-table--finance-mma mntl-sc-block prm-sc-block-tool mntl-sc-block-tool 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 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mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-Best Rewards Checking Accounts of 2024" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_1-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_2-0"> Best Rewards Checking Accounts of 2024</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_1-0"> <li class="comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item" id="toc__listsc-item_1-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" href="#summary-list" rel="nocaes"> <span class="link__wrapper">Our Top Picks</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc__list-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Discover Cashback Debit" 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-Discover Cashback Debit" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-low-balances-discover-cashback-debit" rel="nocaes"> <span class="link__wrapper">Discover Cashback Debit</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-LendingClub Rewards Checking" 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-LendingClub Rewards Checking" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-those-with-direct-deposit-lendingclub-rewards-checking" rel="nocaes"> <span class="link__wrapper">LendingClub Rewards Checking</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-Axos Bank CashBack Checking" 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-Axos Bank CashBack Checking" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-best-for-heavy-debit-users-axos-bank-cashback-checking" rel="nocaes"> <span class="link__wrapper">Axos Bank CashBack Checking</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 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-Pros and Cons" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pros-and-cons-of-rewards-checking-accounts" id="mntl-toc__list-item-link_1-0-1" rel="nocaes"><span class="link__wrapper">Pros and Cons</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-Alternatives" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-alternatives-to-rewards-checking-accounts" id="mntl-toc__list-item-link_1-0-2" rel="nocaes"><span class="link__wrapper">Alternatives</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-3"> <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-FAQs" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-faqs-c9559cbd-d288-4ca6-b2f7-bb197e4df812" id="mntl-toc__list-item-link_1-0-3" rel="nocaes"><span class="link__wrapper">FAQs</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_1-0-4" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc--finance product-roundup__toc sticky-toc--finance-roundup sticky-toc--roundup sticky-toc--base mntl-sticky-toc mntl-block --> </div> <div class="loc article-body__inner article-body__inner"> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0"> <span class="heading-toc" id="toc-best-for-low-balances-discover-cashback-debit"></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 Low Balances</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Discover Cashback Debit</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 mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Discover" 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/Hpmu194UwEsP-IJIkGlac0eVCR4=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Discover-79d68b0251bc497f9eb164b9ea1048c8.jpg" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Discover" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/Hpmu194UwEsP-IJIkGlac0eVCR4=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Discover-79d68b0251bc497f9eb164b9ea1048c8.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> Discover</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"> <div class="comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="true" data-link-closest-header="false" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Button" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_3-0-1"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-type="other" data-tracking-container="true" href="https://discoverdeposit.sjv.io/c/328256/1741472/12559?subId1=links" id="button_1-0" 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> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-2"> Like its popular credit card, Discover's cash rewards checking account is similarly focused on a no-fee promise and an easy way to earn rewards. It's a good choice for those who sometimes carry a low balance and whose monthly debit spending falls below $3,000. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-3"> <li><strong>Cash back formula: </strong>1% on all debit card purchases up to monthly limit. See website for details.</li><li><strong>Limits or restrictions: </strong>Rewards paid only on the first $3,000 of debit purchases each month (i.e., maximum cash back is $30 per month).</li><li><strong>Minimum balance: </strong>No minimum</li><li><strong>Features: </strong>An extensive network of over 60,000 ATMs nationwide, free checks, mobile check deposit, online bill pay, and the ability to freeze debit card.</li><li><strong>Monthly Maintenance Fee: </strong>None<span class="ql-inline-citation" data-cite="6"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_3-0-4"> <iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp lazyload mntl-sc-block-iframe__uri mntl-block" data-src="https://datawrapper.dwcdn.net/GuX8B/3/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Capital One Announces Agreement to Acquire Discover Financial Services"></iframe><!-- end: comp lazyload mntl-sc-block-iframe__uri mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block --> </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-those-with-direct-deposit-lendingclub-rewards-checking"></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 Those With Direct Deposit</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> LendingClub Rewards Checking</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_3-0-5" style="--imgWidth: 0px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="LendingClub" 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/eEGVC7_OrsKVeweS1Cudf4mrV4A=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/lending-club-1b239967668f472f9a89b22c0f89e411.png" data-tracking-container="false" height="750" id="mntl-sc-block-image_1-0-1" width="1500"/> <noscript> <img alt="LendingClub" class="img--noscript universal-image__image" height="750" src="https://www.investopedia.com/thmb/eEGVC7_OrsKVeweS1Cudf4mrV4A=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/lending-club-1b239967668f472f9a89b22c0f89e411.png" 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>LendingClub</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"> <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_3-0-6"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-1"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-click-action="OffPageClick - External" data-retailer-type="other" data-tracking-container="true" href="https://www.lendingclub.com/personal-checking/rewards-checking" id="button_1-0-1" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Learn More</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div> </div> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-7"> LendingClub is ideal for those who receive at least $2,500 in direct deposits each month (or are able to keep their balance above that level at all times). </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-8"> <li><strong>Cash back formula: </strong>1% on all qualifying debit card purchases</li> <li><strong>Limits or restrictions: </strong>LendingClub places no limit on how much cash back can be earned in a month. However, rewards are only paid in months when a) the account's monthly average balance was $2,500 or more, or b) at least $2,500 in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/directdeposit.asp">direct deposits</a> was received.<span class="ql-inline-citation" data-cite="7"></span></li> <li><strong>Minimum balance: </strong>No minimum balance, but there's no cash back if the above requirements are not met.</li> <li><strong>Features: </strong>Unlimited ATM fee refunds worldwide, early direct deposit, free first order of checks, mobile check deposit, online bill pay, and interest paid on your balance.</li> <li><strong>Monthly Maintenance Fee: </strong>None<span class="ql-inline-citation" data-cite="8"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-2"> <span class="heading-toc" id="toc-best-for-heavy-debit-users-axos-bank-cashback-checking"></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 Heavy Debit Users</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary"> Axos Bank CashBack Checking</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-2"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-2"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-2"> <div class="tabbed-sc-block-intro"> <figure class="comp mntl-sc-block-image figure-3x2 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res" data-click-action="OffPageNavClick" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Logo" id="mntl-sc-block_3-0-9" style="--imgWidth: 595px"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Axos Bank" class="lazyload universal-image__image" data-click-action="Null" data-click-tracked="true" data-expand="300" data-img-lightbox="false" data-src="https://www.investopedia.com/thmb/8FvdzKtoePYXsJdYgc7xPzYvsRE=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Axos_Bank-dde4751b954e49ceae7c9db1f70f52ae.jpg" data-tracking-container="false" height="1000" id="mntl-sc-block-image_1-0-2" width="1500"/> <noscript> <img alt="Axos Bank" class="img--noscript universal-image__image" height="1000" src="https://www.investopedia.com/thmb/8FvdzKtoePYXsJdYgc7xPzYvsRE=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Axos_Bank-dde4751b954e49ceae7c9db1f70f52ae.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> Axos Bank</p></span> </figcaption><!-- end: comp figure-caption mntl-figure-caption figure-article-caption --> </figure><!-- end: comp mntl-sc-block-image figure-3x2 upscaleImg mntl-sc-block prm-sc-block-image mntl-sc-block-universal-image figure-landscape figure-high-res --> <div class="tabbed-sc-block-intro__content"> <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_3-0-10"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-2"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-click-action="OffPageClick - External" data-retailer-type="other" data-tracking-container="true" href="https://www.axosbank.com/Personal/Checking/Cashback-Checking" 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> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-11"> Axos offers several attractive accounts including cash back and interest checking options as well as a savings account option that offers a rate higher than the national rates. With its generous cap on rewards, the cash back checking is a great choice for those who do all or most of their monthly spending with a debit card. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-12"> <li><strong>Cash back formula: </strong>1% on debit card purchases that require a signature</li><li><strong>Limits or restrictions: </strong>Rewards paid only on signature-based debit purchases, but the rewards limit is set at a lofty $2,000 maximum cash back per month.</li><li><strong>Minimum balance: </strong>$1,500 minimum daily balance in order to earn 1% cash back each month. If balance falls below $1,500, the cash back percentage drops to 0.5%.</li><li><strong>Features: </strong>Unlimited ATM fee reimbursement in the U.S., mobile check deposit, and online bill pay.</li><li><strong>Monthly Maintenance Fee: </strong>None<span class="ql-inline-citation" data-cite="9"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> </div> <div class="article-outro article-container"> <div class="comp mntl-sc-page--commerce structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block" id="article-outro__content_1-0"> <span class="heading-toc" id="toc-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"> Rewards for purchases are not limited to credit cards. Banks sometimes offer rewards programs for using debit cards tied to their checking accounts. Each of the banks in our list—Discover, LendingClub, and Axos—offer 1% on debit card purchases and no monthly maintenance fees. Each bank has different terms, however. LendingClub is a good choice for those who can afford the high balance required and want no cap on how much cash back can be earned. Discover has no such balance requirements, but it caps monthly rewards at $30. Axos has a higher cap—$2,000 monthly—but it also has a minimum balance that must be maintained to earn the full 1%. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-pros-and-cons-of-rewards-checking-accounts"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-2"> <span class="mntl-sc-block-heading__text"> Pros and Cons of Rewards Checking Accounts </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_4-0-3"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Rewards for debit card purchases</p></li> <li><p>Minimal fees</p></li> <li><p>May earn interest</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>Rates are typically lower than savings accounts</p></li> <li><p>Minimum balance requirements may apply</p></li> <li><p>Rewards caps may apply</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <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"> Pros Explained </span> </h3><!-- end: comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-5"> <li><strong>Rewards for debit card purchases:</strong> While <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-cards-4801582">rewards credit cards</a> are common, rewards debit cards are relatively rare. But there are still quite a few options for earning cash back or points with a rewards checking account. </li> <li><strong>Minimal fees:</strong> Many checking accounts have no monthly maintenance fees and other perks like ATM fee reimbursement. Compare options before opening a new account to ensure fees are minimal. </li> <li><strong>May earn interest:</strong> Certain rewards checking accounts may also earn interest, and while interest rates may be relatively low, they can still help boost your balance. </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_4-0-6"> <span class="mntl-sc-block-subheading__text"> Cons Explained </span> </h3><!-- end: comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-7"> <li><strong>Rates are typically lower than savings accounts:</strong> While you might earn interest with a rewards checking account, chances are your rate will be lower than you’d get with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings account</a>. If you’re looking for the highest possible APY and don’t plan to use the account for daily spending, a savings account (or a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">CD</a>) could be a better choice. </li> <li><strong>Minimum balance requirements may apply:</strong> Certain rewards checking accounts may come with fairly high minimum balance requirements. If you don’t meet the requirement, fees may apply. </li> <li><strong>Rewards caps may apply:</strong> Reward amounts may be capped in some cases. For instance, you may only be able to earn rewards on up to $2,000 in debit card spending per month. </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-alternatives-to-rewards-checking-accounts"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-8"> <span class="mntl-sc-block-heading__text"> Alternatives to Rewards Checking Accounts </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_4-0-9"> <span class="mntl-sc-block-subheading__text"> Money Market Account </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_4-0-10"> <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> combine features of savings and checking accounts. They often have relatively high APYs and come with debit cards and check-writing privileges, so you can use them for everyday spending. But monthly transaction limits may apply.   </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_4-0-11"> <span class="mntl-sc-block-subheading__text"> High-Yield Savings Account </span> </h3><!-- end: comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-12"> If you don’t plan to use your account for day-to-day spending, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings account</a> could be a great option. These accounts offer generous rates, often above 5%.<span class="ql-inline-citation" data-cite="10"></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_4-0-13"> <span class="mntl-sc-block-subheading__text"> Check-Cashing Service </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"> If you prefer not to open a new deposit account, a check-cashing service is another option. These services may offer cash in exchange for your checks, or provide you with a reloadable debit card to which you can add a balance. Check-cashing services often charge fees, which could be fairly high depending on the company you choose.  </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_4-0-15"> <span class="mntl-sc-block-subheading__text"> Reloadable Debit Card </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_4-0-16"> Reloadable or prepaid debit cards may be issued by a check-cashing service or as a standalone product. As their name suggests, you can reload the balance at a designated location or online and then use your card for daily spending. Be aware that you’ll generally pay fees to reload your debit card, depending on the reload method, and various other fees apply as well. See our picks for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-prepaid-debit-cards-5071798">best prepaid debit cards for</a> some good options. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-whatyouneedtoknow 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_4-0-17"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p><strong>In the News:</strong> The Fed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952">held rates steady for a sixth consecutive time</a> at its meeting ending on May 1. This 5.25% to 5.50% range is the highest it has been since 2001, and Fed officials noted in a statement that there has been a lack of recent progress toward the committee's goal of lowering inflation. Consumer prices rose 3.5% over the year in March. Officials don't foresee reducing the target range until they are confident inflation is moving toward 2%.<span class="ql-inline-citation" data-cite="13"></span><span class="ql-inline-citation" data-cite="12"></span></p> <p>Interest rate hikes and cuts may not impact your rewards checking account, but they could impact your savings account. If you don't have one already, it's wise to see if the bank you're using for your rewards checking account offers a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings account</a>. You could also see if it offers one of the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> right now. Combined, these accounts could help you earn the maximum amount of money on the cash you keep at your financial institution.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-whatyouneedtoknow mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <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_4-0-18"> <span class="heading-toc" id="toc-faqs-c9559cbd-d288-4ca6-b2f7-bb197e4df812"></span> <h2 class="comp mntl-sc-block-faq__title mntl-text-block" id="mntl-sc-block-faq__title_1-0"> Frequently Asked Questions</h2><!-- end: comp mntl-sc-block-faq__title mntl-text-block --> <ul class="comp mntl-sc-block-faq__content mntl-accordion" id="mntl-sc-block-faq__content_1-0"> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-0" tabindex="-1"> <h3 class="accordion__title">What Is a Rewards Checking Account?</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>Rewards checking accounts are normal checking accounts that reward you every time you make purchases or payments with your debit card. You earn cash back on all the purchases you make with your debit card. In exchange for these benefits, many rewards checking accounts charge you a monthly fee. This fee might easily outweigh the benefits you’ll receive if you make a lot of purchases with your debit card.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-1" tabindex="-1"> <h3 class="accordion__title">How Does a Cash Back Checking Account Work?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-1"> <div class="faq-accordion__item-answer"> <p>A cash back checking account allows you to accumulate cash rewards for every purchase you make with your debit card. Every time you use your debit card, a certain percentage of that transaction generates a cash reward that you receive at a later date—typically the next month. Unlike a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-cards-4801582">rewards credit card</a>, there are no additional charges associated with a cash back checking account. Your account is debited automatically for the purchase or payment price, which means you don’t have to worry about interest, late charges, or other fees in the future.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-2" tabindex="-1"> <h3 class="accordion__title">What Is APY?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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>APY stands for <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</a>. This is the real rate of return that is earned on financial accounts where you hold money for long periods of time, such as savings or investment accounts. Rewards checking accounts typically have a very low, or no, APY because they are checking accounts. But remember, the upside is that you get the cash back bonus as a benefit. The rewards cash can pay you back a lot more over time if you use your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitcard.asp">debit card</a> frequently compared to the normal APY on a checking account.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-3" tabindex="-1"> <h3 class="accordion__title">How Much Can I Earn With a Checking Account?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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>You typically don’t earn very much money just by keeping your cash in a checking account. If that’s your goal, consider opening a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savingsaccount.asp">savings account</a> or a more active investment account. If you have a rewards checking account, though, you could earn up to 1% of all your debit card purchases, depending on the bank and account you choose. Keep in mind, though, that some banks cap the amount you can earn to the first $3,000 you spend each month or require you to maintain a specific balance to get rewards.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-4" tabindex="-1"> <h3 class="accordion__title">How Do I Apply for a Rewards Checking Account?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-4"> <div class="faq-accordion__item-answer"> <p>You can usually apply for a rewards checking account online. You’ll need to provide some basic personal information, such as your name, Social Security number or individual tax identification number, email, and address. If approved, you may need to transfer money into the new account to meet any initial <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/minimum_deposit.asp">minimum deposit requirements</a>, usually within a specified period; otherwise, the account will be closed. </p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-5" tabindex="-1"> <h3 class="accordion__title">Can You Get Rewards From a Checking Account?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-5"> <div class="faq-accordion__item-answer"> <p>Yes, certain checking accounts offer rewards, usually in the form of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-cash-back-debit-cards-work-7112690">cash back or points from debit card purchases</a>. If you’re interested in debit card rewards, compare what different banks offer to find a high-value rewards structure that fits your spending. </p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-6" tabindex="-1"> <h3 class="accordion__title">Are Checking Account Rewards Taxable?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-6"> <div class="faq-accordion__item-answer"> <p>Like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/110614/are-credit-card-rewards-considered-taxable-income-irs.asp">cash back and points earned from credit cards</a>, debit card rewards are not usually considered taxable. Instead, they’re generally considered to be rebates or discounts.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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-7" tabindex="-1"> <h3 class="accordion__title">What Banks Have Rewards Programs?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-7"> <div class="faq-accordion__item-answer"> <p>Many banks have debit card rewards programs, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.discover.com/online-banking/checking-account/" rel="sponsored nofollow">Discover</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.lendingclub.com/personal-checking/rewards-checking" rel="sponsored nofollow">LendingClub</a>, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.axosbank.com/Personal/Checking/Cashback-Checking" rel="sponsored nofollow">Axos Bank</a>. Note that rewards programs are subject to change, and offerings may be different over time.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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_4-0-19"> <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_4-0-20"> We looked at nearly two dozen of the best rewards checking accounts nationwide and narrowed the list down to our top four accounts and our top four banks. We evaluated all the accounts on factors such as the total payout reward, how easy it is to earn the reward, whether you’re capped on the number of purchases that earn the reward, what the monthly fees are if applicable, what additional features the accounts have, along with any minimum balances or deposit requirements associated with each account. The limits and restrictions were an important piece to the puzzle in deciding which rewards checking might be best for you.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp mntl-sc-page--commerce structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block --> </div> <figure class="comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image" id="primary-image--roundup_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Best Rewards Checking Accounts" class="primary-image__image mntl-primary-image--blurry" height="1414" onload="(function(e){e.classList.add('loaded')})(this)" sizes="750px" src="https://www.investopedia.com/thmb/Wb4uMICa_tJLlwoyhjcgFrdyL7Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1136841275-951227056cf641238e8f2a43bf78dba0.jpg" srcset="https://www.investopedia.com/thmb/OTMK1XeMiO-x6b2I60zrHdjDFlM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1136841275-951227056cf641238e8f2a43bf78dba0.jpg 750w" style="--blurry: url('data:image/gif;charset=utf-8;base64,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')" width="2121"/> <noscript> <img alt="Best Rewards Checking Accounts" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="1414" sizes="750px" src="https://www.investopedia.com/thmb/Wb4uMICa_tJLlwoyhjcgFrdyL7Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1136841275-951227056cf641238e8f2a43bf78dba0.jpg" srcset="https://www.investopedia.com/thmb/OTMK1XeMiO-x6b2I60zrHdjDFlM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1136841275-951227056cf641238e8f2a43bf78dba0.jpg 750w" width="2121"/> </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>SolStock / Getty Images</p></span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image --> </div> </div> </div><!-- end: comp product-roundup-content--finance product-roundup--base product-roundup--base --> </div> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-6"><p>Discover. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.discover.com/online-banking/checking-account/" rel="nofollow sponsored">Checking Account</a>."</p></li> <li class="mntl-sources__source" id="citation-7"><p>LendingClub. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.lendingclub.com/personal-checking/rewards-checking" rel="nofollow sponsored">Rewards Checking</a>," Click "How Do I Earn Cash Back?"</p></li> <li class="mntl-sources__source" id="citation-8"><p>Lending Club. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.lendingclub.com/personal-checking/rewards-checking" rel="nofollow sponsored">Rewards Checking</a>."</p></li> <li class="mntl-sources__source" id="citation-9"><p>Axos Bank. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.axosbank.com/Personal/Checking/Cashback-Checking" rel="nofollow sponsored">CashBack Checking Account</a>."</p></li> <li class="mntl-sources__source" id="citation-10"><p>Federal Deposit Insurance Corporation. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.fdic.gov/resources/bankers/national-rates/index.html">National Rates and Caps</a>.”</p></li> <li class="mntl-sources__source" id="citation-13"><p>Bureau of Labor Statistics. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.bls.gov/news.release/cpi.nr0.htm">Consumer Price Index</a>."</p></li> <li class="mntl-sources__source" id="citation-12"><p>Federal Reserve. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20240501a.htm">Federal Reserve Issues FOMC Statement</a>."</p></li> </ol> </div> </div></div> <div class="comp prm-recirc related-recirc-section--articles mntl-block" data-tracking-container="true" id="prm-recirc_1-0"><section class="comp related-articles" data-tracking-container="true" id="related-articles_1-0"> <span class="related-articles__header type--camel"> Related Articles </span> <div class="loc recirc-content"><div class="comp related-articles__card-list-1 card-list--related-articles mntl-document-card-list mntl-card-list mntl-block" data-chunk="36" id="related-articles__card-list-1_1-0"><a class="comp mntl-card-list-items mntl-document-card mntl-card related-articles__link card" data-cta="Read Now ▸" data-doc-id="8644041" data-ordinal="1" data-tax-levels="" 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But these accounts usually come with stringent requirements.</div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/high-yield-checking-account-8610476" id="related-terms__read-more_1-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div> <div class="comp related-terms__list mntl-block" id="related-terms__list_2-0"><div class="comp relates-terms__content mntl-block" id="relates-terms__content_2-0"><a class="related-terms__title mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/c/checkingaccount.asp" id="related-terms__title_2-0" rel="nocaes"><span class="link__wrapper">What Is a Checking Account? Here's Everything You Need To Know</span></a> <div class="comp related-terms__description mntl-text-block" id="related-terms__description_2-0">A checking account is an account held at a financial institution that allows deposits and withdrawals. Learn how checking accounts work and how to get one.</div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/c/checkingaccount.asp" id="related-terms__read-more_2-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div> <div class="comp related-terms__list mntl-block" id="related-terms__list_3-0"><div class="comp relates-terms__content mntl-block" id="relates-terms__content_3-0"><a class="related-terms__title mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/what-is-a-student-bank-account-7643916" id="related-terms__title_3-0" rel="nocaes"><span class="link__wrapper">What Is a Student Bank Account?</span></a> <div class="comp related-terms__description mntl-text-block" id="related-terms__description_3-0">Student bank accounts are accounts designed for teens and young adults. Learn about the features of a typical student bank account and how to compare them. </div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/what-is-a-student-bank-account-7643916" id="related-terms__read-more_3-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div> <div class="comp related-terms__list mntl-block" id="related-terms__list_4-0"><div class="comp relates-terms__content mntl-block" id="relates-terms__content_4-0"><a class="related-terms__title mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/d/debitcard.asp" id="related-terms__title_4-0" rel="nocaes"><span class="link__wrapper">Debit Card Definition, Fees, and How They Work</span></a> <div class="comp related-terms__description mntl-text-block" id="related-terms__description_4-0">A debit card lets you pay for purchases by deducting money from your checking account. Learn how debit cards work, about their fees, and pros and cons.</div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/d/debitcard.asp" id="related-terms__read-more_4-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div> <div class="comp related-terms__list mntl-block" id="related-terms__list_5-0"><div class="comp relates-terms__content mntl-block" id="relates-terms__content_5-0"><a class="related-terms__title mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/c/cash-back.asp" id="related-terms__title_5-0" rel="nocaes"><span class="link__wrapper">What Is Cash Back? Hint: It's Not Free Money</span></a> <div class="comp related-terms__description mntl-text-block" id="related-terms__description_5-0">Cash back refers to a credit card that refunds a small percentage of money spent on purchases. You can also sign up through cash-back sites and apps.</div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/c/cash-back.asp" id="related-terms__read-more_5-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div> <div class="comp related-terms__list mntl-block" id="related-terms__list_6-0"><div class="comp relates-terms__content mntl-block" id="relates-terms__content_6-0"><a class="related-terms__title mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/d/discover-card.asp" id="related-terms__title_6-0" rel="nocaes"><span class="link__wrapper">Discover Card: History of the Credit Card, Perks, FAQs</span></a> <div class="comp related-terms__description mntl-text-block" id="related-terms__description_6-0">A Discover card is a credit card brand that is issued by the American financial services company, Discover Financial (DFS).</div> <a class="related-terms__read-more mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/terms/d/discover-card.asp" id="related-terms__read-more_6-0" rel="nocaes"><span class="link__wrapper">more</span></a></div></div></div></div> </div></div>
If you prefer using debit cards over credit cards, you may find yourself suffering rewards envy, given the constant parade of ads and offers for cash back and travel reward credit cards. But earning points, miles, and cash back on your purchases doesn't have to mean buying on credit. [Checking accounts](https://www.investopedia.com/terms/c/checkingaccount.asp) with cash-back [debit cards](https://www.investopedia.com/terms/d/debitcard.asp) do exist. You just have to look for them. In the credit card industry, "rewards" is used to indicate a monetary bonus given on qualified purchases with the card. These rewards typically consist of [cash back](https://www.investopedia.com/terms/c/cash-back.asp), airline miles, hotel points, and other travel bonuses. It's also important to understand and remember the specific rules and requirements of your checking account so you can maximize potential rewards. Violate any of the requirements and you may find yourself surprised by having no cash back at the end of the month. Below you'll find the top checking account rates available from our partners, followed by our complete ranking of the best rewards checking accounts nationwide. ## Best Rewards Checking Accounts of 2024 * **Best for Low Balances:** [Discover Cashback Debit](https://discoverdeposit.sjv.io/c/328256/1741472/12559?subId1=links) * **Best for Those With Direct Deposit:** [LendingClub Rewards Checking](https://www.lendingclub.com/personal-checking/rewards-checking) * **Best for Heavy Debit Users:** [Axos Bank CashBack Checking](https://www.axosbank.com/Personal/Checking/Cashback-Checking) Best Rewards Checking Accounts of 2024 Expand Best Rewards Checking Accounts of 2024 * [Our Top Picks](#summary-list) * [Discover Cashback Debit](#toc-best-for-low-balances-discover-cashback-debit) * [LendingClub Rewards Checking](#toc-best-for-those-with-direct-deposit-lendingclub-rewards-checking) * [Axos Bank CashBack Checking](#toc-best-for-heavy-debit-users-axos-bank-cashback-checking) * [Final Verdict](#toc-final-verdict) * [Pros and Cons](#toc-pros-and-cons-of-rewards-checking-accounts) * [Alternatives](#toc-alternatives-to-rewards-checking-accounts) * [FAQs](#toc-faqs-c9559cbd-d288-4ca6-b2f7-bb197e4df812) * [Methodology](#toc-methodology) ### Best for Low Balances : Discover Cashback Debit --- ![Discover]() ![Discover](https://www.investopedia.com/thmb/Hpmu194UwEsP-IJIkGlac0eVCR4=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Discover-79d68b0251bc497f9eb164b9ea1048c8.jpg)  Discover [Learn More](https://discoverdeposit.sjv.io/c/328256/1741472/12559?subId1=links) Like its popular credit card, Discover's cash rewards checking account is similarly focused on a no-fee promise and an easy way to earn rewards. It's a good choice for those who sometimes carry a low balance and whose monthly debit spending falls below $3,000. * **Cash back formula:** 1% on all debit card purchases up to monthly limit. See website for details. * **Limits or restrictions:** Rewards paid only on the first $3,000 of debit purchases each month (i.e., maximum cash back is $30 per month). * **Minimum balance:** No minimum * **Features:** An extensive network of over 60,000 ATMs nationwide, free checks, mobile check deposit, online bill pay, and the ability to freeze debit card. * **Monthly Maintenance Fee:** None ### Best for Those With Direct Deposit : LendingClub Rewards Checking --- ![LendingClub]() ![LendingClub](https://www.investopedia.com/thmb/eEGVC7_OrsKVeweS1Cudf4mrV4A=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/lending-club-1b239967668f472f9a89b22c0f89e411.png) LendingClub [Learn More](https://www.lendingclub.com/personal-checking/rewards-checking) LendingClub is ideal for those who receive at least $2,500 in direct deposits each month (or are able to keep their balance above that level at all times). * **Cash back formula:** 1% on all qualifying debit card purchases * **Limits or restrictions:** LendingClub places no limit on how much cash back can be earned in a month. However, rewards are only paid in months when a) the account's monthly average balance was $2,500 or more, or b) at least $2,500 in [direct deposits](https://www.investopedia.com/terms/d/directdeposit.asp) was received. * **Minimum balance:** No minimum balance, but there's no cash back if the above requirements are not met. * **Features:** Unlimited ATM fee refunds worldwide, early direct deposit, free first order of checks, mobile check deposit, online bill pay, and interest paid on your balance. * **Monthly Maintenance Fee:** None ### Best for Heavy Debit Users : Axos Bank CashBack Checking --- ![Axos Bank]() ![Axos Bank](https://www.investopedia.com/thmb/8FvdzKtoePYXsJdYgc7xPzYvsRE=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Axos_Bank-dde4751b954e49ceae7c9db1f70f52ae.jpg)  Axos Bank [Learn More](https://www.axosbank.com/Personal/Checking/Cashback-Checking) Axos offers several attractive accounts including cash back and interest checking options as well as a savings account option that offers a rate higher than the national rates. With its generous cap on rewards, the cash back checking is a great choice for those who do all or most of their monthly spending with a debit card. * **Cash back formula:** 1% on debit card purchases that require a signature * **Limits or restrictions:** Rewards paid only on signature-based debit purchases, but the rewards limit is set at a lofty $2,000 maximum cash back per month. * **Minimum balance:** $1,500 minimum daily balance in order to earn 1% cash back each month. If balance falls below $1,500, the cash back percentage drops to 0.5%. * **Features:** Unlimited ATM fee reimbursement in the U.S., mobile check deposit, and online bill pay. * **Monthly Maintenance Fee:** None ## Final Verdict Rewards for purchases are not limited to credit cards. Banks sometimes offer rewards programs for using debit cards tied to their checking accounts. Each of the banks in our list—Discover, LendingClub, and Axos—offer 1% on debit card purchases and no monthly maintenance fees. Each bank has different terms, however. LendingClub is a good choice for those who can afford the high balance required and want no cap on how much cash back can be earned. Discover has no such balance requirements, but it caps monthly rewards at $30. Axos has a higher cap—$2,000 monthly—but it also has a minimum balance that must be maintained to earn the full 1%. ## Pros and Cons of Rewards Checking Accounts Pros * Rewards for debit card purchases * Minimal fees * May earn interest Cons * Rates are typically lower than savings accounts * Minimum balance requirements may apply * Rewards caps may apply ### Pros Explained * **Rewards for debit card purchases:** While [rewards credit cards](https://www.investopedia.com/best-credit-cards-4801582) are common, rewards debit cards are relatively rare. But there are still quite a few options for earning cash back or points with a rewards checking account. * **Minimal fees:** Many checking accounts have no monthly maintenance fees and other perks like ATM fee reimbursement. Compare options before opening a new account to ensure fees are minimal. * **May earn interest:** Certain rewards checking accounts may also earn interest, and while interest rates may be relatively low, they can still help boost your balance. ### Cons Explained * **Rates are typically lower than savings accounts:** While you might earn interest with a rewards checking account, chances are your rate will be lower than you’d get with a [high-yield savings account](https://www.investopedia.com/best-high-yield-savings-accounts-4770633). If you’re looking for the highest possible APY and don’t plan to use the account for daily spending, a savings account (or a [CD](https://www.investopedia.com/best-cd-rates-4770214)) could be a better choice. * **Minimum balance requirements may apply:** Certain rewards checking accounts may come with fairly high minimum balance requirements. If you don’t meet the requirement, fees may apply. * **Rewards caps may apply:** Reward amounts may be capped in some cases. For instance, you may only be able to earn rewards on up to $2,000 in debit card spending per month. ## Alternatives to Rewards Checking Accounts ### Money Market Account [Money market accounts (MMAs)](https://www.investopedia.com/best-money-market-accounts-5096917) combine features of savings and checking accounts. They often have relatively high APYs and come with debit cards and check-writing privileges, so you can use them for everyday spending. But monthly transaction limits may apply.   ### High-Yield Savings Account If you don’t plan to use your account for day-to-day spending, a [high-yield savings account](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) could be a great option. These accounts offer generous rates, often above 5%. ### Check-Cashing Service If you prefer not to open a new deposit account, a check-cashing service is another option. These services may offer cash in exchange for your checks, or provide you with a reloadable debit card to which you can add a balance. Check-cashing services often charge fees, which could be fairly high depending on the company you choose.  ### Reloadable Debit Card Reloadable or prepaid debit cards may be issued by a check-cashing service or as a standalone product. As their name suggests, you can reload the balance at a designated location or online and then use your card for daily spending. Be aware that you’ll generally pay fees to reload your debit card, depending on the reload method, and various other fees apply as well. See our picks for the [best prepaid debit cards for](https://www.investopedia.com/best-prepaid-debit-cards-5071798) some good options. **In the News:** The Fed [held rates steady for a sixth consecutive time](https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952) at its meeting ending on May 1. This 5.25% to 5.50% range is the highest it has been since 2001, and Fed officials noted in a statement that there has been a lack of recent progress toward the committee's goal of lowering inflation. Consumer prices rose 3.5% over the year in March. Officials don't foresee reducing the target range until they are confident inflation is moving toward 2%. Interest rate hikes and cuts may not impact your rewards checking account, but they could impact your savings account. If you don't have one already, it's wise to see if the bank you're using for your rewards checking account offers a [high-yield savings account](https://www.investopedia.com/best-high-yield-savings-accounts-4770633). You could also see if it offers one of the [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) right now. Combined, these accounts could help you earn the maximum amount of money on the cash you keep at your financial institution. ## Frequently Asked Questions * ### What Is a Rewards Checking Account? Rewards checking accounts are normal checking accounts that reward you every time you make purchases or payments with your debit card. You earn cash back on all the purchases you make with your debit card. In exchange for these benefits, many rewards checking accounts charge you a monthly fee. This fee might easily outweigh the benefits you’ll receive if you make a lot of purchases with your debit card. * ### How Does a Cash Back Checking Account Work? A cash back checking account allows you to accumulate cash rewards for every purchase you make with your debit card. Every time you use your debit card, a certain percentage of that transaction generates a cash reward that you receive at a later date—typically the next month. Unlike a [rewards credit card](https://www.investopedia.com/best-credit-cards-4801582), there are no additional charges associated with a cash back checking account. Your account is debited automatically for the purchase or payment price, which means you don’t have to worry about interest, late charges, or other fees in the future. * ### What Is APY? APY stands for [annual percentage yield](https://www.investopedia.com/terms/a/apy.asp). This is the real rate of return that is earned on financial accounts where you hold money for long periods of time, such as savings or investment accounts. Rewards checking accounts typically have a very low, or no, APY because they are checking accounts. But remember, the upside is that you get the cash back bonus as a benefit. The rewards cash can pay you back a lot more over time if you use your [debit card](https://www.investopedia.com/terms/d/debitcard.asp) frequently compared to the normal APY on a checking account. * ### How Much Can I Earn With a Checking Account? You typically don’t earn very much money just by keeping your cash in a checking account. If that’s your goal, consider opening a [savings account](https://www.investopedia.com/terms/s/savingsaccount.asp) or a more active investment account. If you have a rewards checking account, though, you could earn up to 1% of all your debit card purchases, depending on the bank and account you choose. Keep in mind, though, that some banks cap the amount you can earn to the first $3,000 you spend each month or require you to maintain a specific balance to get rewards. * ### How Do I Apply for a Rewards Checking Account? You can usually apply for a rewards checking account online. You’ll need to provide some basic personal information, such as your name, Social Security number or individual tax identification number, email, and address. If approved, you may need to transfer money into the new account to meet any initial [minimum deposit requirements](https://www.investopedia.com/terms/m/minimum_deposit.asp), usually within a specified period; otherwise, the account will be closed. * ### Can You Get Rewards From a Checking Account? Yes, certain checking accounts offer rewards, usually in the form of [cash back or points from debit card purchases](https://www.investopedia.com/how-cash-back-debit-cards-work-7112690). If you’re interested in debit card rewards, compare what different banks offer to find a high-value rewards structure that fits your spending. * ### Are Checking Account Rewards Taxable? Like [cash back and points earned from credit cards](https://www.investopedia.com/ask/answers/110614/are-credit-card-rewards-considered-taxable-income-irs.asp), debit card rewards are not usually considered taxable. Instead, they’re generally considered to be rebates or discounts. * ### What Banks Have Rewards Programs? Many banks have debit card rewards programs, including [Discover](https://www.discover.com/online-banking/checking-account/), [LendingClub](https://www.lendingclub.com/personal-checking/rewards-checking), and [Axos Bank](https://www.axosbank.com/Personal/Checking/Cashback-Checking). Note that rewards programs are subject to change, and offerings may be different over time. ## Methodology We looked at nearly two dozen of the best rewards checking accounts nationwide and narrowed the list down to our top four accounts and our top four banks. We evaluated all the accounts on factors such as the total payout reward, how easy it is to earn the reward, whether you’re capped on the number of purchases that earn the reward, what the monthly fees are if applicable, what additional features the accounts have, along with any minimum balances or deposit requirements associated with each account. The limits and restrictions were an important piece to the puzzle in deciding which rewards checking might be best for you.  ![Best Rewards Checking Accounts](https://www.investopedia.com/thmb/Wb4uMICa_tJLlwoyhjcgFrdyL7Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1136841275-951227056cf641238e8f2a43bf78dba0.jpg) ![Best Rewards Checking Accounts](https://www.investopedia.com/thmb/Wb4uMICa_tJLlwoyhjcgFrdyL7Y=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1136841275-951227056cf641238e8f2a43bf78dba0.jpg) SolStock / 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. Discover. "[Checking Account](https://www.discover.com/online-banking/checking-account/)." 2. LendingClub. "[Rewards Checking](https://www.lendingclub.com/personal-checking/rewards-checking)," Click "How Do I Earn Cash Back?" 3. Lending Club. "[Rewards Checking](https://www.lendingclub.com/personal-checking/rewards-checking)." 4. Axos Bank. "[CashBack Checking Account](https://www.axosbank.com/Personal/Checking/Cashback-Checking)." 5. Federal Deposit Insurance Corporation. “[National Rates and Caps](https://www.fdic.gov/resources/bankers/national-rates/index.html).” 6. Bureau of Labor Statistics. "[Consumer Price Index](https://www.bls.gov/news.release/cpi.nr0.htm)." 7. Federal Reserve. "[Federal Reserve Issues FOMC Statement](https://www.federalreserve.gov/newsevents/pressreleases/monetary20240501a.htm)." 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But these accounts usually come with stringent requirements. [more](https://www.investopedia.com/high-yield-checking-account-8610476) [What Is a Checking Account? Here's Everything You Need To Know](https://www.investopedia.com/terms/c/checkingaccount.asp) A checking account is an account held at a financial institution that allows deposits and withdrawals. Learn how checking accounts work and how to get one. [more](https://www.investopedia.com/terms/c/checkingaccount.asp) [What Is a Student Bank Account?](https://www.investopedia.com/what-is-a-student-bank-account-7643916) Student bank accounts are accounts designed for teens and young adults. Learn about the features of a typical student bank account and how to compare them. [more](https://www.investopedia.com/what-is-a-student-bank-account-7643916) [Debit Card Definition, Fees, and How They Work](https://www.investopedia.com/terms/d/debitcard.asp) A debit card lets you pay for purchases by deducting money from your checking account. Learn how debit cards work, about their fees, and pros and cons. [more](https://www.investopedia.com/terms/d/debitcard.asp) [What Is Cash Back? Hint: It's Not Free Money](https://www.investopedia.com/terms/c/cash-back.asp) Cash back refers to a credit card that refunds a small percentage of money spent on purchases. You can also sign up through cash-back sites and apps. [more](https://www.investopedia.com/terms/c/cash-back.asp) [Discover Card: History of the Credit Card, Perks, FAQs](https://www.investopedia.com/terms/d/discover-card.asp) A Discover card is a credit card brand that is issued by the American financial services company, Discover Financial (DFS). [more](https://www.investopedia.com/terms/d/discover-card.asp)
If you prefer using debit cards over credit cards, you may find yourself suffering rewards envy, given the constant parade of ads and offers for cash back and travel reward credit cards. But earning points, miles, and cash back on your purchases doesn't have to mean buying on credit. Checking accounts with cash-back debit cards do exist. You just have to look for them. In the credit card industry, "rewards" is used to indicate a monetary bonus given on qualified purchases with the card. These rewards typically consist of cash back, airline miles, hotel points, and other travel bonuses. It's also important to understand and remember the specific rules and requirements of your checking account so you can maximize potential rewards. Violate any of the requirements and you may find yourself surprised by having no cash back at the end of the month. Below you'll find the top checking account rates available from our partners, followed by our complete ranking of the best rewards checking accounts nationwide. Best Rewards Checking Accounts of 2024 Best for Low Balances: Discover Cashback Debit Best for Those With Direct Deposit: LendingClub Rewards Checking Best for Heavy Debit Users: Axos Bank CashBack Checking Best Rewards Checking Accounts of 2024 Expand Best Rewards Checking Accounts of 2024 Our Top Picks Discover Cashback Debit LendingClub Rewards Checking Axos Bank CashBack Checking Final Verdict Pros and Cons Alternatives FAQs Methodology Best for Low Balances : Discover Cashback Debit  Discover Learn More Like its popular credit card, Discover's cash rewards checking account is similarly focused on a no-fee promise and an easy way to earn rewards. It's a good choice for those who sometimes carry a low balance and whose monthly debit spending falls below $3,000. Cash back formula: 1% on all debit card purchases up to monthly limit. See website for details.Limits or restrictions: Rewards paid only on the first $3,000 of debit purchases each month (i.e., maximum cash back is $30 per month).Minimum balance: No minimumFeatures: An extensive network of over 60,000 ATMs nationwide, free checks, mobile check deposit, online bill pay, and the ability to freeze debit card.Monthly Maintenance Fee: None Best for Those With Direct Deposit : LendingClub Rewards Checking LendingClub Learn More LendingClub is ideal for those who receive at least $2,500 in direct deposits each month (or are able to keep their balance above that level at all times). Cash back formula: 1% on all qualifying debit card purchases Limits or restrictions: LendingClub places no limit on how much cash back can be earned in a month. However, rewards are only paid in months when a) the account's monthly average balance was $2,500 or more, or b) at least $2,500 in direct deposits was received. Minimum balance: No minimum balance, but there's no cash back if the above requirements are not met. Features: Unlimited ATM fee refunds worldwide, early direct deposit, free first order of checks, mobile check deposit, online bill pay, and interest paid on your balance. Monthly Maintenance Fee: None Best for Heavy Debit Users : Axos Bank CashBack Checking  Axos Bank Learn More Axos offers several attractive accounts including cash back and interest checking options as well as a savings account option that offers a rate higher than the national rates. With its generous cap on rewards, the cash back checking is a great choice for those who do all or most of their monthly spending with a debit card. Cash back formula: 1% on debit card purchases that require a signatureLimits or restrictions: Rewards paid only on signature-based debit purchases, but the rewards limit is set at a lofty $2,000 maximum cash back per month.Minimum balance: $1,500 minimum daily balance in order to earn 1% cash back each month. If balance falls below $1,500, the cash back percentage drops to 0.5%.Features: Unlimited ATM fee reimbursement in the U.S., mobile check deposit, and online bill pay.Monthly Maintenance Fee: None Final Verdict Rewards for purchases are not limited to credit cards. Banks sometimes offer rewards programs for using debit cards tied to their checking accounts. Each of the banks in our list—Discover, LendingClub, and Axos—offer 1% on debit card purchases and no monthly maintenance fees. Each bank has different terms, however. LendingClub is a good choice for those who can afford the high balance required and want no cap on how much cash back can be earned. Discover has no such balance requirements, but it caps monthly rewards at $30. Axos has a higher cap—$2,000 monthly—but it also has a minimum balance that must be maintained to earn the full 1%. Pros and Cons of Rewards Checking Accounts Pros Rewards for debit card purchases Minimal fees May earn interest Cons Rates are typically lower than savings accounts Minimum balance requirements may apply Rewards caps may apply Pros Explained Rewards for debit card purchases: While rewards credit cards are common, rewards debit cards are relatively rare. But there are still quite a few options for earning cash back or points with a rewards checking account.  Minimal fees: Many checking accounts have no monthly maintenance fees and other perks like ATM fee reimbursement. Compare options before opening a new account to ensure fees are minimal.  May earn interest: Certain rewards checking accounts may also earn interest, and while interest rates may be relatively low, they can still help boost your balance.  Cons Explained Rates are typically lower than savings accounts: While you might earn interest with a rewards checking account, chances are your rate will be lower than you’d get with a high-yield savings account. If you’re looking for the highest possible APY and don’t plan to use the account for daily spending, a savings account (or a CD) could be a better choice.  Minimum balance requirements may apply: Certain rewards checking accounts may come with fairly high minimum balance requirements. If you don’t meet the requirement, fees may apply.  Rewards caps may apply: Reward amounts may be capped in some cases. For instance, you may only be able to earn rewards on up to $2,000 in debit card spending per month.  Alternatives to Rewards Checking Accounts Money Market Account Money market accounts (MMAs) combine features of savings and checking accounts. They often have relatively high APYs and come with debit cards and check-writing privileges, so you can use them for everyday spending. But monthly transaction limits may apply.   High-Yield Savings Account If you don’t plan to use your account for day-to-day spending, a high-yield savings account could be a great option. These accounts offer generous rates, often above 5%. Check-Cashing Service If you prefer not to open a new deposit account, a check-cashing service is another option. These services may offer cash in exchange for your checks, or provide you with a reloadable debit card to which you can add a balance. Check-cashing services often charge fees, which could be fairly high depending on the company you choose.  Reloadable Debit Card Reloadable or prepaid debit cards may be issued by a check-cashing service or as a standalone product. As their name suggests, you can reload the balance at a designated location or online and then use your card for daily spending. Be aware that you’ll generally pay fees to reload your debit card, depending on the reload method, and various other fees apply as well. See our picks for the best prepaid debit cards for some good options. In the News: The Fed held rates steady for a sixth consecutive time at its meeting ending on May 1. This 5.25% to 5.50% range is the highest it has been since 2001, and Fed officials noted in a statement that there has been a lack of recent progress toward the committee's goal of lowering inflation. Consumer prices rose 3.5% over the year in March. Officials don't foresee reducing the target range until they are confident inflation is moving toward 2%. Interest rate hikes and cuts may not impact your rewards checking account, but they could impact your savings account. If you don't have one already, it's wise to see if the bank you're using for your rewards checking account offers a high-yield savings account. You could also see if it offers one of the best CD rates right now. Combined, these accounts could help you earn the maximum amount of money on the cash you keep at your financial institution. Frequently Asked Questions What Is a Rewards Checking Account? Rewards checking accounts are normal checking accounts that reward you every time you make purchases or payments with your debit card. You earn cash back on all the purchases you make with your debit card. In exchange for these benefits, many rewards checking accounts charge you a monthly fee. This fee might easily outweigh the benefits you’ll receive if you make a lot of purchases with your debit card. How Does a Cash Back Checking Account Work? A cash back checking account allows you to accumulate cash rewards for every purchase you make with your debit card. Every time you use your debit card, a certain percentage of that transaction generates a cash reward that you receive at a later date—typically the next month. Unlike a rewards credit card, there are no additional charges associated with a cash back checking account. Your account is debited automatically for the purchase or payment price, which means you don’t have to worry about interest, late charges, or other fees in the future. What Is APY? APY stands for annual percentage yield. This is the real rate of return that is earned on financial accounts where you hold money for long periods of time, such as savings or investment accounts. Rewards checking accounts typically have a very low, or no, APY because they are checking accounts. But remember, the upside is that you get the cash back bonus as a benefit. The rewards cash can pay you back a lot more over time if you use your debit card frequently compared to the normal APY on a checking account. How Much Can I Earn With a Checking Account? You typically don’t earn very much money just by keeping your cash in a checking account. If that’s your goal, consider opening a savings account or a more active investment account. If you have a rewards checking account, though, you could earn up to 1% of all your debit card purchases, depending on the bank and account you choose. Keep in mind, though, that some banks cap the amount you can earn to the first $3,000 you spend each month or require you to maintain a specific balance to get rewards. How Do I Apply for a Rewards Checking Account? You can usually apply for a rewards checking account online. You’ll need to provide some basic personal information, such as your name, Social Security number or individual tax identification number, email, and address. If approved, you may need to transfer money into the new account to meet any initial minimum deposit requirements, usually within a specified period; otherwise, the account will be closed.  Can You Get Rewards From a Checking Account? Yes, certain checking accounts offer rewards, usually in the form of cash back or points from debit card purchases. If you’re interested in debit card rewards, compare what different banks offer to find a high-value rewards structure that fits your spending.  Are Checking Account Rewards Taxable? Like cash back and points earned from credit cards, debit card rewards are not usually considered taxable. Instead, they’re generally considered to be rebates or discounts. What Banks Have Rewards Programs? Many banks have debit card rewards programs, including Discover, LendingClub, and Axos Bank. Note that rewards programs are subject to change, and offerings may be different over time. Methodology We looked at nearly two dozen of the best rewards checking accounts nationwide and narrowed the list down to our top four accounts and our top four banks. We evaluated all the accounts on factors such as the total payout reward, how easy it is to earn the reward, whether you’re capped on the number of purchases that earn the reward, what the monthly fees are if applicable, what additional features the accounts have, along with any minimum balances or deposit requirements associated with each account. The limits and restrictions were an important piece to the puzzle in deciding which rewards checking might be best for you.  SolStock / 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. Discover. "Checking Account." LendingClub. "Rewards Checking," Click "How Do I Earn Cash Back?" Lending Club. "Rewards Checking." Axos Bank. "CashBack Checking Account." Federal Deposit Insurance Corporation. “National Rates and Caps.” Bureau of Labor Statistics. "Consumer Price Index." Federal Reserve. "Federal Reserve Issues FOMC Statement." Related Articles Regions Bank Review 2024 Best Checking Accounts With No ATM Fees Best Joint Checking Accounts for 2024 LendingClub Banking Review Best High-Interest Checking Accounts for May 2024—Up to 6.25% KeyBank Review 2024 Related Terms What Is a High-Yield Checking Account? A high-yield checking account provides interest at an above-average rate, in some cases above 5% or 6% APY. But these accounts usually come with stringent requirements. more What Is a Checking Account? Here's Everything You Need To Know A checking account is an account held at a financial institution that allows deposits and withdrawals. Learn how checking accounts work and how to get one. more What Is a Student Bank Account? Student bank accounts are accounts designed for teens and young adults. Learn about the features of a typical student bank account and how to compare them. more Debit Card Definition, Fees, and How They Work A debit card lets you pay for purchases by deducting money from your checking account. Learn how debit cards work, about their fees, and pros and cons. more What Is Cash Back? Hint: It's Not Free Money Cash back refers to a credit card that refunds a small percentage of money spent on purchases. You can also sign up through cash-back sites and apps. more Discover Card: History of the Credit Card, Perks, FAQs A Discover card is a credit card brand that is issued by the American financial services company, Discover Financial (DFS). more
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